<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SIGNAL PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 8731 94-3174286
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C> <C>
DELAWARE
(AFTER REINCORPORATION)
(STATE OR JURISDICTION
OF INCORPORATION OR
ORGANIZATION)
</TABLE>
5555 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 558-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN J. LEWIS, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5555 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 558-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
FREDERICK T. MUTO, ESQ. FAYE H. RUSSELL, ESQ
JANE K. ADAMS, ESQ. RYAN S. HONG, ESQ.
DENISE L. WOOLARD, ESQ. KANDACE W. RICHARDSON, ESQ.
COOLEY GODWARD LLP BROBECK, PHLEGER & HARRISON LLP
4365 EXECUTIVE DRIVE, SUITE 1100 550 WEST C STREET, SUITE 1300
SAN DIEGO, CA 92121 SAN DIEGO, CA 92101
(858) 550-6000 (619) 234-1966
</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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share..................... $80,500,000 $21,252
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated for the purpose of calculating the amount of the registration fee
in accordance with Rule 457(o) under the Securities Act of 1933. Includes
$10.5 million of shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
------------------------
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 2000
[SIGNAL LOGO]
SHARES
COMMON STOCK
Signal Pharmaceuticals, Inc. is offering shares of its
common stock. This is our initial public offering, and no public market
currently exists for our shares. We have applied to have our common stock
approved for quotation on the Nasdaq National Market under the symbol "SGNL." We
anticipate that the initial public offering price will be between $ and
$ per share.
As part of our collaboration agreement with DuPont Pharmaceuticals Company,
DuPont Pharmaceuticals has agreed to purchase $2.0 million of our common stock
in a private transaction concurrent with the closing of this offering at the
initial public offering price.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Signal Pharmaceuticals, Inc. ................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
CHASE H&Q
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
[INSIDE FRONT COVER ARTWORK]
DEVELOPING DRUGS
TO REALIZE THE THERAPEUTIC POTENTIAL OF GENOMICS
The ability to turn thousands of gene targets into drugs requires knowledge
of which genes cause diseases and how to design drugs that selectively regulate
these disease genes.
[Graphic depicting the gene regulating target and drug discovery programs of
Signal. The graphic is divided into columns indicating the stage of research or
development for each of Signal's current drug targets, drug leads and drug
candidates. The right side of the graphic lists the disease areas targeted by
Signal: cancer, inflammation, bone metabolism, cardiovascular disease,
neurological disease and viral infections.]
Our engine is an integrated set of advanced target and drug discovery
technologies which accelerate the application of genomics to the discovery of
new gene regulating drugs. Using our drug discovery engine, we have generated a
large pipeline of novel gene regulating drug targets, drug leads and drug
candidates.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF COMMON STOCK. IN THIS PROSPECTUS,
"SIGNAL," "SIGNAL PHARMACEUTICALS," "WE," "US" AND "OUR" REFER TO SIGNAL
PHARMACEUTICALS, INC.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 18
Use of Proceeds............................................. 18
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 26
Management.................................................. 52
Certain Transactions........................................ 61
Principal Stockholders...................................... 62
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Where You Can Find More Information......................... 70
Legal Matters............................................... 71
Experts..................................................... 71
Index to Financial Statements............................... F-1
</TABLE>
------------------------------
Signal Pharmaceuticals(TM), PhaRMA(TM) and the Signal Pharmaceuticals
stylized logo are trademarks of Signal Pharmaceuticals. This prospectus also
includes trademarks owned by other parties. All other trademarks mentioned are
the property of their respective owners.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE> 5
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the financial statements and notes, before deciding to invest
in shares of our common stock.
OUR BUSINESS
OVERVIEW
Signal Pharmaceuticals is a biopharmaceutical company focused on
discovering, developing and commercializing new classes of small molecule drugs
that regulate genes associated with disease. We believe our approach can convert
the enormous amount of valuable information coming from genomics initiatives
into new classes of superior drugs. We have advanced the application of genomics
beyond identifying genes to understanding the role of genes in disease and how
these genes are regulated. This allows us to design novel classes of drugs that
selectively regulate genes that cause disease. Our powerful drug discovery
engine enables us to identify and pursue numerous gene regulating drug targets
across multiple diseases and to rapidly identify drugs for development. We
believe our approach will yield drugs that treat the underlying causes of a
disease, unlike many current drugs which only relieve the symptoms of a disease.
Our efforts are focused in several major disease areas in which abnormal gene
regulation plays an important role in the onset and progression of disease.
These disease areas represent large commercial markets, including cancer,
inflammatory disease, osteoporosis, cardiovascular disease, neurological disease
and viral infections.
OUR DRUG DISCOVERY ENGINE
We have developed and integrated a large set of advanced target and drug
discovery technologies to accelerate the application of genomics to the
discovery of important new classes of gene regulating drugs. We first map gene
regulating pathways, which are networks of proteins inside cells that relay
information to activate or suppress genes. We next select specific gene
regulating proteins, or gene switches, within these pathways that control one or
more genes that result in disease. We then generate novel drugs that regulate
these gene switches. We believe our discovery and development capabilities
provide us and our collaborators with a highly advanced and competitive
technology platform for target and drug discovery. This drug discovery engine
consists of:
- Advanced cellular, molecular and genomic technologies that we use to
discover clinically important drug targets.
- Proprietary automated biochemical and cell-based drug discovery systems,
known as high throughput screening assays, and diverse libraries of
compounds that we use to rapidly identify small molecule compounds that
are active against multiple drug targets.
- Our SKIL library, a large and proprietary collection of compounds having
attractive drug-like properties and designed to selectively inhibit novel
classes of gene switches.
- Proprietary three-dimensional models of drug targets, combined with
advanced chemistry technologies, to efficiently generate potent and
selective small molecule compounds, or drug leads, and to move these
forward as drug candidates into preclinical evaluation and clinical
development.
We believe these integrated target and drug discovery capabilities enable
us to proceed rapidly from target identification to the screening and
optimization of drug candidates. To protect our discoveries, we pursue patent
exclusivity for our drug targets, drug leads and related drug candidates. We own
or have
1
<PAGE> 6
exclusive licenses to 38 issued United States and foreign patents and 87 pending
United States and foreign patents.
OUR ACCOMPLISHMENTS
Our drug discovery engine has enabled us to build a large and diverse
portfolio of gene regulating drug targets, drug leads and drug candidates. To
date, together with our collaborators, we have:
- advanced drug discovery programs in six major disease areas;
- explored and mapped 10 gene regulating pathways to identify the crucial
gene switches that control disease;
- identified 27 drug targets that we believe to be important in disease;
- assembled a screening library of more than 300,000 distinct small
molecule compounds and natural products;
- developed 29 drug discovery screens which allow us to search rapidly
through our compound library for new drugs;
- identified 24 novel series of potent and selective drug leads that
regulate our targets;
- commenced evaluation of drug leads in 15 animal models that mimic human
diseases; and
- developed two drug candidates for which we expect to file Investigational
New Drug applications, or INDs, in 2000, assuming preclinical studies
required to begin human testing are favorably completed without delays.
Our first drug candidate, SP8490, is for treating breast cancer and other
cancers. In preclinical animal studies, SP8490, when orally administered, was
effective in treating breast cancer and demonstrated equal or superior efficacy
to tamoxifen, the current leading hormonal therapy for breast cancer. In
addition, SP8490 displayed a superior safety profile in animal models that
assess harmful side effects on the uterus. The second drug candidate, NSP6783,
is for preventing or treating nerve damage caused by cancer chemotherapy. In
animal studies, this orally administered drug candidate provided significant
protection of peripheral nerves and their function in an animal model of nerve
damage caused by the chemotherapy drug taxol. In these studies, NSP6783 also had
a favorable safety profile and did not diminish the anti-cancer effects of the
chemotherapeutic drugs taxol or cisplatin. We plan to continue preclinical
development for both drug candidates and, assuming favorable completion and no
delays in preclinical development, to file INDs by the end of 2000. In addition,
we have discovered other gene regulating drug leads that are effective in
several animal models, including models of rheumatoid arthritis, asthma and
osteoporosis.
We are conducting our drug discovery and development programs both
independently and with our corporate collaborators: Nippon Kayaku, Ares-Serono,
Axys Pharmaceuticals and DuPont Pharmaceuticals. Currently, our corporate
collaborators fund significant portions of our research and development
expenditures. We have retained United States co-commercialization or
profit-sharing rights for the areas of cancer and inflammatory disease in three
of our four collaborative programs.
OUR STRATEGY
There are five important elements of our strategy:
- We plan to advance our leadership position in discovering and developing
novel gene regulating drugs by continuing to enhance our proprietary
target and drug discovery technologies and to build on advances in the
field of gene regulation.
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<PAGE> 7
- We plan to build a large and diversified product portfolio by continuing
to identify multiple targets within each gene regulating pathway that we
explore, and by selecting those targets for drug discovery that can be
validated in multiple diseases.
- We will develop treatments for serious medical conditions that represent
large potential markets.
- We intend to establish a United States franchise for drugs that treat
cancer and inflammatory disease by continuing to retain substantial
United States commercial rights in those collaborations in our franchise
areas.
- We will continue to seek to establish strategic collaborations with
leading pharmaceutical and biotechnology companies to leverage our
pipeline of drug targets and drug candidates with our collaborators'
substantial development, manufacturing and marketing resources.
OUR HISTORY
We were incorporated in California in July 1992, and we intend to
reincorporate in Delaware prior to the completion of this offering. We have 87
full-time employees with experienced scientists and managers skilled in each
phase of target and drug discovery. Our research laboratories and executive
offices are located at 5555 Oberlin Drive, San Diego, California 92121, and our
telephone number at that address is (858) 558-7500. Our website is located at
www.signalpharm.com. Information contained on our website is not part of this
prospectus.
------------------------------
Unless otherwise stated, information in this prospectus is based on the
following assumptions:
- the conversion of all our outstanding shares of preferred stock into
shares of common stock upon the closing of this offering;
- no exercise of the underwriters' over-allotment option;
- our reincorporation in Delaware and the filing of our amended and
restated certificate of incorporation prior to the closing of this
offering; and
- a 1-for-2 stock split to be effected prior to the completion of this
offering.
3
<PAGE> 8
THE OFFERING
Common stock offered by Signal
Pharmaceuticals........................... shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds........................... We intend to use the net
proceeds of this offering for
research and development, the
acquisition of research and
development technologies,
compound libraries and product
rights, capital investments,
repayment of debt and working
capital and general corporate
purposes.
Proposed Nasdaq National Market symbol.... SGNL
------------------------------
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 and assumes
the completion of the sale of $2.0 million of our common stock to DuPont
Pharmaceuticals in a private transaction concurrent with the closing of this
offering at an assumed initial public offering price of $ per share.
The number of shares of common stock to be outstanding after the offering
excludes:
- 1,493,607 shares subject to options outstanding as of December 31, 1999,
at a weighted average exercise price of $0.72 per share. Subsequent to
December 31, 1999, we granted options to purchase 716,875 shares of
common stock at a weighted average exercise price of $2.50 per share;
- 125,000 shares subject to warrants outstanding as of December 31, 1999,
at an exercise price of $4.20 per share;
- 1,289,518 additional shares that we could issue under our 2000 Equity
Incentive Plan;
- 250,000 shares that we could issue under our Non-Employee Directors'
Stock Option Plan; and
- 500,000 shares that we could issue under our Employee Stock Purchase
Plan.
4
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 299 $ 3,933 $ 7,579 $15,414 $11,748
Expenses:
Research and development.................... 5,173 7,724 10,337 15,573 16,748
General and administrative.................. 1,937 2,471 2,791 4,798 3,011
------- ------- ------- ------- -------
Total expenses........................... 7,110 10,195 13,128 20,371 19,759
------- ------- ------- ------- -------
Loss from operations.......................... (6,811) (6,262) (5,549) (4,957) (8,011)
Interest income (expense), net................ 329 53 (191) 600 155
------- ------- ------- ------- -------
Net loss...................................... $(6,482) $(6,209) $(5,740) $(4,357) $(7,856)
======= ======= ======= ======= =======
Pro forma net loss per share, basic and
diluted..................................... $ (0.57)
=======
Shares used in computing pro forma net loss
per share, basic and diluted................ 13,752
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 9,420 $
Working capital............................................. 3,960
Total assets................................................ 14,539
Long-term obligations under capital leases and equipment
notes payable............................................. 1,805
Accumulated deficit......................................... (36,957)
Total stockholders' equity.................................. 5,983
</TABLE>
Please see note 1 of notes to our financial statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma as adjusted balance sheet data reflect the net proceeds from
the sale by us of shares of common stock in this offering at an assumed initial
public offering price of $ per share, after deducting underwriting discounts
and commissions and our estimated offering expenses, and our receipt of $2.0
million from DuPont Pharmaceuticals in exchange for the shares of
common stock to be issued in a private transaction concurrent with the closing
of this offering.
5
<PAGE> 10
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these risks,
together with the other information contained in this prospectus before you
decide to buy our common stock. If any of the following risks occurs, our
business, financial condition, results of operations and future growth prospects
would likely be materially adversely affected. In these circumstances, the
market price of our common stock could decline, and you may lose all or part of
the money you paid to buy our common stock.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR LONGER THAN WE ANTICIPATE, WE MAY
BE UNABLE TO CONTINUE OUR OPERATIONS.
We have generated operating losses since our inception in 1992 and as of
December 31, 1999 had an accumulated deficit of approximately $37.0 million. We
expect to continue to incur significant operating losses for the foreseeable
future as we continue to incur increasing costs related to research and
development, expansion of our operations and initiation of clinical trials.
Payments, if any, from corporate collaborators, interest income and governmental
grants are expected to be our only sources of revenue for the foreseeable
future. To date, we have not received any significant milestone revenue and have
received license fees and research and development payments of $41.2 million.
Revenue from commercial sales of products based upon any drug target or drug
lead that we may identify are not expected for a number of years, if at all. Any
such revenue will depend on our ability, alone or with others, to successfully
research, develop, obtain regulatory clearance for, manufacture and market our
products under development. The extent of our future losses may exceed our
expectations and jeopardize our ability to continue our operations.
BECAUSE OUR DRUG CANDIDATES ARE AT AN EARLY STAGE OF DEVELOPMENT, THERE IS A
HIGH RISK OF FAILURE.
We have no products that have received regulatory clearance for commercial
sale. In addition, we have no compounds in human testing, referred to as
clinical trials. All of our compounds are in the research or preclinical
development stage, and we face the risks of failure inherent in researching and
developing drugs based on new technologies. None of our compounds, including
SP8490 and NSP6783, may ever enter clinical trials, be commercialized or
generate revenue in the future.
THE DRUG DISCOVERY AND DEVELOPMENT PROCESS IS HIGHLY SPECULATIVE AND WE, OR OUR
COLLABORATORS WORKING WITH US, MAY NEVER CREATE A COMMERCIAL DRUG.
The discovery and development of new drugs is highly uncertain and subject
to a number of significant risks which could prevent us or our collaborators
from ever creating a commercial drug. Drug leads and drug candidates that appear
to be promising at early stages of development may not enter clinical
development or reach the market for a number of reasons, including the
possibilities that the drug leads and drug candidates will:
- be found ineffective or cause harmful side effects during preclinical
testing or clinical trials;
- fail to receive necessary regulatory clearance;
- be difficult or expensive to manufacture on a commercial scale; or
- fail to generate market demand.
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<PAGE> 11
To date, none of the compounds generated by us or through our
collaborations has been approved for clinical testing. None may ever be
submitted for clinical testing. If we identify any potential products, either
independently or through our collaborations, they will face the following risks:
- our discovery and development programs may not be successfully initiated
or completed;
- any IND we file, including any INDs that we may file relating to SP8490
and NSP6783, may not be accepted by the FDA or other applicable
regulatory authorities;
- clinical trials may not commence or be completed as planned;
- required regulatory clearance may not be obtained on a timely basis, if
at all; or
- any products for which clearance is obtained may not be commercially
successful.
In addition, success in preclinical testing and early stage clinical trials
does not ensure that later clinical trials will be successful. A number of
companies have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials.
MANY OF THE TARGET AND DRUG DISCOVERY METHODS WE EMPLOY ARE RELATIVELY NEW AND
UNPROVEN AND MAY NOT LEAD TO THE DEVELOPMENT OF COMMERCIALLY VIABLE DRUGS.
There is limited scientific understanding relating to the role of genes in
most diseases, and, to our knowledge, no drugs based on genomics discoveries
have been commercialized. In addition, we are not aware of any marketed drugs
that were designed specifically to target gene regulating pathways in order to
treat the underlying molecular causes of a disease. Our current and potential
discoveries of the gene regulating pathways associated with specific diseases
may not lead to the development or commercialization of drugs. Furthermore, our
drug discovery efforts are focused on a number of target genes, the functions of
which have not yet been fully determined. As a result, the safety and efficacy
of drugs that alter the expression of these genes have not yet been established.
IF WE CANNOT MAINTAIN OUR CURRENT CORPORATE COLLABORATIONS OR ENTER INTO NEW
CORPORATE COLLABORATIONS, WE MAY NEVER DEVELOP OR COMMERCIALIZE PRODUCTS OR
ACHIEVE PROFITABILITY.
We rely, to a significant extent, on our corporate collaborators to provide
funding that supports our research and to conduct some research, preclinical and
clinical development, manufacturing and marketing. To date, substantially all
revenue that we have received has been from our collaborations. We expect that
substantially all of our revenue for the foreseeable future will be generated by
collaborations. If any of our corporate collaborators were to breach or
terminate their agreement with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner, the preclinical or
clinical development or commercialization of the affected drug candidates or
research programs could be delayed or terminated. We cannot always control the
amount or timing of resources our corporate collaborators devote to our programs
or potential products. In addition, we expect to rely on our corporate
collaborators for commercialization of some of our products.
Our ability to continue to fund our research and development programs,
maintain adequate capital reserves and, ultimately, achieve profitability will
be dependent upon our and our collaborators' ability to achieve specified
milestones under existing collaborations with Nippon Kayaku, Ares-Serono, Axys
and DuPont Pharmaceuticals or our ability to enter into additional
collaborations. We have not yet entered into collaborations for a number of our
existing or prospective programs. Because pharmaceutical and biotechnology
companies engaged in drug discovery and development activities historically have
conducted target and drug discovery through their own internal research and
development departments, we must convince these companies that our technologies
and research discoveries justify entering into collaborative agreements with us.
Even if a potential collaborator believes that our technologies and research
discoveries justify entering into an agreement with us, its budgeting cycle,
resources or other priorities may not permit a
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<PAGE> 12
timely collaboration. We also must compete with other companies for the limited
number of existing opportunities to enter into collaborative arrangements.
We may not be able to negotiate additional collaborative agreements in the
future on acceptable terms, if at all. In particular, potential collaborators
may be unwilling to enter into an agreement that allows us to retain rights in
our focus areas of cancer and inflammatory disease. In these cases, we may lose
potential collaboration opportunities or may enter into a collaboration in which
we do not retain desired rights. In addition, current or future collaborative
agreements may not be successful. Finally, current or future collaborators may
pursue or develop alternative technologies either on their own or in
collaboration with others, including our competitors, as a means for identifying
drug targets, drug leads or drug candidates. To the extent we choose not to, or
are unable to, enter into such agreements, we will require substantially greater
capital to undertake the research, preclinical and clinical development and the
manufacturing and marketing of products at our own expense. In the absence of
such collaborative agreements, we may be required to delay or curtail our
research and development activities to a significant extent.
To date, we have not received any significant milestone revenue and have
received license fees and research and development payments of $41.2 million.
These payments have not covered all of the expenses incurred in conducting our
business. Our future revenue will depend in part on our ability to receive
milestone payments and royalties triggered by the continued development and
commercialization of drugs. We may receive milestone payments and royalties
following:
- lengthy and costly preclinical and clinical development efforts;
- the receipt of requisite regulatory clearances;
- the development and integration of manufacturing capabilities;
- the receipt of patents; and
- successful marketing efforts.
We currently have arrangements with four corporate collaborators: Nippon
Kayaku, Ares-Serono, Axys Pharmaceuticals and DuPont Pharmaceuticals. If one of
these collaborators were to terminate its arrangement with us, it could cause a
substantial decrease in our revenue.
There has been a significant number of recent business combinations among
our current and potential collaborators that have resulted in a reduced number
of potential collaborators. If business combinations involving our corporate
collaborators were to occur, the effect could be to cause delays in, reduce the
scope of, or terminate one or more of our corporate collaborations.
Modification or termination of our existing or future collaborative
agreements, or our failure to extend existing or enter into additional
collaborative agreements on favorable terms, could result in loss of anticipated
revenue as well as potential delay or curtailment of ongoing research and
development activities. Our collaborations may generally be terminated upon a
breach by either party. Moreover, some of our collaborations may be terminated
by our collaborators if we fail to achieve specified research and development
milestones. We have in the past encountered, and may in the future encounter,
difficulty in satisfying some stated milestones under our collaboration
agreements due to the early stage of development of our technology, the inherent
uncertainties associated with product development and the aggressive discovery
and developmental timetables presented by some milestones. Accordingly, we have
in the past renegotiated, and may in the future need to renegotiate, our
collaboration agreements to modify the timing and requirements of stated
milestones.
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IF CONFLICTS ARISE BETWEEN OUR COLLABORATORS AND US, THEY MAY ACT IN THEIR
SELF-INTEREST, WHICH MAY BE ADVERSE TO YOUR INTERESTS.
Discovery, development and commercialization of potential products will
depend in part on our collaborators' financial, technical, competitive,
marketing and strategic considerations, all of which are outside our control and
may not be or may not become aligned with ours. These considerations may include
the relative advantages of alternative products being marketed or developed by
our collaborators and others, including relevant patent and proprietary
positions. In addition, our current or future collaborators may pursue
alternative technologies or potential products instead of ours. If conflicts
arise between us and our corporate or academic collaborators or scientific
advisors, the other party may act in its self-interest and not in your interest.
In any dispute, our collaborators may have substantially greater resources with
which to assert their rights and greater bargaining power than we have.
Some of our corporate or academic collaborators are conducting multiple
drug discovery and development efforts within each disease area that is the
subject of the collaboration with us. Generally, in each of our collaborations,
we have agreed not to conduct independently, or with any third party, any
research that is in conflict with the rights granted under the collaboration
agreement. Our collaborations may have the effect of limiting the areas of
research and development that we may pursue. Competing products, either
developed by the collaborators or to which the collaborators have rights, may
result in their withdrawal of support for our programs.
BECAUSE WE EXPECT TO GENERATE A SIGNIFICANT PERCENTAGE OF OUR FUTURE REVENUES
FROM CO-COMMERCIALIZATION AND PROFIT-SHARING ARRANGEMENTS, THE SUCCESS OR
FAILURE OF THESE ARRANGEMENTS WILL SIGNIFICANTLY IMPACT OUR FUTURE FINANCIAL
RESULTS.
Under three of our current collaborations, we have co-commercialization or
profit-sharing rights, and we plan to enter into additional collaborations that
provide us with similar rights. Because these types of arrangements are expected
to generate a larger percentage of our future revenues as compared with
collaborations under which we receive only royalties, these collaborations may
disproportionately affect our financial success. If these collaborations are not
successful, or if we decide to abandon or license some or all of these
co-commercialization or profit-sharing rights to third parties, we may not
achieve all of our financial objectives.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS MORE QUICKLY OR THAT ARE MORE
EFFECTIVE THAN OURS, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED.
The competition among pharmaceutical and biotechnology companies to
identify drug targets and drug candidates for development is intense and is
expected to increase. Our commercial opportunity will be reduced or eliminated
if our competitors develop and market products more quickly or that are more
effective, have fewer side effects, are easier to administer or are less
expensive than our product candidates. With respect to our drug discovery
programs, other companies have product candidates in clinical trials to treat
most of the diseases for which we are seeking to discover and develop product
candidates. Some of these competing potential drugs are further advanced in
development than are any of our potential products and may result in effective,
commercially successful products. Even if we or our collaborators are successful
in developing effective drugs, our products may not compete effectively with
these products or other successful products. Our competitors may succeed in
developing and marketing products either that are more effective, safer or more
economical than those that we may develop, alone or with our collaborators, or
that are marketed before any products we or our collaborators develop are
marketed.
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OUR COMPETITORS INCLUDE COMPANIES THAT HAVE GREATER CAPITAL RESOURCES AND WE MAY
NOT BE ABLE TO COMPETE WITH THESE COMPANIES.
Our competitors include fully integrated pharmaceutical companies,
biotechnology companies, universities and public and private research
institutions that currently have target and drug discovery efforts. Many of the
organizations competing with us have substantially greater capital resources,
larger research and development staffs and facilities, greater experience in
drug development and in obtaining regulatory clearance and greater manufacturing
and marketing capabilities than we do. These organizations also compete with us
to:
- attract qualified personnel;
- attract parties for acquisitions, joint ventures or other collaborations;
and
- license the proprietary technology of institutions that is competitive
with the technology we are developing and applying.
If our competitors successfully enter into collaboration arrangements or
license agreements with academic research institutions, we will then be
precluded from pursuing those specific opportunities. Since each of these
opportunities is unique, we may not be able to find an acceptable substitute.
BECAUSE WE MUST OBTAIN REGULATORY CLEARANCE TO TEST AND MARKET OUR PRODUCTS IN
THE UNITED STATES AND FOREIGN JURISDICTIONS, WE CANNOT PREDICT WHETHER OR WHEN
WE WILL BE PERMITTED TO COMMERCIALIZE OUR PRODUCTS.
The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities in the geographic areas where we intend to develop and
commercialize products. We cannot predict if or when regulatory clearance will
be obtained for any product we develop. A pharmaceutical product cannot be
marketed in the United States until it has completed rigorous preclinical
testing and clinical trials and an extensive regulatory clearance process
implemented by the FDA. Satisfaction of regulatory requirements typically takes
many years, is dependent upon the type, complexity and novelty of the product
and requires the expenditure of substantial resources. Of particular
significance are the requirements covering research and development, testing,
manufacturing, quality control, labeling and promotion of drugs for human use.
Before commencing clinical trials in humans, we must submit and receive
clearance from the FDA by means of an IND application. Clinical trials are
subject to oversight by institutional review boards and the FDA and:
- must be conducted in conformance with the FDA's good laboratory practice
regulations;
- must meet requirements for institutional review board oversight;
- must meet requirements for informed consent;
- must meet requirements for good clinical and manufacturing practices;
- are subject to continuing FDA oversight;
- may require large numbers of test subjects; and
- may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the IND application or
the conduct of these trials.
Before receiving FDA clearance to market a product, we must demonstrate
that the product is safe and effective on the patient population that will be
treated. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. In addition,
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delays or rejections may be encountered based upon additional government
regulation from future legislation or administrative action or changes in FDA
policy during the period of product development, clinical trials and FDA
regulatory review. Failure to comply with applicable FDA or other applicable
regulatory requirements may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production or
injunction, as well as other regulatory action against our potential products or
us. Additionally, we have limited experience in conducting and managing the
clinical trials and manufacturing processes necessary to obtain regulatory
clearance.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. This foreign regulatory approval process includes all of the risks
associated with FDA clearance described above.
For additional information concerning regulatory clearance of our potential
products, see "Business -- Government Regulation."
IF WE REQUIRE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, WE MAY NEED TO RAISE
THESE FUNDS ON UNFAVORABLE TERMS, OR MAY NOT BE ABLE TO RAISE THESE FUNDS AT
ALL.
We will need substantial funds to continue the research, development and
testing of our potential products. If adequate funds are not available, or are
available on unfavorable terms, we may be required to delay, reduce the scope of
or eliminate one or more of our programs. Our future capital requirements will
depend on, and could increase substantially as a result of, many factors,
including the following:
- progress in, and the costs of, our research and development programs;
- the scope, prioritization and number of programs;
- our acquisition and development of technologies;
- our acquisition of potential products;
- the progress of preclinical and clinical testing;
- our ability to enter into additional collaborations;
- our receipt of license, milestone, royalty and other payments from our
collaborations;
- the modification or termination of any of our current or future
collaborations;
- the time and costs involved in obtaining regulatory clearances;
- the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent and other intellectual property claims;
- competing technological and market developments;
- the costs of securing manufacturing arrangements for clinical or
commercial production; and
- financial market conditions for debt and equity offerings.
We currently depend on our corporate collaborators for substantially all of
our research and development funding. As of December 31, 1999, we had received
approximately $54.3 million in license fees, research and
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development funding, milestone payments and equity investments from our past and
current collaborators. We may not continue to receive funding under our existing
collaborative agreements and our existing or potential future collaborative
arrangements may not be adequate to fund our operations. We also may seek
alternative sources of financing or financing structures in the future.
Alternative financing arrangements may not be available, and even if available,
may not be adequate for the successful development of products.
We intend to raise additional funds through additional financings, research
and development financings, collaborative relationships or other joint venture
relationships and may seek to finance some of our programs through other
financing mechanisms. Because of our long-term capital requirements, we may seek
to raise money through equity whenever we deem market conditions to be
favorable, even if we do not need additional capital at that time. We do not
know whether any such additional funding will be available when needed or that
available financing will be on favorable terms. If we raise additional funds by
issuing equity or convertible debt securities, you may experience substantial
dilution, and debt financing, if available, may involve restrictive covenants.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. Due to the possibility of fluctuations in our revenue
and expenses, we believe that quarter-to-quarter comparisons of our operating
results are not a good indication of our future performance. Our operating
results in some quarters may not meet expectations of stock market analysts and
investors. Fluctuations in our operating results could cause our stock price to
fluctuate significantly or decline. Revenue in future periods may be greater or
less than revenue in the immediately preceding period or in the comparable
period of the prior year. Some of the factors that could cause our operating
results to fluctuate include:
- termination or reduction in the scope of our corporate collaborations;
- the success rate of our discovery and development efforts associated with
milestones and royalties;
- our ability to enter into new agreements with corporate collaborators or
to extend the terms of our existing corporate collaboration agreements;
- our ability to satisfy all applicable regulatory requirements; and
- general and industry-specific economic conditions that may affect our
corporate collaborators' research and development expenditures.
If revenue declines or does not grow as anticipated due to the expiration
or termination of our corporate collaboration agreements, failure to obtain new
agreements or grants, or lower than expected payments from our collaborators, we
may not be able to correspondingly reduce our operating expenses. A large
portion of our expenses, including expenses for facilities, equipment,
contracted research and personnel, is relatively fixed. In addition, we plan to
significantly increase operating expenses in 2000. Failure to achieve
anticipated levels of revenue could therefore significantly harm our operating
results for a particular fiscal period.
IF OUR TECHNOLOGIES OR THOSE OF OUR COLLABORATORS ARE ALLEGED OR FOUND TO
INFRINGE THE PATENTS OR PROPRIETARY RIGHTS OF OTHERS, WE MAY BE SUED OR HAVE TO
LICENSE THOSE RIGHTS FROM OTHERS ON UNFAVORABLE TERMS.
Our commercial success will depend significantly on our ability to operate
without infringing the patents and proprietary rights of third parties. Our
technologies along with our licensors' and our collaborators' technologies may
infringe the patents or proprietary rights of others. An adverse outcome in
litigation or an interference to determine priority or other proceeding in a
court or patent office could subject us to significant liabilities, require
disputed rights to be licensed from or to other parties or require us, our
licensors or our
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collaborators to cease using a technology necessary to carry out research,
development and commercialization.
Litigation to establish the validity of patents, to defend against patent
infringement claims of others and to assert infringement claims against others
can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to us or one
of our licensors or collaborators may have a material adverse effect on us. We
could incur substantial costs if we are required to defend ourselves in patent
suits brought by third parties, if we participate in patent suits brought
against or initiated by our licensors or collaborators or if we initiate such
suits. We may not have sufficient funds or resources in the event of litigation.
Additionally, we may not prevail in any such action.
A number of pharmaceutical companies, biotechnology companies, independent
researchers, universities and research institutions may have filed patent
applications or may have been granted patents that cover technologies similar to
the technologies owned, optioned by or licensed to us or our collaborators. For
instance, a number of patents may have issued and may issue in the future on
targets or their use in screens for evaluating the activity of compounds on a
specific drug target, called screening assays, that could prevent us and our
collaborators from developing screens using such targets, compounds relating to
such targets or relating to other aspects of technology that we utilize or
expect to utilize. In addition, we are unable to determine all of the patents or
patent applications that may materially affect our or our collaborators' ability
to make, use or sell any potential products.
We are aware of one issued United States patent relating to specific
methods for regulating gene expression. We may in the future have to prove we
are not infringing the patent or be required to obtain a license to the patent,
and we do not know whether such a license will be available on commercially
reasonable terms, or at all. We are also aware of a United States patent which
has been issued to a third party claiming subject matter relating to the
NF-(greek kappa)B pathway which appears to overlap with technology claimed in
some of our pending NF-(greek kappa)B patent applications. We believe that one
or more interference proceedings will be initiated by the U.S. Patent and
Trademark Office to determine priority of invention for this subject matter. We
cannot be certain of the outcome of any such proceedings.
Any conflicts resulting from third-party patent applications and patents
could significantly reduce the coverage of the patents owned, optioned by or
licensed to us or our collaborators and limit our ability or that of our
collaborators to obtain meaningful patent protection. If patents are issued to
third parties that contain competitive or conflicting claims, we, our licensors
or our collaborators may be legally prohibited from pursuing research,
development or commercialization of potential products or be required to obtain
licenses to these patents or to develop or obtain alternative technology. We,
our licensors and or our collaborators may be legally prohibited from using
patented technology, may not be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or may not be able
to obtain or develop alternative technologies.
In addition, like many biopharmaceutical companies, we 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 us. We or these
individuals may be subject to allegations of trade secret misappropriation or
other similar claims as a result of their prior affiliations.
OUR ABILITY TO COMPETE MAY DECREASE IF WE DO NOT ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS.
Our commercial success will depend in part on our and our collaborators'
ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve
our trade secrets. Because of the substantial length of time and expense
associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. We seek patent protection for our proprietary technology, drug
targets and potential products. However, the patent positions of pharmaceutical
and biotechnology companies can be highly uncertain and involve complex legal
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and factual questions. No consistent policy regarding the breadth of claims
allowed in biotechnology patents has emerged to date. Accordingly, we cannot
predict the type and breadth of claims allowed in these patents.
The degree of future protection for our proprietary rights is uncertain.
Many factors may affect our patent position, including whether:
- we were the first to make the inventions covered by each of our pending
patent applications;
- we were the first to file patent applications for these inventions;
- others will independently develop similar or alternative technologies or
duplicate any of our technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued to us or our collaborators will provide a basis for
commercially viable products, will provide us with any competitive
advantages or will not be challenged by third parties;
- we will develop additional proprietary technologies that are patentable;
or
- the patents of others will have an adverse effect on our ability to do
business.
In addition to patent protection, we also rely 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, we require our employees, consultants
and some collaborators to execute confidentiality and invention assignment
agreements upon commencement of a relationship with us. These agreements may not
provide meaningful protection for our trade secrets, confidential information or
inventions in the event of unauthorized use or disclosure of such information,
and adequate remedies may not exist in the event of such unauthorized use or
disclosure.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL AS NECESSARY, IT COULD DELAY OR IMPAIR THE QUALITY OF OUR PRODUCT
DEVELOPMENT PROGRAMS AND RESULT IN REDUCED RESEARCH AND DEVELOPMENT EFFORTS.
Our success is highly dependent on the principal members of our scientific
and management staff, as well as our scientific advisors and consultants. If we
lose the services of one or more of these individuals, it could prevent us from
advancing our technology, developing potential products or achieving
profitability. We may not be able to attract or retain qualified employees in
the future due to the intense competition for qualified personnel among
biotechnology and other technology-based businesses, particularly in the San
Diego area. If we are not able to attract and retain the necessary personnel to
accomplish our business objectives, we may experience constraints that will
adversely affect our ability to meet the demands of our collaborators in a
timely fashion or to support our internal research and development programs. In
particular, our product development programs depend on our ability to attract
and retain highly skilled scientists, including molecular biologists,
biochemists and engineers, and clinical and regulatory experts. Our employees
are "at-will" which means they may quit at any time and we may fire them at any
time.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel.
WE DEPEND ON THIRD PARTIES TO PERFORM MANY PRECLINICAL AND CLINICAL DEVELOPMENT
ACTIVITIES, AND OUR DEVELOPMENT PROGRAMS MAY BE DELAYED OR TERMINATED IF THEY
FAIL TO PERFORM THEIR RESPONSIBILITIES COMPLETELY AND ON TIME.
We rely and will continue to rely in part on third parties to perform
preclinical and clinical development activities. Our agreements for contract
preclinical and clinical development services place substantial
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responsibilities on third parties for development of our drug candidates which
could result in delays in or termination of development if these third parties
fail to perform as expected. We may not be able to maintain any of these
existing relationships, or establish new ones on favorable terms, if at all. We
may not be able to enter into these arrangements without undue delays or
excessive expenditures. Furthermore, these third parties may not perform as
expected.
WE HAVE NO MANUFACTURING EXPERIENCE AND MUST RELY ON THIRD-PARTY MANUFACTURING.
To date, we have not manufactured any products for preclinical, clinical or
commercial purposes and do not have any manufacturing facilities. We currently
use third-party contract manufacturers, and may in the future use our corporate
collaborators, for the production of materials for preclinical and clinical
trials and for the manufacture of future products for commercialization. If we
are unable to secure such outside manufacturing capabilities, we will not be
able to conduct preclinical product development, clinical trials or
commercialize our potential products as planned.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH.
We will need to expand and effectively manage our operations and facilities
in order to successfully complete our existing corporate collaborative
agreements, facilitate additional collaborations and pursue future internal
research, development and commercialization efforts. We expect to significantly
increase our rate of growth to meet our strategic objectives. If our growth
accelerates, it will place a strain on us. In addition, we will be required to
expand our management capabilities, enhance our operating and financial systems
and expand our facilities to manage our growth effectively. If we continue to
grow, it is possible that the number and skills of management and scientific
personnel, systems and facilities currently in place may not be adequate.
OUR BUSINESS INVOLVES THE USE OF HAZARDOUS MATERIALS WHICH COULD CAUSE US TO
INCUR SUBSTANTIAL COSTS IN THE EVENT SUCH MATERIALS ARE NOT STORED, HANDLED OR
DISPOSED OF CORRECTLY.
Our research and development processes involve the controlled use of
hazardous materials, including infectious biological materials, chemicals and
various radioactive compounds. We are subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of hazardous materials and waste products. The risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of
an accident, we could be held liable for any damages that result and any such
liability could exceed our resources and result in lengthy interruption of
business operations. If an accident occurred, we would likely incur significant
costs to comply with environmental laws and regulations in the future.
OUR STOCK PRICE WILL LIKELY BE VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market, from time to time, has experienced significant price and
volume fluctuations that are unrelated to the operating performance of
companies. The market prices of technology companies, particularly life science
companies, have been highly volatile. Our stock may be affected by this type of
market volatility, as well as by our own performance. The following factors,
among other risk factors, may have a significant effect on the market price of
our common stock:
- developments in our relationships with current or future corporate
collaborators;
- announcements of technological innovations or new products by us or our
competitors;
- developments in patent or other proprietary rights;
- fluctuations in our operating results;
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- litigation initiated by or against us;
- future royalties and profit-sharing from product sales, if any, by our
collaborators;
- developments in domestic and international governmental policy or
regulation; and
- economic and other external factors or other disaster or crisis.
WE MAY BE SUED FOR PRODUCT LIABILITY AND OUR INSURANCE COVERAGE MAY NOT BE
SUFFICIENT.
We may be held liable if any product we or our collaborators develop, or
any product which is made with the use of any of our technologies, causes injury
or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. We currently have no product liability insurance. When we
attempt to obtain product liability insurance, this insurance may be expensive,
or may not fully cover our potential liabilities. Inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of products developed by us or our collaborators. If we are
sued for any injury caused by our products, our liability could exceed our total
assets.
THE CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT OTHER STOCKHOLDERS FROM INFLUENCING
SIGNIFICANT CORPORATE DECISIONS AND DEPRESS OUR STOCK PRICE.
After this offering, our executive officers, directors and stockholders
with at least 5% of our stock will control approximately % of our
outstanding common stock. If these officers, directors and principal
stockholders act together, they will be able to influence significantly and
possibly control matters requiring approval by our stockholders, including
approvals of amendments to our certificate of incorporation, mergers, a sale of
all or substantially all of our assets, going private transactions and other
fundamental transactions. They may also be able to control the election of our
board of directors members. This concentration of ownership could depress our
stock price.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
Prior to this offering, there has been no public market for shares of our
common stock. An active, liquid trading market may not develop following
completion of this offering, or if developed, may not be maintained. We will
determine the initial public offering price for the shares through negotiations
between us and representatives of the underwriters. This price may not be
indicative of prices that will prevail later in the trading market. The market
price of our common stock may decline below the initial public offering price,
and you may not be able to resell your shares at or above the initial public
offering price.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY, EVEN IF THE ACQUISITION WOULD BE BENEFICIAL TO YOU.
Our certificate of incorporation, our bylaws and Delaware law could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to you. These provisions could discourage potential takeover attempts
and could adversely affect the market price of our common stock. Because of
these provisions, you might not be able to receive a premium on your investment.
These provisions:
- authorize our board of directors, without stockholder approval, to issue
up to 5,000,000 shares of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and prevent a takeover attempt;
- limit who has the authority to call a special meeting of our
stockholders;
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- prohibit stockholder action by written consent, requiring stockholder
actions to be taken at stockholder meetings;
- establish advance notice requirements for nominations for election to the
board of directors and for proposals to be acted upon at stockholder
meetings; and
- establish staggered terms for the members of the board of directors.
Any of the provisions described above could delay or make more difficult
transactions involving a change in control of us or our management.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
public market after the closing of this offering, or the perception that these
sales could occur. These sales could make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate. In
addition, the market price of our common stock could decline if we sell
additional equity securities in connection with financings or collaborative
arrangements.
YOUR INVESTMENT WILL BE IMMEDIATELY DILUTED.
We expect that initial public offering price to be substantially higher
than the net tangible book value per share of the common stock. Therefore, if
you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value of
$ per share. You may incur additional dilution if the holders of outstanding
options or warrants exercise those options or warrants. Additional information
regarding the dilution to investors in this offering is included in this
prospectus under the headings "Dilution" and "Shares Eligible for Future Sale."
IF WE HAVE NOT ADEQUATELY PREPARED FOR THE TRANSITION TO THE YEAR 2000, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD SUFFER.
We have executed a plan designed to make our computer systems,
applications, equipment and facilities year 2000 ready. To date, none of our
systems, applications, equipment or facilities have experienced material
difficulties from the transition to year 2000, but complete testing of those
systems by our normal business operations have been limited so far. In the first
several months of 2000, it is possible that material difficulties could be
discovered or could arise. We cannot guarantee that our year 2000 readiness plan
has been successfully implemented, and actual results could still differ
materially from our plan. In addition, we are unable to determine the extent to
which we may be vulnerable to the failure by our suppliers to resolve their own
year 2000 issues. The effect, if any, on our results of operations from any
failure of such parties to be year 2000 ready cannot yet be determined.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These include statements about our expectations, plans,
objectives, assumptions or future events. In some cases, you can identify
forward-looking statements by terminology such as "anticipate," "estimate,"
"plans," "projects," "continuing," "ongoing," "expects," "management believes,"
"we believe," "we intend" and similar expressions. These statements involve
estimates, assumptions and uncertainties that could cause actual results to
differ materially from those expressed for the reasons described in this
prospectus. You should not place undue reliance on these forward-looking
statements.
The forward-looking statements speak only as of the date on which they are
made, and we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
USE OF PROCEEDS
Our proceeds from the sale of the shares of common stock we are
offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discount and our estimated offering expenses.
We intend to use the net proceeds from this offering primarily for drug
discovery and development, including internal discovery programs and joint
research and development with corporate and academic collaborators, the
acquisition of research and development technologies and compound libraries,
manufacture of drug candidates, capital investments, repayment of debt, working
capital and general corporate purposes. We also may use a portion of the net
proceeds to fund acquisitions of product or target rights or businesses,
although we have no current agreements or commitments for any such acquisition.
The amounts and timing of these expenditures will vary depending on a number of
factors, primarily the amount and timing of revenues from our current or future
collaborators, including amendments of the terms of such collaborative
arrangements. Pending the uses described above, we will invest the net proceeds
of this offering in short- and intermediate-term, interest-bearing,
investment-grade securities.
We believe the net proceeds of this offering, together with our existing
capital resources, interest income and committed revenue from our existing
collaborations, should be sufficient to fund our anticipated operating expenses
and capital requirements until at least the end of 2001. We will continue to
expend substantial resources for the expansion of drug discovery and
development, including costs associated with preclinical testing and clinical
trials. We will be required to expend substantial funds in the course of
completing required additional development, preclinical testing and clinical
trials of and regulatory clearance for product candidates, if any. Our future
liquidity and capital requirements will depend on many factors, including:
- continued scientific progress in our research and development programs;
- the size and complexity of these programs;
- the retention of existing and establishment of future collaborative
arrangements, if any;
- the scope and results of preclinical testing and clinical trials;
- the time and expense involved in obtaining regulatory clearances, if any;
- competing technological and marketing developments;
- the time and expense of filing and prosecuting patent applications and
enforcing patent claims; and
- other factors beyond our control.
18
<PAGE> 23
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for the development of
our business and do not anticipate paying any cash dividends in the foreseeable
future. In addition, the terms of our secured loan from MMC/GATX Partnership No.
1 prohibit us from paying any dividends and making any distributions and limit
our ability to repurchase stock.
19
<PAGE> 24
CAPITALIZATION
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes to those statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term obligations, less current portion................. $ 1,805 $ 1,805 $ 1,805
Stockholders' equity:
Convertible preferred stock, $.001 par value; 12,371,319
shares authorized and 12,246,296 shares issued and
outstanding, actual; 5,000,000 shares authorized and no
shares issued and outstanding, pro forma; 5,000,000
shares authorized and no shares issued or outstanding,
pro forma as adjusted.................................. 12 --
Common stock, $.001 par value; 17,644,354 shares
authorized and 1,847,603 shares issued and outstanding,
actual; 50,000,000 shares authorized and 14,093,899
shares issued and outstanding, pro forma; 50,000,000
shares authorized and shares issued and
outstanding, pro forma as adjusted..................... 2 14
Additional paid-in capital................................ 44,294 44,294
Deferred compensation..................................... (1,272) (1,272)
Notes receivable from stockholders........................ (96) (96)
Accumulated deficit....................................... (36,957) (36,957)
-------- -------- --------
Total stockholders' equity........................... 5,983 5,983
-------- -------- --------
Total capitalization................................. $ 7,788 $ 7,788
======== ======== ========
</TABLE>
This table sets forth as of December 31, 1999:
- our actual capitalization;
- our pro forma capitalization, assuming the conversion of all of our
outstanding preferred stock into common stock in conjunction with the
closing of this offering;
- our pro forma as adjusted capitalization which also gives effect to the
sale of shares of our common stock in this offering and the
sale of shares of common stock to DuPont Pharmaceuticals in a
private transaction concurrent with the closing of this offering at an
assumed initial public offering price of $ per share after deducting
estimated underwriting discounts and commissions and estimated expenses
of this offering.
The number of shares of common stock to be outstanding after this offering
assumes no exercise of the underwriters' over-allotment option. The number of
shares to be outstanding after this offering is based on the number of shares
outstanding as of December 31, 1999, and excludes:
- 1,493,607 shares subject to options outstanding as of December 31, 1999,
at a weighted average exercise price of $0.72 per share. Subsequent to
December 31, 1999, we granted options to purchase 716,875 shares of
common stock at a weighted average exercise price of $2.50 per share;
- 125,000 shares subject to warrants outstanding as of December 31, 1999,
at an exercise price of $4.20 per share;
- 1,289,518 additional shares that we could issue under our 2000 Equity
Incentive Plan;
- 250,000 shares that we could issue under our Non-Employee Directors'
Stock Option Plan; and
- 500,000 shares that we could issue under our Employee Stock Purchase
Plan.
Of the total shares outstanding, 128,911 shares are subject to our right of
repurchase as of December 31, 1999.
20
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $5.4
million, or $.38 per share, after giving effect to the automatic conversion of
all outstanding shares of preferred stock into an aggregate of 12,246,296 shares
of common stock, which will occur upon the closing of the offering. After giving
effect to the sale of the common stock in this offering and the sale of
shares to DuPont Pharmaceuticals in a private transaction
concurrent with the closing of this offering at an assumed initial public
offering price of $ per share, after deducting the estimated underwriting
discount and offering expenses, the adjusted pro forma net tangible book value
at December 31, 1999, would have been $ million, or $ per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1999. The offering will result in an increase in pro
forma net tangible book value per share of $ to existing stockholders
and dilution in pro forma net tangible book value per share of $ to new
investors who purchase shares in the public offering. Dilution is determined by
subtracting pro forma net tangible book value per share after the public
offering and the sale of shares to DuPont Pharmaceuticals from the assumed
initial public offering price of $ per share. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after the public
offering and the sale of shares to DuPont
Pharmaceuticals...........................................
--------
Net tangible book value dilution per share to new
investors............................................. $
========
</TABLE>
If the underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share after this offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution in net tangible book
value to new investors would be $ per share.
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the total consideration paid and the average price
per share paid by the existing stockholders and the new investors with respect
to the number of shares of common stock purchased from us based on an assumed
public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New investors........................ $
-------- --- -------- ----
Total.............................. 100% $ 100%
======== === ======== ====
</TABLE>
These tables assume no exercise of stock options and warrants outstanding
at December 31, 1999 and include 128,911 shares subject to repurchase by us at
$0.42 per share.
At December 31, 1999, there were 1,493,607 shares of common stock issuable
upon exercise of outstanding stock options at a weighted average exercise price
of $0.72 per share and 125,000 shares of Series C-1 preferred stock issuable
upon exercise of outstanding warrants at an exercise price of $4.20 per share.
21
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to our statements
of operations for the years ended December 31, 1997, 1998 and 1999 and with
respect to our balance sheet at December 31, 1998 and 1999, are derived from the
financial statements that have been audited by Ernst & Young LLP, independent
auditors, which are included elsewhere herein and are qualified by reference to
such financial statements. Our statement of operations data for the years ended
December 31, 1995 and 1996 and the balance sheet data at December 31, 1995, 1996
and 1997 have been derived from the financial statements audited by Ernst &
Young LLP, our independent auditors, which are not included herein. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements:
Related party............................... $ -- $ -- $ 250 $ 3,000 $ 4,525
Unrelated parties........................... -- 3,586 7,065 12,027 6,696
Grants........................................ 299 347 264 387 527
------- ------- ------- ------- -------
Total Revenue............................ 299 3,933 7,579 15,414 11,748
Expenses:
Research and development...................... 5,173 7,724 10,337 15,573 16,748
General and administrative.................... 1,937 2,471 2,791 4,798 3,011
------- ------- ------- ------- -------
Total Expenses........................... 7,110 10,195 13,128 20,371 19,759
Loss from operations............................. (6,811) (6,262) (5,549) (4,957) (8,011)
------- ------- ------- ------- -------
Interest income.................................. 453 187 326 1,052 607
Interest expense................................. (124) (134) (517) (452) (452)
------- ------- ------- ------- -------
Net loss......................................... $(6,482) $(6,209) $(5,740) $(4,357) $(7,856)
======= ======= ======= ======= =======
Pro forma net loss per share, basic and
diluted....................................... $ (0.57)
=======
Number of shares used in computing pro forma net
loss per share, basic and diluted............. 13,752
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 4,211 $ 5,460 $ 20,866 $ 12,952 $ 9,420
Working capital............................... 3,616 2,606 15,379 9,123 3,960
Total assets.................................. 6,866 9,047 23,838 19,558 14,539
Long-term obligations under capital leases and
equipment notes payable..................... 513 2,746 1,548 2,460 1,805
Accumulated deficit........................... (12,796) (19,005) (24,745) (29,102) (36,957)
Total stockholders' equity.................... 5,574 1,512 15,164 12,125 5,983
</TABLE>
Please see note 1 of notes to our financial statements for an explanation
of the determination of the number of shares used in computing per share data.
22
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in July 1992 and have devoted substantially all of our
resources since that time to research and development in order to identify
proprietary drug targets and discover novel small molecule drugs that regulate
genes associated with disease. Through both internally funded programs and in
conjunction with our corporate collaborators, we are working to identify gene
regulating drug targets and potential products for treating cancer, inflammatory
disease, bone metabolic disease, cardiovascular disease, neurological disease
and viral infections. We have incurred significant losses since inception, with
an accumulated deficit of $37.0 million as of December 31, 1999, due primarily
to ongoing expenditures related to our research and development programs. We
expect to continue to incur substantial increases in expenditures and operating
losses for at least the next several years as we expand our target and drug
discovery and development efforts. Such expansion will result in increases in
research and development expenses, general and administrative expenses and
related capital expenditures. In addition, we have granted stock options at
exercise prices below the assumed initial public offering price, which we expect
will result in substantial and recurring non-cash compensation expense over the
next several years. Our results of operations have fluctuated from period to
period and likely will continue to fluctuate substantially in the future based
upon the timing and composition of funding under various collaborative
agreements, the initiation, expansion and termination of research and
development programs, the acquisition of technologies, compound libraries and
product rights, as well as the progress of our research and development
programs. Results of operations for any period may be unrelated to results of
operations for any other period. In addition, historical results should not be
viewed as indicative of future operating results.
A key element of our strategy is to enter into collaborations with
pharmaceutical and biotechnology companies in order to enhance our target and
drug discovery programs and to fund our capital requirements. Our principal
sources of revenue for the next several years are expected to consist of license
fees and upfront payments, research and development funding and milestone
payments under such collaborations, government grants, if any, and interest
income. To date, our revenue has been due primarily to arrangements with the
following collaborators: Tanabe, which was entered into in March 1996 and
concluded in March 1998; Organon, which was entered into in July 1996 and
concluded in August 1999; Roche Bioscience, which was entered into in August
1996 and concluded in August 1999; Ares-Serono, which was entered into in
November 1997; DuPont Pharmaceuticals, which was entered into in December 1997;
Nippon Kayaku, which was entered into in February 1998; and Axys
Pharmaceuticals, which was entered into in October 1999.
Under our collaborative arrangements, we have received payments of $54.3
million to date in license fees, research and development payments and equity
investments, of which $37.1 million has been recognized as revenue. To date, we
have received an equity milestone of $1.0 million and license fees, upfront
payments and research and development payments of $41.2 million. In 1997, we
recognized aggregate revenue of $725,000 in license fees and upfront payments,
$6.6 million in research and development payments from our collaborators and
$264,000 in government grants. In 1998, we recognized aggregate revenue of $3.1
million in license fees and upfront payments, $11.9 million in research
development payments from our collaborators and $387,000 in government grants.
In 1999, we recognized aggregate revenue of $1.9 million in license fees and
upfront payments, $9.4 million in research and development payments from our
collaborators and $528,000 in government grants.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenue. Revenue for the year ended December 31, 1999 decreased to $11.7
million from $15.4 million for the year ended December 31, 1998. The decrease
was due primarily to the expiration of the collaborative agreements with Organon
and Roche Bioscience in 1999 and termination of the Tanabe agreement in 1998.
Revenue for the year ended December 31, 1998 increased to $15.4 million from
$7.6 million for the year
23
<PAGE> 28
ended December 31, 1997. The increase was due primarily to additional
collaborative agreements that were in place during 1998; an amendment to the
collaborative agreement with Tanabe which resulted in recognition of additional
research and development revenue; and increased research and development funding
from Tanabe, Organon and Roche Bioscience.
Research and Development Expenses. Our research and development expenses
for the year ended December 31, 1999 increased to $16.7 million from $15.6
million for the year ended December 31, 1998. The increase in 1999 was due
primarily to the hiring of additional research and development personnel,
amortization expense associated with purchased technology, product development
expense and depreciation expense, partially offset by decreased recruiting and
relocation expenses and decreased travel and entertainment expense. Research and
development expenses for the year ended December 31, 1998 increased to $15.6
million from $10.3 million for the year ended December 31, 1997. The increase
was due primarily to hiring additional research and development personnel, the
purchase of materials for expansion of our research programs, facilities
expansion, depreciation expense, amortization of deferred compensation,
increased travel expenses and the initiation of additional academic research
collaborations.
General and Administrative Expenses. Our general and administrative
expenses for the year ended December 31, 1999 decreased to $3.0 million from
$4.8 million in 1998. The decrease was due primarily to reductions in fees for
professional services, equipment rentals and salary expense due to lower general
and administrative headcount. Our general and administrative expenses for the
year ended December 31, 1998 increased to $4.8 million from $2.8 million for the
year ended December 31, 1997. The increase was due primarily to increased fees
for professional services, the hiring of additional personnel, amortization of
deferred compensation and facilities expansion.
Interest Income (Expense), Net. Net interest income (expense) for the years
ended December 31, 1999, 1998 and 1997 was $155,000, $600,000 and ($191,000),
respectively. The decrease in net interest income in 1999 from 1998 was due
primarily to lower average cash balances. The increase in net interest income in
1998 from 1997 was due primarily to higher average cash balances.
Income Taxes. At December 31, 1999, we had federal and state net operating
loss carryforwards of approximately $30.6 million and $11.7 million,
respectively. The federal tax loss carryforwards will begin expiring in 2007,
unless previously used, and the state tax loss carryforwards began expiring in
1998. We have provided a 100% valuation allowance against the related deferred
tax assets as realization of such tax benefits is not assured. Future
utilization of these carryforwards may be limited in any one fiscal year under
the Internal Revenue Code and similar state provisions; however, the annual
limitation will not prevent the entire amount of the carryforwards from being
used during the carryforward period. Therefore, we do not believe any such
limitation will have a material effect upon the utilization of these
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through private
placements of preferred stock, funds provided under the Tanabe, Organon, Roche
Bioscience, Ares-Serono, DuPont Pharmaceuticals, Nippon Kayaku and Axys
Pharmaceuticals collaborative agreements, and, to a lesser extent, through debt
and equipment financing, interest income and government research grant revenue.
As of December 31, 1999, we have received $40.8 million in net proceeds from the
sales of equity securities, $41.2 million under our collaborative agreements,
$7.0 million in debt and equipment financing, $2.9 million in interest income
and $1.8 million in research grants from the NIH. As of December 31, 1999, we
had approximately $9.4 million in cash, cash equivalents and short-term
investments.
Net cash used in operations was $2.9 million, $4.8 million and $2.3 million
in 1999, 1998 and 1997, respectively. Net cash used in operations decreased in
1999 from 1998 due primarily to initial license fees and upfront payments and
research and development payments under our collaborative agreements. Net cash
used in operations increased in 1998 from 1997 due primarily to prepayment by
our corporate collaborators of a portion of research and development funding for
1998 in 1997.
24
<PAGE> 29
As of December 31, 1999, we have purchased with cash $5.1 million in
property and equipment, primarily for facility improvements and laboratory and
office equipment. We have financed approximately $4.9 million of our equipment
through capital leases and equipment note obligations.
At December 31, 1999, we had outstanding debt of $416,000 under a secured
promissory note that we issued on December 2, 1996. The principal amount of this
secured promissory note is payable in monthly installments of $88,334, with the
final monthly payment scheduled for May 31, 2000. The promissory note is secured
by substantially all of our assets except for our intellectual property. The
terms of the loan limit our ability to incur additional debt, repurchase our
stock and pay dividends. We were in compliance with all covenants under the
arrangement as of December 31, 1999.
We believe the net proceeds of this offering and the sale of $2.0 million
of shares of common stock to DuPont Pharmaceuticals in a private transaction
concurrent with the closing of this offering, together with our existing capital
resources, committed revenue from our existing collaborations and interest
income should be sufficient to fund our anticipated operating expenses and
capital requirements at least through the end of the year 2001. These funding
requirements include continued and increased expenditures for research and
development activities, as well as expenditures related to facility
improvements, the purchase of additional laboratory and office equipment, the
purchase of technology, compound libraries and product rights, the repayment of
debt, working capital and general corporate purposes. We have not entered into
any formal commitments to use the proceeds from the offering for increased
personnel, capital expenditures or any other purpose. We cannot assure you that
changes in our research and development plans and collaborations, the
acquisition of additional technology, compound libraries and product rights or
other changes affecting our operating expenses or use of capital will not result
in the expenditure of available resources before such time. The costs associated
with the clinical development of new drugs are substantial and generally
increase over time. If we are successful in advancing one or more drug
candidates into clinical development, our need for additional capital will
increase substantially.
In any event, we will need to raise substantial additional capital to fund
our operations in future periods. We intend to seek additional funding through
collaborative arrangements, public or private equity or debt financing, property
and equipment financing or other financing sources that may be available. If
additional funds are raised through the sale of equity securities, substantial
dilution to you may result. Debt financing, if available, may involve
restrictive covenants. Further, we cannot assure you that additional financing
will be available on acceptable terms, if at all. If adequate funds are not
available, we may be required to delay, or reduce the scope of, or eliminate one
or more of our research or development programs or to obtain funds through
strategic collaborations that are on unfavorable terms or that may require us to
relinquish rights to some of our technologies, product candidates, products or
marketing territories that we would otherwise seek to retain. Our failure to
raise capital when needed could have a material adverse effect on our business,
financial condition and results of operations.
Impact of Year 2000. In late 1999, we completed our remediation and testing
of hardware and software systems to assess their year 2000 readiness. As a
result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the year 2000 date changes. We expensed less than $10,000 during
1999 in connection with remediating our systems. We are not aware of any
material problems resulting from year 2000 issues, either with our internal
systems or the products and services of third parties. We will continue to
monitor our mission critical computer applications and those of our suppliers
and vendors throughout the year 2000 to ensure that any latent year 2000 matters
that may arise are addressed promptly.
New Accounting Pronouncements. We expect to adopt SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,effective January 1, 2001.
SFAS No. 133 will require us to recognize all derivatives on the balance sheet
at fair value. We do not anticipate that the adoption of the SFAS No. 133 will
have a significant effect on our results of operations or financial position.
25
<PAGE> 30
BUSINESS
OVERVIEW
Signal Pharmaceuticals is a biopharmaceutical company focused on
discovering, developing and commercializing new classes of small molecule drugs
that regulate disease-associated genes. We believe our approach can convert the
enormous amount of valuable information coming from genomics initiatives into
new classes of superior drugs. We have advanced the application of genomics
beyond identifying genes to understanding the role of genes in disease and how
they are regulated. This allows us to design novel classes of drugs that
selectively regulate disease-causing genes. Our powerful drug discovery engine
enables us to identify and pursue numerous potential gene-regulating drug
targets across multiple diseases and to rapidly identify drugs for development.
We believe our approach will yield drugs that treat the underlying causes of a
disease, rather than relieving only the symptoms of a disease. Our efforts are
focused in several major disease areas in which abnormal gene regulation plays
an important role in the development of disease. These disease areas represent
large commercial markets, including cancer, inflammatory disease, osteoporosis,
cardiovascular disease, neurological disease and viral infections.
We have developed and integrated a large set of advanced target and drug
discovery technologies to accelerate the application of genomics to the
discovery of important new classes of gene regulating drugs. Our drug discovery
engine has enabled us to build a large and diverse portfolio of drug targets,
drug leads and drug candidates. To date, together with our collaborators, we
have:
- advanced drug discovery programs in six major disease areas;
- explored and mapped 10 gene regulating pathways to identify the crucial
gene switches that control disease;
- identified 27 drug targets that we believe to be important in disease;
- assembled a screening library of more than 300,000 distinct small
molecule compounds and natural products;
- developed 29 drug discovery screens which allow us to search rapidly
through our compound library for new drugs;
- identified 24 novel series of potent and selective compounds that inhibit
our targets, called drug leads;
- commenced evaluation of drug leads in 15 animal models that mimic human
diseases; and
- developed two drug candidates for which we expect to file INDs by the end
of 2000, assuming preclinical studies are favorably completed without
delays.
We are conducting our drug discovery and development programs both
independently and with our corporate collaborators: Nippon Kayaku, Ares-Serono,
Axys Pharmaceuticals and DuPont Pharmaceuticals. Currently, our corporate
collaborators fund significant portions of our research and development
expenditures. In three of our four collaborative programs, we have retained
United States co-commercialization or profit-sharing rights for the areas of
cancer and inflammatory disease.
BACKGROUND
GENES AND DISEASE
The human body contains an estimated 140,000 genes. Genes control all
cellular functions responsible for maintaining human health by serving as
blueprints for the production of proteins in cells, a process known as gene
expression. Proteins, which include hormones, cytokines and enzymes, control a
cell's normal biological functions. Critical cell functions include growth,
differentiation and survival.
Recent advances in cellular and molecular biology have shown that
malfunctions in gene regulation either cause or predispose humans to most
diseases. These malfunctions cause cells to produce inappropriate amounts or
types of proteins. For example, the uncontrolled proliferation of cells
characteristic of cancer and
26
<PAGE> 31
inflammatory diseases is the result of over-activation of multiple genes and the
proteins they produce, such as cytokines and enzymes. Conversely,
under-activation of critical genes and their protein products, such as tumor
suppressors and growth factors, also may give rise to disease, including cancer
and neurological disorders. Many complex diseases are caused by the abnormal
activity of not just one but multiple genes. Such complex diseases include
cancer, obesity, diabetes and inflammatory, cardiovascular and neurological
diseases.
REGULATION OF GENES BY GENE SWITCHES
Gene regulation is a highly controlled process in which specific sets of
genes are switched on and off in select tissues to maintain the body's essential
functions. Genes are controlled by networks of proteins inside cells which relay
information through pathways from a cell's surface to its nucleus where genes
are expressed. These pathways consist of several large and distinct classes of
gene regulating proteins, or gene switches, which include transcription factors,
kinases and ligases. Transcription factors are molecular switches that bind to
the regions of genes that control the level and duration of gene expression and
protein production. Kinases are enzymes that transmit information within cells
and ultimately lead to gene expression. Ligases control the proper levels of
gene regulating proteins in cells. Each of these three classes of gene switches
can control not just one but multiple genes that contribute to disease.
Therefore, drugs designed to target these gene switches at pivotal points in a
gene regulating pathway can have a major impact on the subsequent expression of
entire sets of genes that contribute to disease.
[Graphic depicting the process
of gene regulation within cells, as described above.]
Genomics is the large-scale identification and sequencing of the genes that
comprise the human genome. Currently this information is being compiled in
databases, and the sequencing of the entire human genome is nearing completion.
This genomic database provides a starting point for understanding the underlying
role of genes in disease, but by itself is inadequate to identify key
disease-related gene switches. To realize the substantial potential of genomics
initiatives, key gene switches involved in disease need to be identified in
order to permit the rapid development of superior drug therapies.
CURRENT LIMITATIONS OF DRUG DISCOVERY AND GENOMICS
Conventional drug discovery efforts principally are focused on identifying
compounds that affect targets outside the cell, such as cell surface receptors
and secreted proteins, and provide only symptomatic relief without treating the
underlying molecular causes of disease. For example, in rheumatoid arthritis,
aspirin and related compounds only relieve the symptoms of pain and
inflammation. These drugs do not address the destruction of arthritic joints
caused by the disease. Drugs directed toward targets outside the cell also have
a number of potential limitations in treating complex diseases where the
underlying molecular mechanisms are located within cells. These drugs often do
not control the specific sets of genes that are responsible for the
27
<PAGE> 32
onset and progression of disease and may also result in side effects due to
their non-specific action. Further, by focusing principally on receptors and
other proteins located outside the cell, these drugs are directed toward only a
limited number of the total potential disease targets. An additional limitation
is that many current drugs or drugs in development, especially proteins, must be
injected and are not available in pill form.
Recent advances in genomics have the potential to significantly improve
drug discovery. Most genomics efforts have been directed principally toward the
identification and sequencing of the large number of genes that comprise the
human genome. These developments have not enabled the rapid identification of
drug targets, because the gene sequence data by itself provides limited
information, if any, about a gene's relationship to a specific disease. To fully
capitalize on the therapeutic potential of genomics, there is a need to map
critical gene regulating pathways and identify key gene switches as drug targets
for disease therapy.
SIGNAL'S GENE REGULATING DRUGS
We have developed and integrated a large set of proprietary target and drug
discovery technologies to accelerate the application of genomics to the
discovery of important new classes of gene regulating drugs. We first map the
gene regulating pathways to identify drug targets, or gene switches, that
control specific genes and result in disease. This information is then used to
discover novel gene regulating drugs by applying our drug discovery engine. We
believe our discovery and development capabilities provide us and our
collaborators with a highly advanced and competitive technology platform for
target and drug discovery. This engine consists of:
- Advanced cellular, molecular and genomic technologies. We use information
produced from human genomics initiatives to map gene regulating pathways
and identify clinically important drug targets for specific diseases. We
have generated proprietary human cell lines, from multiple tissues of the
body, to create in vitro, or test tube, models of disease and to evaluate
the activity and selectivity of drug candidates. We also use functional
genomics and proteomics, the linking of genes and their protein products
to their biological functions, for mapping gene regulating pathways and
identifying disease targets for use in drug discovery;
- Proprietary high throughput screening systems and diverse compound
libraries. We have assembled a library of more than 300,000 distinct
small molecule compounds and natural products which we screen using our
proprietary biochemical and cell-based screening technologies. Our
screening systems include a proprietary screening technology that
simultaneously screens multiple kinases to provide drug activity and
specificity data across multiple drug targets;
- A proprietary, specially designed screening library which we call
SKIL. We identified the active sites, or molecular locks, on a number of
gene regulating targets using our extensive knowledge of the three
dimensional structures of these targets. We believe gene regulating
targets identified in the future will contain similar locks. Our SKIL
library is designed to contain compounds expected to fit like molecular
keys into these locks, enhancing our ability to identify effective
inhibitors of current as well as yet-undiscovered gene regulating
targets. In addition, we design these compounds to have attractive
pharmaceutical properties, such as solubility, chemical stability,
non-reactivity and the ability to be taken in pill form, which
accelerates the development of viable drug candidates; and
- Structure-based drug design. We use our proprietary three-dimensional
models of drug targets, combined with advanced chemistry technologies, to
efficiently generate drug leads and advance drug candidates into
preclinical and clinical development.
We believe that, together, these integrated target and drug discovery
capabilities enable us to proceed rapidly from target identification to
screening and optimization of drug candidates. To date, we alone or with our
collaborators have identified 27 drug targets in 10 gene regulating pathways
with potential applications in at least six major disease areas. We also have
developed 29 drug discovery screens, identified 24 drug leads and commenced
evaluation of drug leads in 15 animal models of disease. We and our
collaborators have developed two drug candidates in our cancer program for which
we intend to submit INDs by the end of 2000, assuming preclinical development is
favorably completed without delay.
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<PAGE> 33
We believe that our proprietary drug discovery engine enables us to
overcome many of the current limitations of conventional drug discovery and
genomics for the following reasons:
We Identify Multiple Drug Targets for Each Therapeutic Program. It is
estimated that there are more than 2,000 gene switches within cells which
activate or suppress genes in a broad range of diseases. We are identifying
those gene switches that are critical drug targets for disease therapy. Many of
these targets are highly amenable to inhibition with small molecule drugs which
can be administered in pill form. We believe that identifying multiple targets
in each of our therapeutic programs increases the likelihood of generating a
large and sustainable pipeline of superior drug candidates. For example, in our
cancer program, we and our collaborators have identified 15 key gene switches
within four gene regulating pathways.
We Select Drug Targets That Simultaneously Regulate Multiple
Disease-Causing Genes. We are discovering drugs that may be effective in
treating diseases where a single drug target regulates multiple genes involved
in disease. For instance, we have identified potent and selective inhibitors of
the cJun N-terminal kinase or JNK, drug target which modulate the expression of
a broad set of disease-associated genes such as interleukin-2, or IL-2, gamma
interferon and tumor necrosis factor (greek alpha) or, TNF(greek alpha). These
JNK inhibitors have disease-modifying activity in animal models of arthritis and
asthma.
Our Drug Leads and Drug Candidates Are Highly Selective for Specific Gene
Targets. Many of our drug targets regulate genes functioning in an over- or
under-activated state, and do not affect normal levels of gene expression
required to maintain essential cellular functions. Therefore, we expect the
safety profile of our drugs to be superior to less specific drugs. For example,
our inflammation program focuses on gene regulating pathways that are not turned
on in normal tissues but are primarily turned on by inflammatory proteins during
a disease process, causing tissue damage.
OUR STRATEGY
Our goal is to build a leading pharmaceutical company focused on the
discovery, development and commercialization of new classes of drugs regulating
gene function. There are five important elements of our business strategy:
Advance Our Leadership Position in Discovering and Developing Novel Gene
Regulating Drugs. We have developed and integrated a large set of proprietary
target and drug discovery technologies into a drug discovery engine for
generating new classes of gene regulating drugs. We plan to expand our
leadership in this area by continuing to develop and integrate advances in
functional genomics, proteomics, drug screening systems, structure-based drug
design, medicinal chemistry, pharmacology and preclinical drug development. We
plan to continue to add management and technical expertise to accelerate the
development and commercialization of gene regulating drugs. We will license from
others or acquire leading technologies that complement our core capabilities.
Build a Large and Diversified Product Portfolio. To date we have developed
a portfolio of two preclinical drug candidates, four drug leads and 27 targets
that address major diseases. We plan to identify multiple targets within each
gene regulating pathway we explore and select those targets for drug discovery
that can be useful in treating multiple diseases. We believe this strategy will
allow us to enhance the clinical potential of each pathway while simultaneously
limiting our scientific and financial risk in any single gene regulation pathway
or drug target.
Pursue Treatment of Serious Medical Conditions that Represent Large
Potential Markets. We intend to continue to focus our drug discovery and
development efforts on serious diseases that represent potential markets for our
drug products. Our current program areas include cancer, inflammatory diseases,
osteoporosis, cardiovascular disease, neurological disease and viral infections.
In addition, the nature of our gene regulation targets makes them well suited
for small molecule drugs which can be widely distributed and easily administered
in pill form.
Develop a Cancer and Inflammatory Disease Franchise. We have retained
significant United States co-commercial or profit sharing rights in three of our
current corporate collaborations. We intend to establish a United States
franchise in products addressing cancer and inflammatory disease and will
continue to seek to
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<PAGE> 34
retain substantial United States co-commercial or profit sharing rights in
future collaborations within these areas.
Establish Corporate Collaborations. We will continue to aggressively pursue
collaborations with leading pharmaceutical and biotechnology companies to fully
develop and exploit our pipeline of drug targets and drug candidates. These
collaborations provide us with multiple potential sources of revenue. Currently,
our corporate collaborators fund significant portions of four of our six disease
programs. The establishment of these collaborations allow us to diversify
scientific and financial risk and benefit from our collaborators' substantial
development, manufacturing and marketing resources. Typically, we intend to
establish royalty-based collaborations outside of our franchise areas.
OUR DRUG DEVELOPMENT PROGRAMS
Our drug discovery and development programs are focused in several disease
areas in which gene dysregulation plays a major role in the onset and
progression of disease. These diseases include cancer, inflammatory disease,
osteoporosis, cardiovascular disease, neurological disease and viral infections.
CANCER PROGRAMS
Cancer is a group of diseases characterized by uncontrolled growth and
spread of abnormal cells in the body. Cancer results from abnormalities in the
expression of genes that regulate cell proliferation, cell migration and cell
death. According to the American Cancer Society, cancer is the second leading
cause of death in the United States and accounted for 560,000 deaths and an
estimated 1.2 million new cancer cases in 1999. The worldwide cancer drug market
totaled approximately $7.8 billion in 1998. Most current anti-cancer drugs kill
both cancerous and normal cells, giving rise to serious toxic side effects. We
are developing new classes of drugs designed to selectively control abnormal
gene regulating pathways which cause the start or spread of cancer, with the
goal of creating safer and more effective cancer therapies.
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<PAGE> 35
We have six drug discovery and development programs focused on regulating
abnormal gene expression involved in the onset and progression of cancer. We
currently have two drug candidates. The first, SP8490, is for preventing and
treating breast cancer and other cancers. The second, NSP6783, is for preventing
or treating nerve damage caused by cancer chemotherapies. We plan to initiate
preclinical studies for both candidates by mid-2000 and, assuming favorable
outcomes of those studies and no delays in preclinical development, to file INDs
by the end of 2000. We also have three additional cancer drug leads.
CANCER PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
ER-a MODULATOR - Signal Preclinical development Breast, endometrial and renal
SP8490 cancer, multiple myeloma
- ------------------
ER-b MODULATOR Axys/Signal Lead optimization Breast, prostate, ovarian and
colon cancer
- ------------------
NEUROPROTECTANT - Nippon Kayaku / Preclinical development Chemotherapy-induced neuropathies
NSP6783 Signal
- ------------------
JNK:
JNK1,2 Signal Lead optimization Lung and breast cancer, leukemia,
melanoma
JNKK1,2 Signal Lead optimization
JIP1, 2 Signal Target validation
- ------------------
NF-kB:
IKK1,2,3 Ares-Serono / Signal Lead optimization Glioma, lymphoma, pancreatic
cancer, melanoma, sarcoma
NIK Ares-Serono / Signal Assay development
IKKAPI Ares-Serono / Signal Assay development
IkB ligase Ares-Serono / Signal Assay development
- ------------------
OTHER LIGASES:
E3 ligases Signal Target validation Breast, prostate and pancreatic
cancer
- ------------------
TGF-b Signal Target validation Breast, prostate and pancreatic
cancer
- ------------------
</TABLE>
In the table above and the other tables in this section, the terms we use
under the column entitled "Status" have the following meanings:
- TARGET DISCOVERY AND TARGET VALIDATION is identification of new
disease-related genes and their protein products, cloning and
characterizing novel enzymes and other proteins that regulate activation
of disease-related genes and validation of these gene regulating proteins
as drug targets.
- ASSAY DEVELOPMENT is creation of biochemical or cell-based assays which
incorporate a specific drug target and are used to identify compounds
which selectively and potently regulate the drug target.
- SCREENING is testing libraries of organic small molecules and natural
products in biochemical or cell-based method for determining specific
properties of compounds, known as assays or screens, to identify
compounds which selectively and potently inhibit or induce activation of
a drug target.
- LEAD OPTIMIZATION indicates the application of combinatorial and
computational chemistry, as well as structure-based drug design, to
enhance the potency, selectivity, bioavailability, safety and other
pharmaceutical properties of drug leads.
- PRECLINICAL DEVELOPMENT is the evaluation of a drug lead in pharmacology,
safety and other tests in preparation for clinical trials.
- --------------------------------------------------------------------------------
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Estrogen Gene Regulation in Cancer
Estrogen is a hormone that has a broad spectrum of effects on tissues in
both women and men. Many of these biological effects are beneficial, including
maintenance of bone density, cardiovascular and neurological protection, and the
protection of organ systems from the effects of aging. In addition to estrogen's
positive effects, however, the hormone also is a potent growth factor in the
breast and uterus that has been demonstrated to increase significantly the risk
of cancer in women. In addition, estrogen contributes to prostate cancer and in
certain conditions can cause feminization in men.
Two distinct estrogen receptors exist in the body, the estrogen
receptor-alpha, or ER-a, and estrogen receptor-beta, or ER-b, each of which has
a distinct tissue distribution in the body. ER-a is found predominantly in bone
and in cardiovascular, breast and reproductive tissue, while ER-b is the
predominantly expressed estrogen receptor in the prostate and hippocampus region
of the brain. Given the tissue-selective expression of ER-a and ER-b, estrogen
receptor modulators can be designed to mimic the positive effects and block the
negative effects of estrogen in different tissues. Drugs that modulate these
receptors are termed selective estrogen receptor modulators, or SERMs.
Unlike chemotherapeutic agents which often cause significant side effects,
including loss of white blood cells, nerve damage, nausea and other debilitating
side effects, SERMs act through different, primarily non-toxic mechanisms.
Currently two SERMs are marketed for treatment of breast cancer. One of these
SERMs, tamoxifen, is the most widely prescribed anti-hormonal therapy for cancer
today. However, tamoxifen is associated with a number of adverse side effects,
including an increased risk for uterine cancer, blood clotting and hot flashes.
In addition, virtually all patients receiving tamoxifen become resistant to the
drug. Despite these shortcomings, worldwide tamoxifen sales for breast cancer
totaled approximately $560 million in 1999.
We are using our gene regulation expertise to design new classes of ER-a
and ER-b-selective SERMs with efficacy and safety profiles that we believe will
be superior to those of current chemotherapies and tamoxifen. We believe these
SERMs have significant potential for preventing and treating breast,
endometrial, prostate, colon and other cancers whose growth is dependent on
estrogen.
SP8490 -- An ER-a Modulator
Using our drug discovery engine and expertise in estrogen gene regulating
pathways, we have discovered and are developing a series of SERMs with improved
efficacy and safety in animal models when compared with tamoxifen. In animal
studies, these drug leads were orally effective in preventing breast cancer and
demonstrated equal or superior efficacy to tamoxifen. Additionally, these
compounds displayed a superior safety profile on uterine tissue compared to
tamoxifen. A potential drug candidate, SP8490, is in preclinical studies and,
assuming favorable outcomes of those studies and no delays in preclinical
development, we plan to file an IND by the end of 2000.
ER-b Modulators
We have discovered and are developing a novel series of ER-b-selective
SERMs which currently are in lead optimization. These drug leads demonstrate
significant in vitro anti-cancer activity in tamoxifen-resistant breast cancers
and ER-b-expressing cancers such as prostate cancer. Our SERM-b drug leads
represent a novel series of SERMs that, if successfully commercialized, may be
useful in treating the large number of cancer patients that develop tamoxifen
resistance, as well as other ER-b-positive cancers such as prostate, colon and
ovarian cancer. Currently, we know of no other ER-b-selective drugs that are
being marketed or that are in clinical development.
In October 1999, we entered into a collaboration with Axys Pharmaceuticals
to discover and develop ER-b-selective SERMs for cancer therapy. We describe
this collaboration and our other collaborative arrangements below under the
heading "Corporate Collaborators."
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<PAGE> 37
NSP6783 -- A Neuroprotectant for Neuropathies Caused by Cancer Chemotherapy
An estimated 350,000 cancer patients receive chemotherapy using taxol,
cisplatin, carboplatin and other drugs each year in the United States to treat
solid tumors of the lung, breast, ovaries and other organs. We estimate that
150,000 of these cancer patients develop nerve damage as a result of
chemotherapy, known as chemotherapy-induced neuropathies. These neuropathies
result in pain and/or loss of feeling in the hands and feet, reduced motor
coordination and muscle strength. The present standard of care for
chemotherapy-induced neuropathy provides only symptomatic relief and does not
prevent or treat the underlying cause of the neuropathy.
Applying our drug discovery engine, in collaboration with Nippon Kayaku, we
identified a compound we call NSP6783. In multiple animal studies, this orally
active drug candidate has been shown to provide significant protection of
peripheral nerves and their function in an animal model of taxol-induced
neuropathy. In preclinical studies, NSP6783 has a favorable safety profile and
does not diminish the anti-cancer effects of taxol or cisplatin.
We are developing NSP6783 for the prevention and possible treatment of
chemotherapy-induced neuropathies. NSP6783 is in preclinical studies and,
assuming favorable outcomes of those studies and no delays in preclinical
development, we plan to file an IND by the end of 2000. This drug candidate is
the first in a novel class of neuroprotectants to be used in conjunction with
chemotherapy to prevent peripheral neuropathy. NSP6783 has the potential to
prevent nerve damage and therefore may be effective in preventing or treating
the underlying cause of this disorder. There presently are no approved
treatments for this condition, and we know of no such drugs currently under
development.
We are investigating other potential clinical applications for this novel
class of neuroprotectants. These include the possible treatment of diabetic
neuropathy and nerve crush injury in the peripheral nervous system and the
potential treatment of Parkinson's and Alzheimer's diseases in the central
nervous system.
In February 2000, we extended our collaboration with Nippon Kayaku to share
equally, with the exception of Japan, in the development and commercialization
of NSP6783 and other potential neuroprotectant agents worldwide.
JNK Inhibitors for Cancer
The JNK pathway controls the expression of specific sets of genes involved
in cancer, including:
- cytokines and growth factors that promote the growth of cancer cells;
- cell adhesion molecules and tissue-destructive enzymes that enable tumors
to spread to distant sites in the body and invade normal tissues and
organs, referred to as metastasis; and
- factors that lead to the growth of new blood vessels and aid in
establishing new tumors, referred to as angiogenic factors.
We are applying our expertise in the JNK gene regulating pathway to
identify novel cancer targets which play a fundamental role in tumor growth and
metastasis. We are designing new classes of drugs that target abnormalities in
gene regulating pathways to inhibit the transformation, growth and spread of
cancer without affecting other essential gene regulating pathways. Using our
drug discovery engine, we have identified potent and selective small molecule
inhibitors of the JNK pathway which have demonstrated anti-proliferative
activity in tumor cell lines in vitro. We believe drugs that selectively inhibit
select targets in the JNK pathway may be highly effective in treating several
cancers including lung, breast and ovarian carcinomas, myelomas and leukemias
without the safety concerns of current cancer treatments.
NF-kB Inhibitors for Cancer
The nuclear factor kappa B, or NF-kB, pathway controls the expression of
specific sets of genes involved in different stages of cancer development and
progression. These include cell adhesion molecules that allow cancer cells to
migrate to distant tissues and specific cell survival factors that make cancer
cells
33
<PAGE> 38
resistant to radiation and chemotherapy. Using our gene regulating target
discovery expertise we and our collaborators have mapped the NF-kB pathway
extensively and have identified multiple drug targets in the NF-kB gene
regulating pathway. We and our collaborators also have demonstrated in vitro
that inhibiting key NF-kB kinase targets significantly increases the sensitivity
of cancer cells to cancer chemotherapeutics. We have identified small molecule
inhibitors of kinase targets in the NF-kB gene regulating pathway and plan to
study these further in animal models of cancer.
In November 1997, we entered into a collaboration with Ares-Serono to
discover and develop drugs that target the NF-kB pathway for the potential
treatment of certain cancers.
Ligase Inhibitors for Cancer
We pioneered the discovery of ligase drug targets in the NF-kB and other
important gene regulating pathways. Ligases represent an important new family of
gene regulating targets because of their ability to precisely maintain normal
levels of proteins in cells. In cancer, certain proteins, such as those that
suppress the growth of tumors, are lost or diminished which causes the
progression of cancer. We have developed novel drug screens to identify
selective ligase inhibitors which we believe may restore normal levels of
proteins the body uses to prevent the emergence of cancer and resistance to
chemotherapy.
TGF-b Modulators for Cancer
Transforming growth factor-b, or TGF-b, controls several well-known
tumor-regulating gene products, such as tumor suppressor genes, cyclins and
cyclin-dependent kinases. Normal regulation of the TGF-b pathway has been shown
to suppress tumor progression. In a number of cancers, the loss of normal
TGF-b-regulated gene expression promotes the cancers' progression and the risk
of death.
The gene regulating pathway for TGF-b recently has been identified. Our
scientists are applying genomic and proteomic approaches to discover novel
targets which suppress TGF-b pathways. Inhibitors of these novel targets are
expected to restore normal TGF-b-regulated gene expression and inhibit tumor
growth. We are developing drug discovery assays for specific targets in this
pathway and intend to screen our SKIL and diversity compound libraries against
these targets.
INFLAMMATORY DISEASE PROGRAMS
The human immune system is comprised of cells and biochemical substances
that protect the body from infectious organisms, physical injury and abnormal
cellular events such as cancer. Key components of the immune system, such as
white blood cells, are responsible for protective or inflammatory responses at
sites of injury and disease. Inflammatory diseases arise from the
over-activation of the immune system resulting in the over-production of immune
cells, inflammatory cytokines and tissue-destructive enzymes. These cells and
proteins attack and destroy healthy tissue, giving rise to a number of diseases
such as rheumatoid arthritis, osteoarthritis, allergies, asthma, inflammatory
bowel disease and psoriasis, as well as transplant rejection. In 1998, worldwide
sales of anti-arthritic and immunosuppressive drugs alone totaled approximately
$4.4 billion. Many current drugs have dose-limiting side effects and only target
a single disease mechanism. More importantly, although these current drugs
alleviate many symptoms of disease, they generally do not target the underlying
mechanisms and therefore do not effectively modify disease processes or treat
the underlying disease.
We are identifying drug targets in key pathways and screening for new
classes of small molecule drugs that regulate inflammatory diseases at the level
of gene function. For example, inflammatory proteins such as interleukin-1, or
IL-1, and TNFa activate gene regulating pathways that cause an inflammatory
response. The anti-TNFa protein drug Enbrel(R) has validated this cytokine
pathway for treating rheumatoid arthritis; however, this drug must be
administered by injection. A drug of comparable or superior efficacy that can be
taken in pill form would represent formidable competition for injectable drugs
such as Enbrel. Our strategy is to discover small molecule drugs that can be
taken in pill form and that effectively modulate other important inflammatory
pathways such as IL-1 and IL-2 in addition to TNFa . We currently are optimizing
inhibitors of
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<PAGE> 39
gene regulating targets in three distinct pathways, JNK, NF-kB and p38, and have
demonstrated the efficacy of two series of drug leads in animal models of asthma
and arthritis.
We have three drug discovery and development programs focused on regulating
abnormal gene expression involved in the onset and progression of inflammation.
These programs are directed toward 17 gene regulating targets. We currently have
drug leads in each of our JNK, NF-kB and p38 programs outlined in the table
below.
INFLAMMATORY DISEASE PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
JNK:
JNK1,2 Signal Lead optimization Rheumatoid arthritis, asthma,
JNKK1,2 Signal Assay development allergy, multiple sclerosis,
JIP1, 2 Signal Target validation transplant rejection
- ------------------
NF-kB:
IKK1,2,3 NIK Ares-Serono / Signal Lead optimization Osteoarthritis, rheumatoid
IKKAP1 Ares-Serono / Signal Assay development arthritis, multiple sclerosis,
IkB Ligase Ares-Serono / Signal Assay development inflammatory bowel disease, ARDS
Ares-Serono / Signal Assay development
- ------------------
P38:
p38-2 Signal Screening Psoriasis, rheumatoid arthritis,
MKK3 Signal Assay development asthma, inflammatory bowel
MKK6 Signal Lead optimization disease, ischemic disorders
Tao 1,2 Signal Target validation
</TABLE>
- --------------------------------------------------------------------------------
JNK Inhibitors for Inflammatory Diseases
Activation of the JNK gene regulating pathway increases the expression of a
set of inflammatory genes, including TNFa, IL-2 and gamma interferon. There are
multiple types of the JNK regulatory enzyme, each of which controls the
expression of genes in specific cells and in response to specific stimuli. Our
researchers and collaborators have identified what we believe is the largest
number of known kinase targets in the JNK pathway to date. We believe we have a
dominant patent position in the JNK pathway with eight issued United States
patents, four issued foreign patents and related patent applications covering
JNK, its use in drug discovery and JNK inhibitors. Over-activation of JNK causes
or exacerbates several inflammatory diseases, including rheumatoid arthritis,
asthma and multiple sclerosis. Drugs that inhibit JNK activation are expected to
selectively block the over-activation of disease-associated genes, and not
affect normal cellular functions, since JNKs principally do not regulate normal
gene expression.
We have developed and initiated high throughput screening for JNK1, JNK2
and JNK3 inhibitors using proprietary biochemical and cell-based screens. Using
our kinase-focused SKIL library, we have identified several compounds which
inhibit JNK activity with a high level of potency and specificity. In addition
to significantly reducing inflammation, one of these drug leads prevents the
destruction of joints in an animal model of arthritis. This drug lead also
demonstrates potent disease-modifying activity in an animal model of asthma. We
are developing additional high throughput drug screens for several other drug
targets in the JNK pathway.
NF-kB Inhibitors for Inflammatory Diseases
NF-kB plays a pivotal role in inflammatory disease processes by regulating
cytokine genes, such as TNFa, IL-1, IL-2, IL-6, IL-8, along with genes that code
for cell adhesion molecules and the cyclooxygenase-2 or, COX-2, inflammatory
enzyme. Our researchers and collaborators have identified six drug targets that
regulate NF-kB activation. Our discovery of three of these targets was reported
in the journals Science, Nature and Cell. We believe drugs which inhibit NF-kB
and the activation of select disease-associated genes will have potential
disease modifying effects. We have been issued four United States patents and we
and our collaborators have filed related patent applications for targets in this
pathway.
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<PAGE> 40
We have developed and initiated high throughput screening for NF-kB
inhibitors using proprietary biochemical and cell-based screens. We also have
developed technology for profiling the effects of active compounds on a number
of other immune-inflammatory genes and proteins. Using our kinase-focused SKIL
library, we have identified several small molecule drug leads which selectively
inhibit NF-kB activity. One of these drug leads inhibits expression of
inflammatory response genes in an animal model. We are optimizing these drug
leads to enhance potency, specificity and bioavailability in models of
inflammatory disease. We are developing additional high throughput drug screens
for other targets in the NF-kB pathway.
In November 1997, we initiated a collaborative development and license
agreement with Ares-Serono to discover novel NF-kB inhibitors for inflammatory
and other diseases.
p38 Inhibitors for Inflammatory Diseases
Activation of the p38 gene regulating pathway causes the expression of
multiple cytokine genes, including IL-1, IL-6, IL-8 and TNFa, which regulate the
development and proliferation of cells in response to disease and tissue injury.
When inappropriately activated, the p38 pathway is believed to play an important
role in diseases arising from abnormal production of cytokines, including heart
disease caused by harmful inflammatory events. To date, we and our academic
collaborators have identified five proprietary drug targets in the p38 pathway.
One of these targets is p38-2, a subtype of p38, which is highly expressed in
heart and skeletal muscle and not most other tissues. We and our collaborators
have been issued three United States patents for three drug targets in the p38
pathway, MKK3, MKK6 and p38-2, and we and our collaborators have filed related
patent applications with regard to other potential drug targets in this pathway.
In the p38 pathway, we have screened two targets using our SKIL compound
library and have identified novel inhibitors which we plan to optimize as drug
leads later in 2000. We also plan to initiate high throughput screening on an
additional p38 pathway target during the first half of 2000.
OSTEOPOROSIS AND BONE FORMATION PROGRAMS
The incidence of osteoporosis and bone fractures in women is significantly
increased during and following menopause. According to the National Osteoporosis
Foundation, in 1999 more than 28 million people in the United States and over 75
million people in the U.S., Europe and Japan are affected by osteoporosis.
Estrogen has been used for hormone replacement therapy, or HRT, for many years
to prevent osteoporosis and alleviate some of the other effects of menopause.
However, HRT has several negative side effects, including the increased risk of
breast and uterine cancer, which make it a poor treatment option for many women.
OSTEOPOROSIS AND BONE FORMATION PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
ER-a MODULATOR Signal Preclinical development Osteoporosis, Paget's disease
- ------------------
BONE FORMATION Signal Target validation Osteoporosis, Paget's disease
TARGETS
- ------------------
</TABLE>
ER-a Modulators for Osteoporosis
SERMs are designed to mimic the beneficial effects of estrogen by
inhibiting bone loss in postmenopausal women, while avoiding some of estrogen's
negative effects. In 1998 Eli Lilly's raloxifene became the first and only
FDA-approved SERM for osteoporosis and in 1999 achieved estimated worldwide
sales of $326 million.
We have developed a novel series of ER-a-selective SERMs with superior
efficacy and safety when compared with raloxifene in preclinical animal studies.
We discovered these drug leads by applying our expertise in gene regulation to
map new estrogen-regulated gene pathways. We then developed and applied
genetically modified bone cell lines, proprietary drug screens, genomic and
proteomic technologies and structure-based drug design to discover and develop
safer and more effective drugs in this class.
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<PAGE> 41
In three separate animal studies, four of our drug leads were tested in
comparison with estrogen and raloxifene for the ability to inhibit bone loss. In
those studies, our orally administered drug leads were demonstrated to be
significantly superior to raloxifene in preventing bone loss and preserving bone
strength. Importantly, our drug leads also demonstrated a superior safety
profile in uterine tissues following microscopic evaluation, when compared with
raloxifene. An additional safety feature of our drug leads is that they do not
stimulate cell proliferation in breast tissue. Our ER-a-selective SERMs also
demonstrated a favorable cholesterol profile in animal models. The drug leads
are well tolerated in animals and have not shown any negative effects in genetic
safety tests required by the FDA. These drugs, if successfully developed, would
provide clinicians with an alternative, non-estrogen treatment for osteoporosis
that also would minimize some of the adverse effects associated with HRT,
including an increased risk of breast and uterine cancer.
Activators of Bone Formation
Current treatments for osteoporosis limit bone loss but do not induce new
bone formation. Drugs stimulating new bone formation would represent an
important addition to current therapies for osteoporosis and other bone
disorders. To date, no orally active drugs that induce bone formation are
available for the treatment of bone diseases. Growth factor proteins known as
bone morphogenetic proteins, or BMPs, stimulate bone formation through
activation of bone forming cells. OP-1, also referred to as BMP7, stimulates new
bone formation and is used clinically as a bone graft substitute in orthopedic
and dental indications. However, because these proteins require injection, they
are not good drug candidates for the osteoporosis market. By mapping the BMP
gene regulating pathway, we have identified molecular targets that may be
inhibited with orally administered small molecule drugs to promote new bone
formation. We plan to screen our compound library against these targets later in
2000.
CARDIOVASCULAR DISEASE PROGRAMS
Cardiovascular disease, including heart attack and congestive heart
failure, largely results from restricted blood flow caused by atherosclerosis
and hypertension. Cardiovascular disease is the leading cause of death worldwide
and results in an estimated 16.7 million annual deaths worldwide according to
the World Health Organization. In the United States, approximately 58.8 million
people were afflicted with cardiovascular disease, leading to an estimated one
million deaths in 1996 according to the American Heart Association. In 1998,
pharmaceutical sales of cardiovascular drugs exceeded $22 billion in the United
States.
Several classes of cardiovascular drugs have been developed to prevent and
treat chronic cardiovascular disease. These drugs work by lowering the LDL, or
bad cholesterol, levels in the blood stream which helps to reduce the buildup of
fatty plaque deposits in blood vessels. However, many of these drugs can cause a
number of serious adverse side effects and do not address the underlying cause
of the disease. There is a need for new classes of cardiovascular drugs that
work on the molecular mechanisms of cardiovascular disease and have improved
efficacy and safety.
Many cardiovascular diseases occur because of abnormal expression of genes
in blood vessels and in the heart. Heart attacks can occur when the cells that
line blood vessels are activated by injury or trauma. These damaged cells
overproduce inflammatory proteins such as cell adhesion molecules, growth
factors and cytokines that lead to a buildup of inflammatory cells and platelets
in blood vessel walls. This buildup may block normal blood flow and lead to
atherosclerosis and heart attack. Many of these proteins are controlled by the
NF-kB, JNK and p38 gene regulating pathways. In addition, the gradual increase
of cholesterol in blood vessels may also cause atherosclerosis and heart
attacks. Estrogen enhances the clearance of bad cholesterol from the blood by
regulating gene expression in the liver.
We have identified several selective inhibitors of gene regulating targets
in the JNK, NF-kB, p38 and estrogen pathways. We have developed additional
screens which use proprietary human vascular cell lines to evaluate the
potential cardioprotective effects of our drug leads. We plan to test these
inhibitors in animal models of heart attack, restenosis, atherosclerosis and
heart failure.
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<PAGE> 42
CARDIOVASCULAR DISEASE PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
JNK:
JNK1,2 Signal Lead optimization Congestive heart failure,
myocardial ischemia
JNKK1,2 Signal Assay development
JIP1,2 Signal Target validation
- ------------------
NF-kB:
IKK1,2,3 Ares-Serono / Signal Lead optimization Atherosclerosis, restenosis,
myocardial ischemia, vasculitis
NIK Ares-Serono / Signal Assay development
IKKAP1 Ares-Serono / Signal Assay development
IkB ligase Ares-Serono / Signal Assay development
- ------------------
P38:
p38-2 Signal Screening Myocardial ischemia, restenosis
MKK3 Signal Assay development
MKK6 Signal Lead optimization
Tao 1,2 Signal Target validation
- ------------------
ER-a MODULATOR Signal Preclinical development Atherosclerosis,
hypercholesterolemia, restenosis
- ------------------
ER-b MODULATOR Signal Lead optimization
- ------------------
</TABLE>
JNK Inhibitors for Cardiovascular Disease
Heart failure can occur when muscle cells in the heart fail due to a
massive influx of inflammatory cytokines such as TNFa. As a result, the heart
fails to adequately pump blood to the body. The JNK pathway is a key regulator
of TNFa gene expression and protein production. This pathway becomes
over-activated in cardiac tissue when the heart undergoes damage or other
stress. We have identified selective and potent inhibitors of the JNK pathway
that will undergo evaluation in models of cardiovascular disease.
NF-kB and p38 Inhibitors for Cardiovascular Disease
Restenosis, or the narrowing of blood vessels that restricts blood flow,
can occur when cells that line the inside of blood vessels are over-stimulated
during balloon angioplasty procedures. This often causes the over-expression of
growth factor genes and subsequent over-proliferation of smooth muscle cells in
the blood vessel wall leading to a re-blocking of the blood vessel. NF-kB and
p38 pathways have been demonstrated to be over-activated in animal models of
angioplasty-induced restenosis. We have identified several inhibitors of targets
in these pathways that will be evaluated in models of cardiovascular disease.
In November 1997, we entered into a collaboration with Ares-Serono to
develop inhibitors of NF-kB for potential treatment of cardiovascular and other
diseases.
Estrogen Gene Regulation for Cardiovascular Disease
We are applying multiple gene discovery technologies to identify gene
regulating drugs for preventing and treating cardiovascular diseases, including
our PhaRMA(TM) functional genomics technology. We have used these technologies
to identify over 75 human genes that are regulated by estrogen in human
cardiovascular cells. Many of these genes are regulated by estrogen in a
tissue-selective manner. A number of these genes currently are not disclosed in
public gene databases and represent novel gene regulating targets. In addition,
we have developed and implemented a proprietary cell-based screening platform
for profiling gene expression in panels of estrogen-regulated genes in
cardiovascular cells. These advanced technologies have led to the discovery and
development of new SERMs which we believe will be cardio-protective, and several
of these novel SERMs are being evaluated in models of cardiovascular disease.
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NEUROLOGICAL DISEASE PROGRAMS
The human nervous system consists of two distinct components: the central
nervous system, or CNS, which includes the brain and spinal cord, and the
peripheral nervous system, or PNS, which includes all nerves outside the CNS.
Within the PNS, neurons transmit information such as pain to the CNS, and motor
pathways then transmit these commands from the CNS to muscles. Defects or damage
in the CNS can lead to Parkinson's disease, Alzheimer's disease, stroke or
epilepsy, as well as psychiatric disorders such as depression and schizophrenia.
PNS disorders can lead to acute and chronic pain, and peripheral neuropathies
caused by chemotherapy and diabetes can cause chronic sensory or motor defects.
In 1998, annual worldwide sales of drugs that act upon the various parts of the
nervous system, or neuropharmaceuticals, totaled $17.8 billion, including
pharmaceuticals such as anti-depressants, pain-killers, anti-anxiety drugs and
anti-epileptics. Many current CNS and PNS drugs exhibit undesirable side
effects. There also are disorders such as Alzheimer's disease and peripheral
neuropathies for which there are no effective treatments due to a limited
understanding of neurological disease processes at the level of gene function.
Neuropharmaceuticals are the second largest area of research and drug
development among pharmaceutical companies today and, as a result, we believe
our potential to enter into collaborations in this area is significant.
Our researchers and collaborators have developed a proprietary cell
immortalization technology for producing cloned human neuronal cells that can be
designed to mimic important features of normal and diseased neurons and can be
used for drug discovery. We have engineered human neuronal and other cell lines
of the CNS and, we believe, the first human sensory neuronal cell lines of the
PNS. Unlike many other approaches, our cell lines are readily renewable and
therefore are amenable to the application of advanced genomic technologies for
target and drug discovery. For example, we have generated a library of genes
associated with Alzheimer's disease using genomics in combination with our
proprietary neuronal cell lines. In addition, our human CNS cell lines can be
used to generate models of diseases and to identify gene regulating targets for
drug discovery in the disease areas of stroke, traumatic head injury and
neurological diseases.
We have developed several drug leads and drug candidates in our JNK3 and
neuroprotectant programs that we believe have significant potential for treating
disease of the central and peripheral nervous systems. In addition, we are
developing neuronal cell lines from different regions of the brain to identify
new drug targets and drug candidates.
NEUROLOGY DRUG PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
JNK3 Signal Lead optimization Epilepsy, stroke, head trauma,
Parkinson's disease, Alzheimer's
disease, spinal cord injury
- ------------------
NEUROPROTECTANT Nippon Lead optimization Diabetic neuropathy,
Kayaku / Signal neurodegenerative disease
- ------------------
NOVEL TARGETS Signal Target discovery CNS and PNS disorders
- ------------------
</TABLE>
JNK3 Inhibitors for Neurological Disease
We are applying our expertise in engineering neuronal cell lines and in
mapping the JNK gene regulating pathway to identify novel drug targets and drug
leads for neurological diseases. JNK3 is known to be located primarily in the
brain and mice engineered to be deficient in JNK3 are resistant to
experimentally induced epilepsy and stroke. For these reasons, we believe JNK3
inhibitors will have therapeutic value for treating epilepsy, as well as
neurodegeneration associated with Alzheimer's disease, Parkinson's disease,
stroke and head trauma. We have identified potent and selective inhibitors of
the JNK gene regulating pathway, including the JNK3 drug target, and are
evaluating their use in preventing or treating epilepsy and stroke.
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<PAGE> 44
NEUROPROTECTANT PROGRAMS
A number of neurological disorders are due to a progressive loss of neurons
over time. This can lead to peripheral neuropathy in diabetes, motor dysfunction
in Parkinson's disease and memory dysfunction in Alzheimer's disease. Small
molecule drugs that prevent the death of neurons cells have the potential to
treat these important disorders. We have discovered compounds, including
NSP6783, that prevent the death of specific types of neurons in cellular models
of neurodegenerative diseases. We plan to investigate the efficacy of our
clinical candidate, NSP6783, and related compounds in animal models of
neurodegenerative disease for potential clinical development.
VIROLOGY PROGRAMS
Viruses are microorganisms that infect cells and can cause serious disease.
Worldwide, an estimated 33.4 million people are infected with human
immunodeficiency virus, or HIV, and 170 million people are estimated to be
infected with the hepatitis C virus, or HCV. Human papilloma virus, or HPV, is
another viral pathogen being transmitted at an epidemic rate. HPV causes
chronic, lifelong genital infection and afflicts an estimated six million people
in the United States. Despite the high incidence of chronic viral infections,
only a limited number of antiviral drugs have been approved to date. New classes
of antiviral treatments are needed which act on novel, virus-specific gene
regulating targets while overcoming problems of toxicity and viral resistance.
We are applying our expertise in gene regulation to the discovery of small
molecule antiviral drugs that selectively inhibit viral genes. Viruses insert
their genetic material into host cells and then use the infected cells'
biochemical machinery to produce new viruses. Viral transcription, translation
and replication events are key steps in the production of new viruses and the
resulting damage that a viral infection can cause. We believe that gene
regulating antivirals may provide more potent and selective therapy due to three
factors:
- viral gene switches are structurally different from those found in human
cells and, therefore, potentially may be targeted with drugs to more
selectively and safely inhibit the spread of the virus without
interfering with normal human cellular functions;
- each virus possesses distinct gene switches that distinguish it from
other viruses, facilitating the design of virus-specific therapeutics;
and
- drugs that target these mechanisms may be useful in treating viral
infections resistant to current therapies.
VIROLOGY DRUG PROGRAMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL RIGHTS STATUS CLINICAL POTENTIAL
- ------------------
<S> <C> <C> <C>
VARIOUS DuPont Screening HCV infection
- ------------------
VARIOUS DuPont Screening HIV infection
- ------------------
E2 Signal Screening HPV infection
- ------------------
</TABLE>
Our virology program is directed toward four viral gene regulating targets:
two regulatory factors for HCV, a transcription factor for HIV and the E2
transcription factor for HPV. We and our collaborators have validated each of
these targets in vitro. We have developed a proprietary viral infection screen
for identifying novel inhibitors of HPV gene activation. We have developed
target-specific screens for small molecule HCV and HIV inhibitors as part of our
three-year collaboration with DuPont Pharmaceuticals initiated in December 1997,
and compounds with selective antiviral activity have been identified and are
entering lead optimization.
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In December 1999, DuPont Pharmaceuticals paid us a $1 million equity milestone
for the successful development of three novel high throughput screening drug
discovery screens for HCV and HIV antivirals.
[DIAGRAM]
[Graphic depicting Signal's discovery engine for gene regulating targets and
drugs. The top portion of the graphic depicts Signal's target discovery engine,
consisting of cellular molecular and genomic technologies. The middle portion of
the graphic depicts Signal's drug discovery engine, consisting of proprietary
screens and compound libraries. The bottom portion of the graphic depicts the
profiling of Signal's drug candidates in specific disease models in preparation
for clinical development.]
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<PAGE> 46
ENGINE FOR DISCOVERING GENE REGULATING TARGETS
We are developing and applying advanced cellular, molecular and genomic
technologies to discover clinically important targets that are the focus of our
drug discovery programs and corporate collaborations. These discovery
technologies include:
Proprietary Human Cell Lines. We have developed a proprietary technology to
immortalize and engineer human cells for use in our target and drug discovery
programs. These cell lines are designed to include the relevant genes and
related pathways involved in both normal and abnormal cellular functions. We use
proprietary human cell lines to develop in vitro models of important disease
processes, including bone metabolism, cardiovascular and neurodegenerative
disease. We then use these human cell lines to identify and validate novel
disease-related genes and specific drug targets in gene regulating pathways and
in screens for drug discovery.
Functional Genomics and Proteomics. We apply functional genomics and
proteomics to determine the role specific genes and their protein products play
in health and disease. We have implemented advanced genomic technologies to
accelerate the identification and prioritization of gene regulating disease
targets. These proprietary methods are designed to identify genes in cells or
tissues that are expressed under disease conditions in comparison to normal
conditions and include differential gene display, subtraction hybridization and
gene chip arrays. We have developed and filed a patent for our proprietary
PhaRMA(TM) genomics system, which we use to rapidly map the differences in gene
expression between normal and diseased tissue and to evaluate the effects of
drug candidates on relevant genes within a cell or tissue. To map the gene
regulating pathways involved in specific diseases, we are developing highly
sensitive protein analysis capabilities that integrate protein separation and
analysis by mass spectrometry for identification of potential drug targets that
regulate specific disease pathways. We use these gene and protein discovery
tools, in combination with our proprietary cell lines, to generate a more
comprehensive profile of gene regulating pathways involved in diseases and to
facilitate the rapid identification of novel and specific therapeutic targets.
For example, we are applying functional genomics technologies to identify and
characterize the role of genomic targets and their regulatory pathways in
cancer, inflammation, bone metabolism, cardiovascular and neurological disease
therapy.
Pathway Mapping and Target Identification. We apply cellular, molecular and
genomic techniques to elucidate the regulatory pathways of disease-related
genes. An initial step in this process involves mapping the regulatory regions
of disease-related genes to identify which transcription factors selectively
activate or inhibit each gene's expression. We then use genomics and proteomics
to identify and characterize specific enzymes or other targets in a pathway that
regulate the activation of these transcription factors. When novel gene
regulating enzymes or other targets are identified, we apply advanced computer
programs to search proprietary and public gene databases and to identify
subtypes of these targets with distinct therapeutic applications and specificity
for different tissues.
After a potential target has been identified, we use antisense, mutant
enzymes, animals in which the gene has been inactivated, antibodies and other
techniques to validate the role of the target in specific disease processes and
to determine its utility for drug discovery. Such target validation is a
critical step before committing resources to assay development and screening for
target-specific drug leads.
ENGINE FOR DISCOVERING AND DEVELOPING GENE REGULATING DRUGS
Once key gene regulating drug targets are identified, we use our advanced
drug discovery engine to rapidly discover and optimize drugs active on these
targets. Our drug discovery engine permits the target-directed screening of
diverse and focused compound libraries in a wide range of high throughput
screening assays. We optimize drug leads by integrating medicinal chemistry with
computational chemistry and combinatorial chemistry, which is the rapid creation
of large compound libraries. We further optimize drug leads using technologies
for profiling the effects of drug leads on specific gene regulating targets in
cellular pathways. These drug discovery activities are coordinated using
computer programs and databases to collect and analyze chemical and biological
data. This integrated information facilitates library design, primary and
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<PAGE> 47
secondary screening and the subsequent design and synthesis of optimized drug
candidates for preclinical and clinical development.
Assay Development. We develop and use proprietary biochemical and
cell-based assays to screen for compounds that regulate gene expression in a
target- and cell-specific manner. Our researchers have designed modular systems
for developing biochemical and cell-based assays, enabling us to substitute
different drug targets into standardized assay formats for use in various
discovery programs. We develop and use biochemical assays to screen compounds
for activity on specific targets. These biochemical assays are designed to mimic
the functional activity of a drug target in its native cellular environment. Our
cell-based assays facilitate the identification of compounds that modulate gene
expression through distinct pathways and in specific cell types. Active
compounds identified in these primary assays are rapidly qualified in a series
of secondary pharmacological assays that provide further information regarding a
compound's clinical potential. These secondary assays measure the effects of
potential drug leads on disease-related genes and proteins, including inhibition
of specific gene-regulating enzymes, inhibition of abnormal protein production,
toxicity to cells, potency and target selectivity. We have developed 29 drug
discovery assays and are continuing to develop additional high throughput
screening assays.
High Throughput Screening. We use automated, high-volume drug discovery
systems, known as high throughput screening, or HTS, systems for rapid,
target-specific screening of diverse compound libraries. These robotic systems
enhance the precision, reproducibility and integration of chemical and
biological data. Our screening library currently consists of more than 300,000
distinct compounds, which include small molecules, natural products and
compounds derived from combinatorial chemistry. We have the capacity to screen
approximately 40,000 compounds per week, including an average of 10,000
compounds against each of four distinct classes of targets such as transcription
factors, kinases, ligases and viral targets, using three different detection
technologies. We also employ computer information systems to ensure that data
obtained from screening programs is used efficiently to drive the drug discovery
process.
Signal Kinase Inhibitor Library, or SKIL. Based on our extensive knowledge
of the three dimensional structures of gene regulating targets, we have designed
a large, proprietary collection of compounds that we call the SKIL library. SKIL
is a proprietary chemical library focused on kinase-binding small molecules. The
SKIL library currently consists of approximately 17,000 distinct drug-like
compounds, and we plan to continue expanding this proprietary kinase-focused
library. To date we have screened the library against six kinase gene regulating
targets, and have successfully identified inhibitors with attractive
pharmaceutical properties for each of these targets. When screened against new
gene regulating targets, we believe the SKIL library will quickly yield quality
drug leads for further optimization.
Optimization and Preclinical Development of Drug Candidates. We develop
drug candidates by integrating our chemistry and pharmacology expertise. We use
traditional medicinal chemistry approaches in conjunction with combinatorial and
computational chemistry and structure-based drug design to optimize potential
drug candidates. We apply combinatorial chemistry techniques to accelerate the
generation of potent and selective drug candidates that are evaluated in
pharmacological models of disease. We further expedite the drug optimization
process by employing state of the art computational chemistry techniques to
guide the design and synthesis of improved compounds. Using computer models of
drug targets, we design drug candidates that interact more precisely with a
target. Our scientists have designed computer-generated three-dimensional models
of JNK 2, JNK 3, and ER-a and ER-b. These structure-based drug design efforts
have resulted in new series of drug leads and drug candidates with enhanced
potency and selectivity in animal models of disease. Throughout the drug
optimization process our chemists are guided by results from efficacy, drug
absorption, distribution, metabolism and safety studies conducted by our
pharmacology and preclinical development group.
CORPORATE COLLABORATORS
Collaborative arrangements with pharmaceutical and biotechnology companies
are an integral part of our business strategy. As of December 31, 1999, we had
received approximately $54.3 million in upfront fees, research and development
funding, milestone payments and equity investments from our past and current
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<PAGE> 48
collaborators. We had a collaboration with Organon, which expired in July 1999,
and a collaboration with Tanabe, which was terminated in March 1998. In
connection with the termination of our collaboration with Tanabe, we licensed
exclusive worldwide rights for a drug lead to Tanabe. In addition, the research
phase of our collaboration with Roche Bioscience expired in August 1999, and
Roche has exclusively licensed two immortalized PNS cell lines from us for use
in drug discovery for pain, incontinence and peripheral vascular disease.
NIPPON KAYAKU
In February 1998, we entered into a collaborative agreement with Nippon
Kayaku under which Nippon Kayaku agreed to fund specified research at our
facility for two years. Under the agreement, we and Nippon Kayaku agreed to
develop and commercialize products based on or derived from a compound supplied
by Nippon Kayaku for the treatment and prevention of diseases and disorders of
the CNS and PNS. We agreed to perform combinatorial chemistry and use our
proprietary human neuronal cell lines to further optimize the compound and
characterize its mechanism of action prior to the start of clinical studies. As
of December 31, 1999, Nippon Kayaku had paid us $4.3 million to support research
and development efforts under the collaboration. Each party also is obligated to
pay the other royalties on future product sales arising from the collaboration.
In February 2000, following the initial research phase of the
collaboration, we executed an interim agreement with Nippon Kayaku under which
we agreed to enter into a joint agreement to develop and commercialize
neuroprotectant drugs for PNS and CNS disorders and share the costs of this
development and commercialization equally.
ARES-SERONO
In November 1997, we entered into a collaborative agreement with
Ares-Serono, under which Ares-Serono agreed to fund specified research for an
initial three-year period, which term will automatically be extended for
additional three-year periods unless earlier terminated as described below. The
Ares-Serono collaboration is focused on identifying compounds that modulate
NF-kB gene regulating pathways to which Ares-Serono has rights for all diseases.
The original agreement granted Ares-Serono rights to these compounds in all
countries of the world except Asia. In April 1999, Ares-Serono expanded the
collaboration to include Asia by making a $2.0 million license payment to us and
agreeing to pay us milestones and royalties for products commercialized in Asia.
Under the original agreement, Ares-Serono S.A. purchased approximately $10.1
million of our Series E and Series F preferred stock. Ares-Serono also agreed to
provide us with annual research and development support. In addition,
Ares-Serono is obligated to make payments to us based on the achievement of
specified research and development milestones and to pay us royalties on future
sales of products licensed under the collaboration. As of December 31, 1999,
Ares-Serono had paid us $7.0 million in research and development support.
Under an exclusive license that we granted to Ares-Serono, Ares-Serono will
be responsible for preclinical and clinical development of drug candidates and
the development of any drugs arising from the collaboration in all countries of
the world. We have co-promotion rights for all products marketed in the United
States, which are exercisable at any time during the term of the agreement and
up to 30 days following receipt of notice from Ares-Serono of the filing of an
NDA or equivalent regulatory application, with respect to products arising from
the collaboration. If we exercise our co-promotion rights, we will forego
royalties in exchange for a share of product revenue and we will be obligated to
reimburse Ares-Serono for our share of development costs out of a portion of
revenue.
Following the expiration of the initial three-year term, Ares-Serono's
research support obligations will continue for additional three-year periods,
subject to each party's early termination rights. Ares-Serono may terminate its
research support obligations by written notice given to us at least six months
prior to the end of the first three-year term or any subsequent three year term.
Ares-Serono may also terminate the agreement upon six months' notice any time
after the end of the initial three-year term.
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<PAGE> 49
AXYS
In October 1999, we entered into a collaborative agreement with Axys
Pharmaceuticals, under which Axys agreed to fund specified research at our
facility for two years. The agreement may be extended for an additional year at
Axys' option. Our collaboration with Axys is focused on the discovery and
development of ER-b-selective SERMs for cancer therapy. We have rights for all
indications outside of cancer. Axys will provide payments to us in the form of
research funding at a level approximating our cost of this program, research
milestones and royalties. We may exercise a profit share option in the United
States and possibly other territories at a predetermined point during
development in lieu of royalties on product sales. If we exercise this right, we
will share equally in the profits in the United States on product sales by Axys
but will be responsible for an equal share of the remaining development and
commercialization costs in the United States. Either party may terminate this
agreement in the event a material breach by the other party remains uncured for
90 days. As of December 31, 1999, Axys had paid us $2.0 million in license fees
and $316,000 in research funding.
DUPONT PHARMACEUTICALS
In December 1997, we entered into a collaborative agreement with DuPont
Pharmaceuticals, under which DuPont Pharmaceuticals agreed to fund specified
research at our facility for three years. DuPont Pharmaceuticals has the option
to extend the agreement for up to three additional years. The DuPont
Pharmaceuticals collaboration is focused on identifying compounds for the
treatment or prevention of HCV and HIV infections. Under this collaboration, we
and DuPont Pharmaceuticals are responsible for developing target specific
screening assays and are jointly responsible for identifying lead compounds.
DuPont Pharmaceuticals is solely responsible for lead optimization and the
worldwide development and commercialization of any drugs arising from the
collaboration.
DuPont Pharmaceuticals agreed to provide us with annual research and
development support at a level approximating our cost of these programs. DuPont
Pharmaceuticals also is obligated to make payments to us upon the achievement of
specified research and development milestones and to pay us royalties on any
future product sales arising from the collaboration. This agreement may be
terminated by either party upon 60 days written notice upon a material breach
that remains uncured or upon the bankruptcy of the other party. DuPont
Pharmaceuticals paid us a license fee of $1.0 million and, through December 31,
1999, had paid us $3.6 million to support research and development efforts. In
December 1999, DuPont Pharmaceuticals purchased 144,354 shares of our Series F-1
preferred stock for an aggregate purchase price of $1.0 million, under terms
specified in the original agreement in December 1997. This represented a
milestone payment for our successful development and validation of three new
antiviral drug discovery assays, each of which is designed to identify small
molecule inhibitors of key HCV and HIV viral targets. In addition, DuPont
Pharmaceuticals will purchase $2.0 million of shares of our common stock in a
private transaction concurrent with the closing of this offering at the initial
public offering price.
LICENSE AGREEMENTS
We have established a number of license agreements with academic
institutions. Our principal license agreements are:
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
In October 1993, we entered into a license agreement with The Regents of
the University of California, as amended in June 1997 and February 1998, under
which we obtained a worldwide exclusive license for the JNK gene regulating
enzyme based on the research of Dr. Michael Karin, one of our scientific
founders and advisors. The license also covers methods for the production and
screening of nerve cells. In February 1998, we also secured from The Regents
exclusive worldwide license rights to certain patents filed by Dr. Karin
relating to specified NF-kB signaling molecules, IKK1 and IKK2. Under the
license agreement, we paid initial license fees and extension payments and
issued shares of our common stock to The Regents, and are
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obligated to make specified royalty and milestone payments. The term of the
license remains in effect for the life of the last-to-expire patent covered
under each agreement.
THE UNIVERSITY OF MASSACHUSETTS
In October 1996 and 1997, we entered into worldwide exclusive license
agreements with the University of Massachusetts. Under the license agreements,
we have exclusive rights under patent applications and nonexclusive worldwide
rights under unpatented know-how to develop drugs targeting JNK and three
intracellular gene regulating proteins in the p38 pathway, MKK3, MKK4 and MKK6,
based on the research of Dr. Roger J. Davis, one of our scientific advisors.
Upon entering into both of the license agreements, we paid a license fee and
issued shares of our common stock to the University of Massachusetts and are
obligated to make royalty and milestone payments. The term of the licenses
remains in effect for the longer of 10 years or the life of the last-to-expire
patent under the agreements.
PATENTS AND PROPRIETARY RIGHTS
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
Accordingly, we seek patent protection for our proprietary technology, targets
and potential products. As of December 31, 1999, we owned or had licensed 29
issued United States patents, 2 notices of allowance from the United States
Patent and Trademark Office, 9 corresponding issued foreign patents and 35
pending United States patent applications. In addition, as of that date, we
owned or had licensed 7 corresponding international filings under the Patent
Cooperation Treaty and 43 pending foreign national patent applications.
Our policy is to file patent applications and to protect technology,
inventions and improvements to inventions that are commercially important to the
development of our business. We seek United States and international patent
protection for the molecular targets we discover, as well as therapeutic
products and processes, drug discovery technologies and other inventions. Our
commercial success will depend in part on obtaining this patent protection. We
also intend to seek patent protection or rely upon trade secret rights to
protect other technologies that may be used to discover and characterize
molecular targets and that may be used to develop novel drugs. We seek
protection, in part, through confidentiality and proprietary information
agreements.
We have developed proprietary technology for use in molecular target
discovery, regulatory pathway identification and assay design and, in addition
to our issued patents, have filed a number of patent applications in these
areas. Also, an increasing percentage of our recent patent applications have
been related to potential product candidates, or compounds, that we have
discovered.
We are aware of one issued United States patent relating to specific
methods for regulating gene expression. We believe that we have not infringed,
and are not currently infringing, the claims of the patent. Nonetheless, we may
in the future have to prove we are not infringing the patent or be required to
obtain a license to the patent, and we do not know whether such a license will
be available on commercially reasonable terms, or at all. We are also aware of a
United States patent which has issued to a third party claiming subject matter
relating to the NF-kB pathway which appears to overlap with technology claimed
in some of our pending NF-kB patent applications. We believe that one or more
interference proceedings will be initiated by the U.S. Patent and Trademark
Office to determine priority of invention for this subject matter. While we
cannot predict the outcome of any such proceedings, in the event we do not
prevail we believe we can use alternative methods for our NF-kB drug discovery
program for which we have issued United States patents that are not claimed by
the subject matter of the third party patents.
COMPETITION
We face, and will continue to face, intense competition from pharmaceutical
and biotechnology companies and other commercial enterprises, as well as
numerous academic and research institutions and governmental agencies. Other
companies are pursuing the same and similar technologies, including the
discovery of targets that regulate genes.
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Many of our competitors and potential competitors have substantially
greater advantages in the following areas:
- capital resources;
- research and development resources;
- manufacturing;
- sales and marketing; and
- production facilities.
Additionally, many of our competitors have significantly greater experience
than we do in the following:
- undertaking target and drug discovery;
- preclinical product development;
- testing and clinical trials of potential pharmaceutical products; and
- obtaining FDA and other regulatory clearances.
Smaller companies also may prove to be significant competitors,
particularly through proprietary research discoveries and collaborative
arrangements with large pharmaceutical and established biotechnology companies.
Many of our competitors have significant products that have been approved or are
in development and operate large, well funded research and development programs.
We also face competition from academic institutions, governmental agencies and
other public and private research organizations in developing drugs and in
recruiting and retaining highly qualified scientific and management personnel.
Our competitors, either alone or with their collaborative partners, may
succeed in developing technologies or drugs that are more effective, safer, more
affordable or more easily administered and may achieve patent protection or
commercialize drugs sooner than us. Developments by others may render our
product candidates or our technologies obsolete. Our failure to compete
effectively could have a material adverse effect on our business.
GOVERNMENT REGULATION
The manufacturing and marketing of our potential products and our ongoing
research and development activities are subject to extensive regulation by
numerous governmental authorities in the United States and other countries.
Before marketing in the United States, any drug developed by us must undergo
rigorous preclinical testing and clinical trials and an extensive regulatory
clearance process implemented by the FDA under the federal Food, Drug, and
Cosmetic Act. The FDA regulates, among other things, the development, testing,
manufacture, safety, efficacy, record keeping, labeling, storage, clearance,
advertising, promotion, sale and distribution of biopharmaceutical products.
None of our product candidates has received marketing clearance in the United
States or any foreign market. The regulatory review and clearance process, which
includes preclinical testing and clinical trials of each product candidate, is
lengthy, expensive and uncertain. Securing FDA clearance requires the submission
of extensive preclinical and clinical data and supporting information to the FDA
for each indication to establish a product candidate's safety and efficacy. The
process takes many years, requires the expenditure of substantial resources,
involves post-marketing surveillance, and may involve ongoing requirements for
post-marketing studies. Before commencing clinical investigations in humans, we
must submit to, and receive clearance from, the FDA of an Investigational New
Drug application. We expect to rely on some of our corporate collaborators to
file INDs and generally direct the regulatory review process for some of our
products.
Clinical testing must meet requirements for institutional review board
oversight, informed consent and good clinical practices. Clinical testing must
be conducted under FDA oversight. Before receiving FDA clearance to market a
product, we must demonstrate that the product is safe and effective on the
patient population that will be treated. If regulatory clearance of a product is
granted, this clearance will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical trials.
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Marketing or promoting a drug for an unapproved indication is generally
prohibited. Furthermore, clearance may entail ongoing requirements for
post-marketing studies. Even if this regulatory clearance is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections by the FDA. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on this product or manufacturer, including costly recalls or
withdrawal of the product from the market.
The length of time necessary to complete clinical trials varies
significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory clearances. Additional factors that can cause delay or termination of
our clinical trials, or the costs of these trials to increase, include:
- slow patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study or
other factors;
- inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials;
- delays in approvals from a study site's review board;
- longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;
- lack of sufficient supplies of the product candidate; adverse medical
events or side effects in treated patients; and
- lack of effectiveness of the product candidate being tested.
In addition, information obtained from preclinical testing and clinical
trials is susceptible to varying interpretations which could delay, limit or
prevent us from obtaining regulatory clearance of any potential drug. In
addition, delays or rejection may be encountered based upon changes in FDA
policy for drug clearance during the period of product development and FDA
regulatory review of each submitted new drug application, or NDA, or product
license application, or PLA. Similar delays or rejection also may be encountered
in foreign countries. We cannot assure you that regulatory clearance will be
obtained for any potential products developed by us or our collaborators.
Moreover, regulatory clearance may entail limitations on the indicated uses of a
drug. Further, even if regulatory clearance is obtained, a marketed drug and its
manufacturer are subject to continuing review, and discovery of previously
unknown problems with a drug or manufacturer can result in the withdrawal of a
drug from the market or a significant decrease in market demand.
Any drug is likely to produce some toxicities or undesirable side effects
in animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. Unacceptable toxicities or side effects may
occur at any dose level at any time in the course of studies in animals designed
to identify unacceptable effects of a drug candidate, known as toxicological
studies, or clinical trials of our potential products. The appearance of any
unacceptable toxicity or side effect could cause us or regulatory authorities to
interrupt, limit, delay or abort the development of any of our product
candidates and could ultimately prevent their clearance by the FDA or foreign
regulatory authorities for any or all targeted indications.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union registration procedures are
available to companies wishing to market a product in more than one European
Union member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process involves
all of the risks associated with FDA clearance discussed above.
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Violations by us of regulatory requirements at any stage of drug
development, including preclinical testing and clinical trials, the regulatory
review process or post-clearance, may result in various adverse consequences
including the following:
- a delay by the FDA or other applicable regulatory authority in completing
regulatory review of a potential product;
- the FDA or other authority's refusal to grant marketing clearance for a
potential product,
- required withdrawal of a drug from the market; and
- the imposition of criminal penalties against us.
Neither we nor our collaborators have submitted any IND applications for
any potential product of ours. We cannot assure you that we or our collaborators
will be able to obtain FDA or other applicable regulatory authority clearance
for any potential products. If we do not obtain the required regulatory
authorizations or the scope of authorization we request, it will delay or
preclude us or our collaborators from marketing our or our collaborators'
products and limit the commercial use of the potential products.
MANUFACTURING
To date, we have not manufactured any products for preclinical, clinical or
commercial purposes and do not have any manufacturing facilities. We intend to
use third-party contract manufacturers or our corporate collaborators for the
production of material for use in preclinical and clinical trials and for the
manufacture of future products for commercialization. In the event that we are
unable to secure such outside manufacturing capabilities, we will not be able to
conduct preclinical product development, clinical trials or commercialize our
potential products as planned. Even if we were able to establish our own
internal manufacturing capability, doing so would require the expenditure of
significant resources which could have a material adverse effect on our
business, financial condition and results of operations. We cannot assure you
that we or any outside manufacturers can produce potential products of suitable
quality in sufficient quantity in a cost-effective manner, if at all.
We and our contract manufacturers also are required to comply with the
applicable FDA and other applicable domestic and foreign regulatory authorities'
current good manufacturing practice regulations. Good manufacturing practice
regulations include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA. These facilities
must be approved before we can use them in commercial manufacturing of our
products. We or our contract manufacturers may not be able to comply with the
applicable good manufacturing practice requirements and other FDA or other
applicable domestic and foreign regulatory requirements.
EMPLOYEES
As of December 31, 1999, we had 87 full-time employees, including 38 with
Ph.D. degrees. Of our workforce, 69 employees are engaged in research and
development and 18 are engaged in business development, finance and
administration. We have assembled a group of experienced scientists and managers
skilled in each phase of target and drug discovery. We also retain outside
consultants. None of our employees are covered by collective bargaining
arrangements, and our management considers its relationships with our employees
to be good.
FACILITIES
We currently lease 25,000 square feet of laboratory and office space at
5555 Oberlin Drive, San Diego, California. Our lease for this facility expires
on January 31, 2001, with an option to renew for two additional periods of three
years each. We also lease 11,000 square feet of laboratory and office space at
5626 Oberlin Drive and 9,500 square feet of office space at 5627 Oberlin Drive,
San Diego, California. Our leases for these facilities expires on December 31,
2003. We believe that our existing facilities are adequate to meet our
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business requirements for the near-term and that additional space will be
available on commercially reasonable terms, if required.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings at this time.
SCIENTIFIC ADVISORY BOARD
Our scientific advisory board consists of our five scientific founders, as
well as other individuals with expertise in the fields of kinase biology,
immunology, cytokine biology, virology and synthetic chemistry. The scientific
advisory board generally advises us concerning long-term scientific planning,
research and development, and also evaluates our research programs, recommends
personnel to us and advises us on specific scientific and technical issues. The
scientific advisory board meets at least once per year, and some individual
scientific advisors consult with and meet informally with us on a more frequent
basis. Some of our scientific advisors own shares of our common stock, and we
have entered into consulting agreements with all of our scientific advisors.
None of our scientific advisors is employed by us, and any or all of our
advisors may have commitments to or consulting or advisory contracts with their
employers or other entities that may conflict or compete with their obligations
to us. Accordingly, these persons are expected to devote only a small portion of
their time to us. The members of our scientific advisory board are:
SCIENTIFIC FOUNDERS
Tony Hunter, Ph.D., is a Professor at The Salk Institute and an American
Cancer Society Research Professor. Dr. Hunter is a world-renowned expert in the
field of gene regulating kinases and established their roles in the regulation
of cellular growth and tumor development. Dr. Hunter was elected a fellow of the
Royal Society of London and has received several awards for his research,
including a 1994 Gairdner Foundation International Award.
Michael Karin, Ph.D., is a Professor in the Department of Pharmacology,
University of California, San Diego. He is an internationally recognized expert
in the field of transcriptional regulation and has made fundamental
contributions to the understanding of a variety of gene regulating pathways,
including JNK, FRK and NF-kB.
Inder Verma, Ph.D., is Chairman of our Scientific Advisory Board. Dr. Verma
is an American Cancer Society Professor of Molecular Biology and Co-Director of
the Laboratory of Genetics at The Salk Institute, and is a member of the
National Academy of Sciences. Dr. Verma is internationally recognized for his
work in the field of NF-(greek kappa)B gene regulation.
Fred H. Gage, Ph.D., is a Professor in the Laboratory of Genetics of the
Salk Institute for Biological Studies. He is an internationally respected
innovator in the fields of neurological diseases and transplantation. Dr. Gage
has won the IPSEN Prize, the Ameritec Prize, the Metropolitan Award, the
Chancellor's Associate Award and the Allied Signal Award.
Stephen F. Heinemann, Ph.D., is a Professor and Director of the Molecular
Neurobiology Laboratory at The Salk Institute and an external member of the Max
Planck Institute. Dr. Heinemann is the recipient of the Bristol-Myers Squibb
Distinguished Achievement Award in Neuroscience Research. He is considered one
of the foremost experts in the field of receptor neurobiology and is a member of
the National Academy of Sciences.
OTHER SCIENTIFIC ADVISORY BOARD MEMBERS
Roger J. Davis, Ph.D., is a Professor in Molecular Medicine and the
Department of Biochemistry & Molecular Biology at the University of
Massachusetts Medical Center, and an Associate Investigator at the Howard Hughes
Medical Institute. Dr. Davis is regarded as one of the leading researchers
worldwide in the
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field of signal transduction. Dr. Davis is a principal or co-discoverer of
several important gene regulating kinases, including molecular mechanisms of the
JNK and p38 signaling pathways.
Melanie Cobb, Ph.D., is a Professor in the Department of Pharmacology at
the University of Texas Southwestern Medical Center in Dallas. Dr. Cobb is
internationally renowned for her research on MAP kinase gene regulating
pathways.
Anjana Rao, Ph.D., is an Associate Professor of Pathology at the Harvard
Medical School. Dr. Rao has conducted seminal research on signal transduction
mechanisms of the human immune system, including the NF-ATp and NF-(greek
kappa)B transcription factors. Dr. Rao is a recipient of the Leukemia Society of
America Scholar Award.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information regarding our current executive
officers, directors and key employees as of January 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan J. Lewis, Ph.D. ................... 54 President, Chief Executive Officer and
Director
David W. Anderson, Ph.D. ............... 47 Senior Vice President, Chief Scientific
Officer
Bradley B. Gordon....................... 46 Senior Vice President Finance, Chief Financial
Officer and Corporate Secretary
Douglas E. Richards..................... 37 Vice President, Corporate Development
Shripad S. Bhagwat, Ph.D. .............. 44 Senior Director of Drug Discovery
Anthony M. Manning, Ph.D. .............. 38 Senior Director of Target Biology and
Preclinical Development
John P. Walker(1)....................... 51 Chairman of the Board
Harry F. Hixson, Ph.D.(2)............... 61 Director
Patrick F. Latterell(1)(2).............. 41 Director
Gary L. Neil, Ph.D.(1).................. 59 Director
Arnold Oronsky, Ph.D.(2)................ 59 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Alan J. Lewis, Ph.D. has served as our Chief Executive Officer and Director
since 1996 and as our President since 1994. Prior to joining us, Dr. Lewis
worked for 15 years at the Wyeth-Ayerst Research division of American Home
Products Corporation, a pharmaceutical company, where he served as Vice
President of Research from 1990 to 1994. At Wyeth-Ayerst, Dr. Lewis was
responsible for drug discovery efforts in CNS, cardiovascular, inflammatory,
allergy and bone metabolism diseases. Dr. Lewis currently serves as a Director
of Allergan Specialty Therapeutics, Inc. a pharmaceutical company. He holds a
Ph.D. in Pharmacology from the University of Wales in Cardiff and completed his
post-doctoral training at Yale University.
David W. Anderson, Ph.D. has served as our Chief Scientific Officer since
October 1999 and as our Vice President of Drug Discovery and Preclinical
Development from 1994 to October 1999. Prior to joining us, Dr. Anderson spent
six years at Johnson & Johnson, a healthcare company, most recently as Director
of Drug Discovery at the R.W. Johnson Pharmaceutical Research Institute. He led
teams which filed three INDs in the areas of cancer and inflammatory diseases.
Prior to his tenure with Johnson & Johnson, Dr. Anderson was one of the first
senior scientists and group leaders in immunology and inflammation at Monsanto.
Dr. Anderson holds a Ph.D. in Medical Microbiology and Immunology from the
University of Missouri-Columbia. He conducted post-doctoral training at the
Webb-Waring Lung Institute and served as an Institute Fellow of the Eleanor
Roosevelt Institute for Cancer Research both located at the University of
Colorado Health Science Center.
Bradley B. Gordon has served as our Vice President Finance, Chief Financial
Officer and Corporate Secretary since 1994. For the seven years prior to joining
us, Mr. Gordon served in various management positions with Viagene, Inc., a
biopharmaceutical company acquired by Chiron Corp. in 1995, including Corporate
Vice President, Vice President Corporate Development and Vice President,
Finance. Mr. Gordon received an M.B.A. from the University of Southern
California.
Douglas E. Richards has served as our Vice President, Corporate Development
since May 1998. Before joining us, Mr. Richards served as Director of
Biotechnology Licensing at Bristol-Myers Squibb. While at Bristol-Myers Squibb,
from 1995 to 1998, Mr. Richards was responsible for completing a number of major
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collaborations with biotechnology companies with a potential value of well over
two-hundred million dollars. Between 1992 and 1995, Mr. Richards served in the
corporate development department at Gensia, where he was responsible for
corporate partnering and technology in-licensing activities. Mr. Richards
received an M.B.A. from the University of Chicago and an M.S. in Molecular
Biology from the University of Wisconsin.
Shripad Bhagwat, Ph.D. has served as our Senior Director of Drug Discovery
since 1999 and was our Director of Medicinal Chemistry from May 1998 to 1999.
Dr. Bhagwat has fifteen years of research experience in medicinal chemistry and
drug discovery in the pharmaceutical industry. Prior to joining us in 1998, Dr.
Bhagwat was Senior Group Leader, Neuroscience Research at Abbott Laboratories
for four years with responsibility for managing the medicinal chemistry
activities for two lead optimization programs, including one drug candidate in
clinical development. From 1985 through 1994 Dr. Bhagwat was employed at
Ciba-Geigy Corp. where he managed several medicinal chemistry programs in the
area of cardiovascular, atherosclerosis and antiviral research. Dr. Bhagwat
received his Ph.D. in Organic Chemistry from the State University of New York at
Stony Brook and conducted post-doctoral research at Columbia University.
Anthony M. Manning has served as our Senior Director, Target Biology &
Preclinical Development since November 1999. Dr. Manning joined Signal in July
1996 as Director, Inflammation and Immunology. Before joining us, Dr. Manning
served as Senior Research Scientist at Pharmacia & Upjohn. While at Pharmacia &
Upjohn, from 1992 to 1996, Dr. Manning was a Drug Discovery Program Team Leader
in the inflammation area. Dr. Manning completed a Fogarty International Center
NIH Fellowship in Human Molecular Genetics at Baylor College of Medicine and a
Masonic Fellowship in Pediatrics at the University of Otago, New Zealand. Dr.
Manning received a Ph.D. in Biochemistry from the University of Otago, New
Zealand.
John P. Walker has served as our Chairman of the Board since 1996 and has
served as a consultant to us since June 1995. Mr. Walker is currently Chairman,
Chief Executive Officer and a director of Axys Pharmaceuticals, Inc., a public
biopharmaceutical company. From 1993 to year end 1997, he was President and
Chief Executive Officer of Arris Pharmaceutical Corporation, a predecessor
corporation of Axys. Prior to his association with Arris, Mr. Walker was the
Chairman and Chief Executive Officer of Vitaphore Corporation, a biomaterials
company which was sold to Union Carbide in 1990, and for a period of 15 years
was an executive with American Hospital Supply Corporation, most recently
serving as President of the Hospital Company. Mr. Walker also serves as Chairman
of the Board of Directors of Microcide Corporation and as a director of Geron
Corporation and the Biotechnology Industry Organization.
Harry F. Hixson, Ph.D. has served as one of our directors since 1993. He is
currently the Chairman of the Board of Directors and the Chief Executive Officer
of Elitra Pharmaceuticals, Inc., a privately-held biopharmaceutical company. Dr.
Hixson was employed by Amgen Inc. from 1985 to 1991, where he last served as
President, Chief Operations Officer and a director. From 1991 to present, Dr.
Hixson has been a private investor specializing in biotechnology start-up
companies. From 1991 until its merger with Somatix Therapy Corporation in 1992,
Dr. Hixson served as President and Chief Executive Officer of GeneSys
Therapeutics, Inc., a biotechnology company. Dr. Hixson holds a Ph.D. in
Physical Biochemistry from Purdue University and an M.B.A. from The University
of Chicago.
Patrick F. Latterell has served as one of our directors since 1993, as
Chairman of the Board from 1993 to 1996, and as our Chief Executive Officer from
1994 to 1996. Mr. Latterell is a General Partner of Venrock Associates, a
venture capital investment group, which he joined in 1998. Prior to Venrock Mr.
Latterell was a General Partner with Rothschild Ventures Inc. and an executive
with Syntex Pharmaceuticals. Mr. Latterell currently is a director of Vical,
Inc. Oratec Interventions, Inc. and several private biomedical companies. Mr.
Latterell holds an M.B.A. from the Stanford Graduate School of Business.
Gary L. Neil, Ph.D. has served as one of our directors since January 2000.
Dr. Neil is President, Chief Executive Officer and a director of Crescendo
Pharmaceuticals Corporation, a pharmaceutical development and commercialization
company, which he joined in 1997. Dr. Neil was a director and the President and
Chief Executive Officer of Therapeutic Discovery Corporation from 1993 until
September 1997. Prior to joining Therapeutic Discovery Corporation, from 1989 to
1993, Dr. Neil was with the Wyeth-Ayerst Research division of Wyeth
Laboratories, Inc., a subsidiary of American Home Products Corporation, a large
pharmaceutical company. At Wyeth-Ayerst, among other positions, Dr. Neil served
as Executive Vice
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President and was responsible for Wyeth-Ayerst's worldwide research and
development activities. Prior to that time, Dr. Neil served for 23 years in
various scientific and management positions with the Upjohn Company. Dr. Neil is
a director of Allergan Specialty Therapeutics, Inc. and Geron Corporation, each
of which is a publicly held corporation.
Arnold Oronsky, Ph.D. has served as one of our directors since 1994. Since
1994, Dr. Oronsky has been a general partner at InterWest Partners, a private
venture capital firm. From 1995 to 1996, Dr. Oronsky served as President and
Chief Executive Officer of Coulter Pharmaceutical, Inc., a biopharmaceutical
company. From 1984 to 1994, Dr. Oronsky served as Vice President for Discovery
Research at Lederle Laboratories, a pharmaceutical division of American
Cyanamid, Inc., where he was responsible for the research of new drugs. Since
1988, Dr. Oronsky has been a senior lecturer in the Department of Medicine at
Johns Hopkins Medical School. Dr. Oronsky received his Ph.D. in Physiology and
Biochemistry from Columbia University College of Physicians and Surgeons.
Under the terms of our restated certificate, our board of directors is
divided into three classes, serving staggered terms of three years, and any
vacancies that occur during the year may be filled by our board of directors for
the remainder of the full term. Dr. Hixson and Dr. Oronsky serve as Class I
directors, whose term will expire at the first annual meeting of stockholders
following the closing of this offering. Mr. Walker and Mr. Latterell serve as
Class II directors, whose term will expire at the second annual meeting of
stockholders following the closing of this offering. Dr. Lewis and Dr. Neil
serve as Class III directors, whose term will expire at the third annual meeting
of stockholders following the closing of this offering. Officers serve at the
discretion of the board of directors. There are no family relationships between
any of our directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Dr. Hixson, Mr. Latterell and Dr.
Oronsky. The Compensation Committee makes recommendations regarding our 2000
Equity Incentive Plan, Non-Employee Directors' Stock Option Plan and Employee
Stock Purchase Plan, as well as prior stock option plans, and makes decisions
concerning salaries and incentive compensation for our employees and
consultants.
The Audit Committee consists of Mr. Walker, Mr. Latterell and Dr. Neil. The
Audit Committee is composed of three independent directors who make
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 our independent auditors and reviews and evaluates our audit and control
functions.
DIRECTOR COMPENSATION
Our directors currently do not receive any cash compensation for services
on the board of directors or any committee thereof, but directors may be
reimbursed for expenses in connection with attendance at board and committee
meetings. Notwithstanding the foregoing, Mr. Walker, the Chairman of the Board
of Directors, currently receives $1,000 compensation for each meeting of the
board of directors that he attends under a consulting agreement dated April 1,
1996. In 1997, each non-employee director also received options to purchase
25,000 shares of common stock. All directors are eligible to participate in our
2000 Equity Incentive Plan. Non-employee directors receive automatic grants of
options under our Non-Employee Directors' Stock Option Plan as described below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers 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 our board of directors or Compensation Committee. See
"Certain Transactions" for a description of transactions between us and entities
affiliated with members of our Compensation Committee.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and each of the other
executive officers who earned more than $100,000 during 1999. All option grants
were made under our stock option plans.
In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all of our salaried
employees and certain perquisites and other personal benefits received which do
not exceed the lesser of $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
--------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ---------------------
<S> <C> <C> <C>
Alan J. Lewis, Ph.D. ............................. $300,593 $54,000 --
President, Chief Executive Officer and Director
David W. Anderson, Ph.D. ......................... 230,125 32,000 --
Senior Vice President, Drug Development
Bradley B. Gordon................................. 176,588 27,000 25,000
Senior Vice President Finance, Chief Financial
Officer and Corporate Secretary
Douglas E. Richards............................... 181,253 27,000 --
Vice President, Corporate Development
</TABLE>
EMPLOYMENT AGREEMENTS
We entered into an employment letter agreement with Alan J. Lewis, dated
December 8, 1993, providing for an annual salary, subject to adjustment from
time to time, a signing bonus of $50,000, additional bonuses and options subject
to specified performance milestones, assistance with home financing, and an
opportunity to acquire 225,000 shares of common stock under our stock option
plan. The term of the employment letter agreement was for one year, renewable
annually.
We entered into an employment letter agreement with David W. Anderson,
dated March 4, 1994, providing for an annual salary, subject to adjustment from
time to time, a signing bonus of $25,000, and an opportunity to acquire 100,000
shares of common stock under our stock option plan. The employment letter
agreement indicates that Dr. Anderson's employment is terminable at will by
either party.
We entered into an employment letter agreement with Bradley B. Gordon,
dated August 18, 1994, providing for an annual salary, subject to adjustment
from time to time, plus bonuses subject to unspecified performance milestones
and an opportunity to acquire 75,000 shares of common stock under our stock
option plan. The employment letter agreement indicates that Mr. Gordon's
employment is terminable at will by either party.
We entered into an employment letter agreement with Douglas E. Richards,
dated May 18, 1998, providing for an annual salary, subject to adjustment from
time to time, plus bonuses subject to unspecified performance milestones and an
opportunity to acquire 112,500 shares of common stock under our stock option
plan. Mr. Richards' employment agreement also provided for a home purchase loan,
which we describe below, and reimbursement of specified expenses incurred by Mr.
Richards in connection with his family's relocation to San Diego, California. If
we and Mr. Richards mutually agree to terminate his employment with us, or if we
terminate his employment for any reason, the employment letter agreement
obligates us to pay him severance payments in an amount equal to six months of
his then current salary and to continue his benefits during such time. The
employment letter agreement indicates that Mr. Richards' employment is
terminable at will by either party.
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In June 1994, we loaned $250,000 to Alan J. Lewis, our President and Chief
Executive Officer and a director, to assist with the purchase of a residence in
connection with Dr. Lewis' relocation to San Diego, California. Under the terms
of a Promissory Note dated June 14, 1994, as amended on May 14, 1998 and October
27, 1999, the principal amount of the loan plus accrued interest shall be
amortized over a period of five years following June 14, 2002, with monthly
payments commencing in July 2002. The principal amount of the loan will be
interest-free for eight years from the date of the Promissory Note, and
thereafter will accrue interest at the per annum rate of 7.52%, compounded
annually. Interest will also begin to accrue at the same rate in the event that
Dr. Lewis' employment is terminated for any reason. The parties also entered
into a security agreement on the same date whereby Dr. Lewis pledged all present
and future shares of our common stock held by him (plus all cash and stock
dividends attributable to such shares) as security for the loan. As of December
31, 1999, the total amount outstanding under this loan was $250,000.
In May 1998, we loaned $62,000 to Alan J. Lewis in connection with the
exercise of options to purchase 212,500 shares of our common stock. Under the
terms of a promissory note delivered to us by Dr. Lewis, dated May 8, 1998, the
principal amount of the loan plus accrued interest at a per annum rate equal to
5.69%, compounded annually, shall be due and payable five years from the date of
the loan. Under a stock pledge agreement entered into on the same date, Dr.
Lewis pledged all present and future shares of our common stock held by him,
plus all cash and stock dividends attributable to such shares, as security for
the loan. As of December 31, 1999, the total amount outstanding under this loan
was $62,000.
In August 1998, we loaned $60,000 to Douglas E. Richards, our Vice
President of Corporate Development, to assist Mr. Richards with his relocation
to San Diego, California. Under the terms of a promissory note dated August
1998, the principal amount of this loan, together with accrued interest at the
rate of 4.83% per year, will be due and payable one year from the date of
termination of Mr. Richards' employment with us for any reason. Provided he
remains in continuous employment with us, we will forgive the principal amount
of the loan in three increments of $20,000 on June 8, 2000, June 8, 2001 and
June 8, 2002. We also entered into a security agreement with Mr. Richards under
which he pledged all shares of our common stock now or in the future held by
him, plus all cash and stock dividends attributable to those shares, as security
for the loan. As of December 31, 1999, the total amount outstanding under this
loan was $60,000.
2000 EQUITY INCENTIVE PLAN
We adopted our 1993 Stock Option Plan, 1993 Founders' Stock Option Plan and
1997 Stock Option Plan and amended, restated and retitled these plans in
February 2000 as the 2000 Equity Incentive Plan. Outstanding options will
continue to be governed by the original terms of those grants. We have reserved
an aggregate of 3,500,000 shares of common stock (including the shares subject
to options that were outstanding under our prior plans) for issuance under the
exercise of stock awards granted to employees, directors and consultants under
the 2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate in
February 2010, unless sooner terminated by the board.
The 2000 Equity Incentive Plan permits the granting of options intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, to employees, including officers and
employee directors, and options that do not so qualify to employees, directors
and consultants, including non-employee directors. In addition, the 2000 Equity
Incentive Plan permits the granting of stock appreciation rights, or SARs, with
or independently of options, as well as stock bonuses and rights to purchase
restricted stock. No person is eligible to be granted options and SARs covering
more than 750,000 shares common stock in any calendar year.
The 2000 Equity Incentive Plan is administered by the board or a committee
appointed by the board. Subject to the limitations set forth in the 2000 Equity
Incentive 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 upon exercise and,
subject to some restrictions, to specify other terms of stock awards.
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The maximum term of options granted under the 2000 Equity Incentive Plan is
10 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 may not
exceed $100,000, or the options or portion thereof which exceed such limit,
according to the order in which they are granted, will be treated as
nonstatutory stock options. Options granted under the 2000 Equity Incentive Plan
generally are non-transferable and expire three months after the termination of
an optionee's service to us. In general, if an optionee is permanently disabled
or dies during his or her service to us, such person's options may be exercised
up to 12 months following such disability and following such death.
The exercise price of options granted under the 2000 Equity Incentive Plan
is determined by the board of directors in accordance with the guidelines set
forth in the 2000 Equity Incentive 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 2000 Equity Incentive 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
our 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.
Any stock bonuses or restricted stock purchase awards granted under the
2000 Equity Incentive Plan will 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 common stock on the date of grant. Stock bonuses and restricted
stock purchase agreements awarded under the 2000 Equity Incentive Plan are
generally non-transferable.
Under the 2000 Equity Incentive 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 a change in control of our company, all outstanding stock awards under
the 2000 Equity Incentive Plan must either be assumed or substituted by the
surviving entity. In the event the surviving entity does not assume or
substitute such stock awards, such stock awards will be terminated to the extent
not exercised prior to such change in control.
The information in this paragraph is presented as though the February 2000
amendment, restatement and retitling of our 1993 Stock Option Plan, 1993
Founders' Stock Option Plan and 1997 Stock Option Plan into the 2000 Equity
Incentive Plan had already occurred as of December 31, 1999. As of December 31,
1999, we had issued 1,229,958 shares of common stock upon the exercise of
options granted under the 2000 Equity Incentive Plan, and had granted additional
options to purchase an aggregate of 1,493,607 shares of common stock. Since
December 31, 1999, we have granted options to purchase an aggregate of 716,875
additional shares of common stock. As of February 16, 2000, 1,289,518 shares of
common stock remained available for future grants under the 2000 Equity
Incentive Plan.
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<PAGE> 62
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our executive officers
who earned more than $100,000 during 1999:
OPTION GRANTS IN YEAR ENDED 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------- REALIZABLE VALUE
PERCENT OF AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR
UNDERLYING TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------
NAME GRANTED IN 1999 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Alan J. Lewis...................... -- --% $ -- -- $ -- $ --
David W. Anderson.................. -- -- -- -- -- --
Bradley B. Gordon.................. 25,000 14.3 1.00 1/20/09 40,722 64,844
Douglas E. Richards................ -- -- -- -- -- --
</TABLE>
Twenty-five percent of the options listed in the table above vest on the
first anniversary of the grant date and the remaining options vest thereafter in
36 equal monthly installments. The board of directors has the right to
accelerate the vesting of these options. The term of the options is 10 years.
The potential realizable value is calculated based on the term of the
option and is calculated by assuming that the fair market value of common stock
on the date of the grant as determined by the board appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and the common stock received therefor is sold on the last
day of the term of the option for the appreciated price. The 5% and 10% rates of
appreciation are derived from the rules of the Securities and Exchange
Commission. The actual value realized may be greater than or less than the
potential realizable values set forth in the table.
The following table sets forth summary information regarding the number and
value of options exercised during 1999 and held as of December 31, 1999 for our
Chief Executive Officer and each of the other executive officers who earned more
than $100,000 in 1999:
AGGREGATED 1999 OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT YEAR END AT YEAR END($)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan J. Lewis............. -- -- 37,500 -- --
David W. Anderson......... -- -- 70,000 -- --
Bradley B. Gordon......... -- -- 165,000 -- --
Douglas E. Richards....... -- -- 112,500 -- --
</TABLE>
The values of unexercised in-the-money options at year-end in the table
above were determined based on an assumed initial public offering price of
$ per share minus the per share exercise price multiplied by the number
of shares.
All stock options that we have granted are immediately exercisable for
shares of restricted common stock, subject to our right of repurchase under a
vesting schedule. At year-end, Dr. Lewis held 39,532 shares and 19,532
exercisable options remaining subject to a vesting schedule; Dr. Anderson held
34,929 exercisable options remaining subject to a vesting schedule; Mr. Gordon
held 58,855 exercisable options remaining subject to a vesting schedule; and Mr.
Richards held 67,969 exercisable options remaining subject to a vesting
schedule.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 2000, we adopted our Non-Employee Directors' Stock Option Plan
to provide for the automatic grant of options to purchase shares of common stock
to our non-employee directors. The Directors'
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<PAGE> 63
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 upon
exercise of options granted under the Directors' Plan is 250,000. Under the
terms of the Directors' Plan:
- 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 20,000 shares of
common stock; and
- on the date of each annual meeting of stockholders after the effective
date of this offering, other than any such annual meeting held in 2000,
each person who is elected at such annual meeting to serve as a
non-employee director, and who was also a non-employee director prior to
such annual meeting, automatically will be granted an option to purchase
5,000 shares of common stock.
No option 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 three-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, no options to purchase
shares of common stock have been granted under the Directors' Plan. Options
granted under the Directors' Plan vest in full upon a change in control of our
company, unless assumed or replaced with similar options by the entity gaining
control of our company.
EMPLOYEE STOCK PURCHASE PLAN
In February 2000, we adopted our Employee Stock Purchase Plan covering an
aggregate of 500,000 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 effective date of this offering and terminate on July 31,
2001.
Unless otherwise determined by the board, employees are eligible to
participate in the Purchase Plan only if they are employed by us or our
subsidiary designated by the board for at least 20 hours per week and are
customarily employed by us or our subsidiary 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 under 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 us.
In the event of a merger, reorganization, consolidation or liquidation
involving our 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.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law, except with respect to certain
proceedings initiated by such persons. We are also empowered under our bylaws to
enter into indemnification contracts with our directors and executive officers
and to purchase insurance on behalf of any
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<PAGE> 64
person we are required or permitted to indemnify. Under this provision, we have
entered into indemnification agreements with each of our directors and executive
officers.
In addition, our restated certificate provides that no director will be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
The restated certificate also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
restated certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. The provision does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
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<PAGE> 65
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1997, to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than five percent of our capital stock had or will have a direct or indirect
material interest, other than compensation arrangements that are otherwise
required to be described under "Management."
In December 1999, we sold in a private placement 144,354 shares of Series
F-1 preferred stock to DuPont Pharmaceuticals in exchange for an aggregate
purchase price of $1,000,000, under a stock purchase agreement dated December
26, 1997 and concurrent with a collaborative research and license agreement
dated December 26, 1997. Upon the closing of this offering, each share of Series
F-1 preferred stock will automatically convert into one share of common stock.
Note 5 of notes to financial statements describes the Series F-1 preferred
stock.
In December 1997, we sold in a private placement 1,361,256 shares of Series
F preferred stock to Ares-Serono, a five percent holder of our capital stock, in
exchange for an aggregate purchase price of $8,200,001, under a Series F
preferred stock purchase agreement dated November 25, 1997. Upon the closing of
this offering, each share of Series F preferred stock will automatically convert
into one share of common stock. Note 5 of notes to financial statements
describes the Series F preferred stock. In addition, on November 25, 1997, we
entered into a research development and license agreement with Ares-Serono
focused on the identification of compounds that modulate NF-k B gene regulating
pathways. Ares-Serono has paid us a license fee and is obligated to provide us
with annual research and development support, make payments to us based on the
achievement of specified research and development milestones, and to pay us
royalties on any future product sales arising from the collaboration.
In September 1997, we sold in a private placement 3,227,740 shares of
Series E preferred stock in exchange for an aggregate purchase price of
$11,999,997, under a Series E preferred stock purchase agreement dated September
9, 1997. Upon the closing of this offering, each share of Series E preferred
stock will automatically convert into one share of common stock. Note 5 of notes
to financial statements describes the Series E preferred stock. The following
directors and beneficial owners of more than five percent of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of Series E preferred stock under the Series E
Agreement:
<TABLE>
<CAPTION>
NUMBER
DIRECTORS/5% STOCKHOLDERS OF SHARES
------------------------- ---------
<S> <C>
Patrick F. Latterell/Venrock Associates..................... 50,546
Accel Partners.............................................. 50,546
Kleiner Perkins Caufield & Byers............................ 50,546
Arnold Oronsky/InterWest Partners........................... 39,652
Oxford Bioscience Partners.................................. 26,434
U.S. Venture Partners....................................... 26,434
Ares-Serono S.A............................................. 493,151
Lombard Odier Immunology Fund............................... 785,340
</TABLE>
We have entered into other agreements in connection with the Series E and
Series F Agreements. Under one of these agreements, some of our stockholders
acquired registration rights. See "Description of Capital Stock -- Registration
Rights." Further, our stockholders and we agreed to restrictions on the issuance
and transfer of shares of our capital stock, and to voting rights relating to
the election of directors, all of which restrictions and voting rights are not
applicable to and will terminate upon the closing of this offering.
We have granted options to some of our directors and executive officers. We
have also entered into an indemnification agreement with each of our directors
and executive officers.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of January 31, 2000 by:
- each person who is known by us to own beneficially more than five percent
of our common stock;
- each of our current directors, our Chief Executive Officer and our other
executive officers who earned more than $100,000 during 1999; and
- all directors and executive officers as a group.
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 stockholders named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. Percentage ownership is based on
14,114,552 shares of common stock outstanding as of January 31, 2000, together
with applicable options and warrants for each stockholder.
<TABLE>
<CAPTION>
SHARES ISSUABLE PERCENTAGE OF
UPON EXERCISE OF SHARES
OPTIONS THAT VEST BENEFICIALLY OWNED
SHARES WITHIN 60 DAYS -------------------
BENEFICIALLY OF JANUARY 31, BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED 2000 OFFERING OFFERING
------------------------ ------------ ----------------- -------- --------
<S> <C> <C> <C> <C>
Ares-Serono S.A.............................. 1,854,406 -- 13.1% --%
15bis Chemin des Mines
1202 Geneva, Switzerland
Accel Partners(1)............................ 1,466,306 -- 10.4 --
428 University Avenue
Palo Alto, California 94301
Patrick F. Latterell(2)...................... 1,486,062 -- 10.6 --
Venrock Associates
30 Rockefeller Plaza, Room 5508
New York, New York 10112
Kleiner Perkins Caufield & Byers............. 1,416,331 -- 10.0 --
2750 Sand Hill Road
Menlo Park, California 94025
Arnold Oronsky, Ph.D.(3)..................... 1,136,080 18,229 8.0 --
InterWest Partners
3000 Sand Hill Road, Bldg. 3, Suite 255
Menlo Park, California 94025
Lombard Odier & Cie.......................... 785,340 -- 5.6 --
11, rue de la Corraterie
1204 Geneva, Switzerland
Oxford Bioscience Partners(4)................ 740,716 -- 5.2 --
650 Town Center Drive, Suite 180
Costa Mesa, California 92626
U.S. Venture Partners(5)..................... 740,716 -- 5.2 --
2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
Alan J. Lewis, Ph.D.......................... 375,000 20,312 2.7 --
Harry F. Hixson, Ph.D.(6).................... 199,760 18,229 2.7 --
David W. Anderson, Ph.D...................... 170,000 39,228 1.2 --
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
SHARES ISSUABLE PERCENTAGE OF
UPON EXERCISE OF SHARES
OPTIONS THAT VEST BENEFICIALLY OWNED
SHARES WITHIN 60 DAYS -------------------
BENEFICIALLY OF JANUARY 31, BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED 2000 OFFERING OFFERING
------------------------ ------------ ----------------- -------- --------
<S> <C> <C> <C> <C>
Bradley B. Gordon............................ 165,000 116,977 1.2 --
John P. Walker(7)............................ 75,000 -- * --
Douglas E. Richards.......................... 112,500 51,562 * --
All directors and executive officers as a
group (8 persons).......................... 3,910,923 246,308 27.7 --
</TABLE>
- -------------------------
* Represents beneficial ownership of less than one percent.
(1) Includes the following shares held by the following affiliated entities:
- 1,227,316 shares held by Accel IV L.P.;
- 54,248 shares held by Accel Investors '93 L.P.;
- 26,390 shares held by Accel Keiretsu L.P.;
- 117,304 shares held by Accel Japan L.P.;
- 32,254 shares held by Ellmore C. Patterson Partners; and
- 8,794 shares held by Prosper Partners.
(2) Includes 999,200 shares held by Venrock Associates and 468,112 shares held
by Venrock Associates II, L.P., entities for which Mr. Latterell is a
general partner. Mr. Latterell disclaims beneficial ownership of all such
shares, except to the extent of his pecuniary or pro rata interest in such
shares.
(3) Includes 1,104,136 shares held by InterWest Partners V and 6,944 shares held
by InterWest Investors V, which are affiliated entities. Dr. Oronsky is a
general partner of InterWest Partners V. Dr. Oronsky disclaims beneficial
ownership of all such shares, except to the extent of his pecuniary or pro
rata interest in such shares.
(4) Includes the following shares held by the following affiliated entities:
- 463,884 shares held by Oxford Bioscience Partners L.P.;
- 148,142 shares held by Oxford Bioscience Partners (Adjunct) L.P.; and
- 128,630 shares held by Oxford Bioscience Partners (Bermuda) Limited
Partnership.
(5) Includes:
- 640,722 shares held by U.S. Venture Partners IV, L.P.;
- 77,774 shares held by Second Ventures II, L.P.; and
- 22,220 shares held by USVP Entrepreneur Partners II, L.P.
(6) Includes 159,760 shares held by the Harry F. Hixson, Jr. Separate Property
Trust Dated December 15, 1995, of which Dr. Hixson is the sole trustee.
(7) Includes 75,000 shares held by the Walker Living Trust Dated March 3, 1995,
of which Mr. Walker is the sole trustee.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering and the filing of our amended and
restated certificate of incorporation, our authorized capital stock will consist
of 50,000,000 shares of common stock, $.001 par value per share, and 5,000,000
shares of preferred stock, $.001 par value per share.
COMMON STOCK
As of December 31, 1999, there were 14,093,899 shares of common stock
outstanding that were held of record by approximately 123 stockholders, after
giving effect to the conversion of all outstanding shares of preferred stock
into 12,246,296 shares of common stock.
There will be shares of common stock outstanding after
giving effect to the sale of the shares of common stock offered by this
prospectus and the sale of shares of common stock to DuPont
Pharmaceuticals at an assumed initial public offering price of $ per share.
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 Signal, 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.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 12,246,296 shares of common stock. See note 5 of
notes to financial statements for a description of the currently outstanding
preferred stock. Following the conversion, our certificate of incorporation will
be amended and restated to delete all references to such shares of preferred
stock. Under the restated certificate, the board has the authority, without
further action by stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix or alter the rights, preferences,
privileges, qualifications and restrictions granted to or imposed upon any
wholly unissued series of preferred stock, and to establish from time to time
the number of shares constituting any such series 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. 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. We have no present plans to issue
any shares of preferred stock.
WARRANTS
As of December 31, 1999, there were warrants outstanding to purchase an
aggregate of 125,000 shares of Series C-1 preferred stock at an exercise price
of $4.20 per share, which will convert into warrants to purchase 125,000 shares
of common stock at an exercise price of $4.20 per share upon the closing of this
offering.
REGISTRATION RIGHTS
After this offering, the holders of 12,246,296 shares of common stock will
be entitled to rights with respect to the registration of such shares under the
Securities Act, under an amended and restated investor rights agreement dated
September 9, 1997, as amended on November 25, 1997. Under the terms of the
investors' rights agreement, if we propose to register any of our securities
under the Securities Act, either for
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<PAGE> 69
our 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 limitations, to include shares in the offering.
Commencing with the date that is 180 days after this offering, the holders may
also require us to file a registration statement under the Securities Act with
respect to their shares, and we are required to use our best efforts to effect
to such registration. Furthermore, the holders may require us to register their
shares on a registration statement on Form S-3 when such form becomes available
to us. Such registration rights terminate on the seventh anniversary of the
effective date of this offering.
The holder of a warrant to purchase 125,000 shares of Series C-1 preferred
stock, granted November 23, 1996, will be entitled, upon exercise of such
warrant, to notice whenever we propose to register any of our securities under
the Securities Act, either for its own account or for the account of other
security holders exercising registration rights. The holder of such warrant is
entitled to include in any such registration the shares of common stock into
which the Series C-1 preferred stock underlying the warrant may be converted.
Such registration rights terminate on the seventh anniversary of the effective
date of this offering.
After this offering, a holder of 11,093 shares of common stock purchased
under two restricted stock purchase agreements dated October 26, 1993 and
February 18, 1998, respectively, will be entitled, if we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, to notice
of such registration and, subject to limitations, to include such shares in the
offering. In addition, such holder may obtain an additional 23,750 shares of
common stock upon the attainment of specified regulatory milestones whereby such
additional shares would be entitled to the same registration rights as the
11,093 shares currently held.
After this offering, a holder of 7,500 shares of common stock purchased
under two restricted stock purchase agreements dated October 31, 1996 and
December 7, 1997, respectively, will be entitled, if we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, to notice
of such registration and, subject to limitations, to include such shares in the
offering. In addition, such holder may obtain an additional 5,625 shares of
common stock upon the attainment of specified regulatory milestones whereby such
additional shares would be entitled to the same registration rights as the 7,500
shares currently held.
Generally, we are required to bear all registration and selling expenses
incurred in connection with any of the registrations described above. The
registration rights are also subject to conditions and limitations, among them
the right of the underwriters of a public offering to limit the number of shares
included in the registration statement filed in connection therewith.
DELAWARE ANTI-TAKEOVER LAW AND SPECIFIC CHARTER PROVISIONS
We are 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 outstanding voting stock. This provision could delay, discourage
or prohibit transactions not approved in advance by the board of directors, such
as takeover attempts that might result in a premium over the market price of the
common stock.
Our restated certificate provides that the board of directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us and may maintain the composition of the board of directors,
as the classification of the board of directors generally increases the
difficulty of replacing a majority of directors. Our restated certificate
provides that any action required or permitted to be taken by our stockholders
must be effected at a duly called annual or special meeting of stockholders and
may not be effected by any consent in writing. In addition, our bylaws provide
that special meetings of the stockholders may be called only by the Chairman of
the Board of
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<PAGE> 70
Directors, by the Chief Executive Officer, by the board of directors upon a
resolution adopted by a majority of the total number of authorized directors, or
by the holders of 10% of the outstanding voting stock. Our restated certificate
also specifies that the authorized number of directors may be changed only by
resolution of the board of directors and does not include a provision for
cumulative voting for directors. Under cumulative voting, a minority stockholder
holding a sufficient percentage of a class of shares may be able to ensure the
election of one or more directors. These and other provisions contained in our
restated certificate and bylaws could delay or discourage transactions involving
an actual or potential change in control of Signal or our 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 our current management or approve transactions that stockholders may deem
to be in their best interests and, therefore, could adversely affect the price
of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
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<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. 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 contractual and legal restrictions on resale described below, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, and the sale of shares to DuPont at an
aggregate purchase price of $2.0 million we will have shares of common
stock outstanding, assuming no exercise of currently outstanding options or
warrants. Of these shares, the 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, unless
they are held by our "affiliates" as that term is used under the Securities Act
and the rules and regulations promulgated thereunder. The remaining
shares of common stock held by existing stockholders are restricted shares.
Restricted shares may be sold in the public market only if registered or of they
qualify for an exemption from registration under Rules 144 or 701 promulgated
under the Securities Act, which rules are summarized below. As a result of
lock-up agreements and the provisions of Rules 144 and 701, additional shares
will be available for sale in the public market as follows:
- no restricted shares will be eligible for immediate sale on the effective
date of this offering;
- 12,246,296 restricted shares, plus approximately 553,792 shares of common
stock issuable upon exercise of vested stock options, will be eligible
for sale upon expiration of the lock-up agreements 180 days after the
date of this prospectus; and
- the remainder of the restricted shares will be eligible for sale from
time to time thereafter upon expiration of their respective one-year
holding periods and could be sold earlier if the holders exercise any
available registration rights.
The holders of 15,698,762 shares of common stock have the right in
specified circumstances to require us to register their shares under the
Securities Act for resale to the public beginning 180 days from the effective
date of this offering. If those 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
common stock. If we were required to include in a registration that we initiated
shares held by such holders upon the exercise of their piggyback registration
rights, such sales may have an adverse effect on our ability to raise needed
capital. In addition, we expect to file a registration statement on Form S-8
registering shares of common stock subject to outstanding stock options or
reserved for issuance under our stock option plans. We expect to file this
registration statement as soon as practicable after the effective date of this
offering. Shares registered under this 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 us
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 this offering, an affiliate of
Signal, 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 one percent of the then outstanding shares of
common stock or the average weekly trading volume of the common stock on 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 under Rule
144 are subject to requirements relating to the manner of sale, notice, and the
availability of current public information about us. A person (or persons whose
shares are aggregated) who was not an affiliate of Signal 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.
67
<PAGE> 72
An employee, officer or director of or consultant to Signal who purchased
or was awarded shares or options to purchase shares under 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 the Rule 144 holding period
restrictions, in each case commencing 90 days after the effective date of this
offering. In addition, non-affiliates may sell Rule 701 shares without complying
with the public information, volume and notice provisions of Rule 144.
68
<PAGE> 73
UNDERWRITING
The underwriters name below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc. and CIBC World
Markets Corp., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
Chase Securities Inc. ......................................
CIBC World Markets Corp. ...................................
--------
Total.....................................................
========
</TABLE>
The underwriters' representatives have advised us 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 of not more than $ per share, of
which $ may be reallowed to other dealers. After the completion of this
offering, the initial public offering price, concession and reallowance to
dealers may be reduced by the underwriters' representatives. No such reduction
shall change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise such option,
each of the underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the shares offered
hereby. If purchased, such additional shares will be sold by the underwriters on
the same terms as those on which the shares are being sold. We will be
obligated, under the option, to sell shares to the extent the option is
exercised. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If this option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to us will be
$ , $ and $ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
----------------------------
WITHOUT WITH OVER-
PER SHARE OVER-ALLOTMENT ALLOTMENT
--------- -------------- ----------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us.... $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $750,000.
Indemnity. We have agreed to indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933 and
liabilities arising from breaches of representations and warranties contained in
the underwriting agreement, or to contribute to payments that the underwriters
may be required to make in respect thereof.
Lock-up Agreements. Our directors and executive officers, have agreed to
the underwriters' representatives that, for a period of 180 days after the date
to this prospectus, they will not offer to sell, contract to sell
69
<PAGE> 74
or otherwise sell, dispose of, loan, pledge or grant any option to purchase any
shares of common stock or any securities convertible into, or exchangeable for,
or any rights to purchase or acquire, shares of common stock, now owned or
hereafter acquired directly by such holders or with respect to which they have
the power to disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc., which may, in its sole discretion and at any time or
from time to time, without notice, release all or any portion of the shares
subject to the lock-up agreements.
Future Sales. We have agreed that, for a period of 180 days after the date
of this prospectus, we will not without prior written consent of FleetBoston
Robertson Stephens Inc., issue, sell contract to sell or otherwise dispose of
any shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than our sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options and our grant
of options to purchase shares of common stock under existing stock option or
stock purchase plans.
Directed Share Program. The underwriters have reserved up to five percent
of the common stock to be issued by us and offered for sale in this offering, at
the initial public offering price, to directors, officers, employees, business
associates and persons otherwise connected to us. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these individuals purchase reserved shares. Any reserved shares not purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
Listing. We have applied to list our common stock on the Nasdaq National
Market under the symbol "SGNL."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. The initial public offering price for the common
stock will be determined by negotiation between us and the representatives.
Among the factors to be considered in determining the initial public offering
price are the prevailing market and economic conditions, our revenues and
earnings, market valuations of other companies engaged in activities similar to
ours, estimates of our business potential and prospects, the present state of
our business operations, our management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover page of
this prospectus is subject to change as a result of market conditions and other
factors.
Stabilization. The underwriters' representatives have advised us that,
pursuant to Regulation M under the Securities Exchange Act of 1934, as amended,
certain persons participating in the offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may be the effect of stabilizing or maintaining the market
price of the common stock at a lever above that which might otherwise prevail in
the open market. A "stabilizing bid" is a bid for or the purchase of the common
stock on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is a bid for or
the purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the underwriters' representatives to
reclaim the selling concession otherwise accruing to an underwriter or syndicate
member in connection with the offering if the common stock originally sold by
such underwriter or syndicate member is purchased by underwriters'
representatives in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The underwriters'
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This prospectus,
which constitutes a part of the registration statement, does not contain all of
the information set forth in the registration statement or the exhibits and
schedules
70
<PAGE> 75
which are part of the registration statement. For further information with
respect to Signal and the common stock offered by this prospectus, we refer you
to the registration statement and the exhibits and schedules filed as part of
the registration statement. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
website at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the SEC's public reference rooms and the website of the SEC referred to above.
LEGAL MATTERS
Cooley Godward LLP, San Diego, California, will pass upon the validity of
the common stock offered by this prospectus for us. Brobeck, Phleger & Harrison
LLP, San Diego, California, will pass upon legal matters for the underwriters.
EXPERTS
The financial statements of Signal Pharmaceuticals, Inc. as of December 31,
1998 and 1999, and for each of the years in the three-year period ended December
31, 1999, have been included herein and in the registration statement, of which
this prospectus is a part, in reliance upon the report of 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 said firm as experts in accounting and auditing.
71
<PAGE> 76
SIGNAL PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 77
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Signal Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Signal Pharmaceuticals,
Inc. as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signal Pharmaceuticals, Inc.
at December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 1999, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
February 4, 2000, except for Note 7,
as to which the date is , 2000.
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 7 to the financial
statements.
/s/ ERNST & YOUNG LLP
February 18, 2000
F-2
<PAGE> 78
SIGNAL PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
---------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,496,363 $ 6,613,834
Short-term investments.................................... 6,456,226 2,806,093
Grant revenue receivable.................................. 147,248 108,959
Other current assets...................................... 487,234 427,394
------------ ------------
Total current assets.................................... 13,587,071 9,956,280
Property and equipment, net................................. 4,497,541 3,405,147
Purchased technology, net................................... 916,668 583,338
Deposits and other assets................................... 223,520 202,605
Notes receivable from officers.............................. 333,419 391,495
------------ ------------
Total assets............................................ $ 19,558,219 $ 14,538,865
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 461,967 $ 896,260
Accrued liabilities....................................... 872,484 522,454
Current portion of promissory note........................ 1,000,080 396,817
Current portion of obligations under capital leases and
equipment notes payable................................. 432,122 730,765
Current portion of deferred revenue under collaborative
agreements.............................................. 1,697,775 3,449,790
------------ ------------
Total current liabilities............................... 4,464,428 5,996,086
Promissory note, net of current portion..................... 349,674 --
Obligations under capital leases and equipment notes
payable, net of current portion........................... 2,110,651 1,805,297
Deferred revenue under collaborative agreements, net of
current portion........................................... 333,324 650,002
Deferred rent............................................... 174,705 104,918
Commitments
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 12,371,319
shares authorized; 12,101,942 and 12,246,296 shares
issued and outstanding at December 31, 1998 and 1999,
respectively; liquidation preference -- $40,909,587 and
$41,909,587 at December 31, 1998 and 1999, respectively
(5,000,000 shares authorized, no shares issued and
outstanding pro forma).................................. 12,102 12,246 $ --
Common stock, $.001 par value; 17,644,354 shares
authorized; 1,766,769 and 1,847,603 shares issued and
outstanding at December 31, 1998 and 1999, respectively
(50,000,000 shares authorized, 14,093,899 shares issued
and outstanding pro forma).............................. 1,766 1,847 14,093
Additional paid-in capital................................ 42,225,684 44,293,680 44,293,680
Deferred compensation..................................... (922,892) (1,272,014) (1,272,014)
Notes receivable from stockholders........................ (95,600) (95,600) (95,600)
Accumulated other comprehensive income.................... 6,226 -- --
Accumulated deficit....................................... (29,101,849) (36,957,597) (36,957,597)
------------ ------------ ------------
Total stockholders' equity.............................. 12,125,437 5,982,562 $ 5,982,562
------------ ------------ ============
Total liabilities and stockholders' equity.............. $ 19,558,219 $ 14,538,865
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE> 79
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue under collaborative agreements:
Related party...................................... $ 250,000 $ 3,000,000 $ 4,525,000
Unrelated parties.................................. 7,065,356 12,027,064 6,695,715
Grant income......................................... 264,257 387,178 527,610
----------- ----------- -----------
Total Revenue................................... 7,579,613 15,414,242 11,748,325
Expenses:
Research and development........................... 10,337,318 15,572,627 16,747,627
General and administrative......................... 2,791,084 4,798,262 3,010,975
----------- ----------- -----------
Total Expenses.................................. 13,128,402 20,370,889 19,758,602
----------- ----------- -----------
Loss from operations................................. (5,548,789) (4,956,647) (8,010,277)
Interest income...................................... 325,529 1,052,854 607,413
Interest expense..................................... (516,709) (452,609) (452,884)
----------- ----------- -----------
Net loss............................................. $(5,739,969) $(4,356,402) $(7,855,748)
=========== =========== ===========
Historical net loss per share, basic and diluted..... $ (5.65) $ (3.31) $ (4.79)
=========== =========== ===========
Weighted average shares outstanding, basic and
diluted............................................ 1,016,182 1,318,027 1,641,020
=========== =========== ===========
Pro forma net loss per share, basic and diluted...... $ (0.57)
===========
Pro forma weighted average shares outstanding, basic
and diluted........................................ 13,752,454
===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE> 80
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
-------------------- ------------------ ADDITIONAL DEFERRED FROM
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION STOCKHOLDERS
---------- ------- --------- ------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... 7,396,646 $ 7,397 1,044,046 $1,044 $20,509,387 $ -- $ --
Issuance of Series D preferred
stock........................ 116,300 116 -- -- (116) -- --
Issuance of Series E preferred
stock........................ 3,227,740 3,228 -- -- 10,973,903 -- --
Issuance of Series F preferred
stock........................ 1,361,256 1,361 -- -- 8,160,719 -- --
Issuance of common stock, net
of repurchases............... -- -- 273,111 273 84,563 -- --
Issuance of common stock for
technology and services...... -- -- 11,250 11 14,589 -- --
Deferred compensation.......... -- -- -- -- 615,855 (615,855) --
Amortization of deferred
compensation................. -- -- -- -- -- 104,345 --
Net loss....................... -- -- -- -- -- -- --
Unrealized gain on available
for sale securities.......... -- -- -- -- -- -- --
Comprehensive loss............. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- --------
Balance at December 31, 1997..... 12,101,942 12,102 1,328,407 1,328 40,358,900 (511,510) --
Issuance of common stock, net
of repurchases............... -- -- 305,862 305 120,747 -- (95,600)
Issuance of common stock for
technology................... -- -- 132,500 133 726,867 -- --
Deferred compensation.......... -- -- -- -- 1,019,170 (1,019,170) --
Amortization of deferred
compensation................. -- -- -- -- -- 607,788 --
Net loss....................... -- -- -- -- -- -- --
Unrealized loss on available
for sale securities.......... -- -- -- -- -- -- --
Comprehensive loss............. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- --------
Balance at December 31, 1998..... 12,101,942 12,102 1,766,769 1,766 42,225,684 (922,892) (95,600)
Issuance of Series F-1
preferred stock.............. 144,354 144 -- -- 992,738 -- --
Issuance of common stock, net
of repurchases............... -- -- 80,122 80 26,097 -- --
Deferred compensation.......... -- -- -- -- 1,024,244 (1,024,244) --
Amortization of deferred
compensation................. -- -- -- -- -- 675,122 --
Issuance of common stock and
options for services......... -- -- 712 1 24,917 -- --
Net loss....................... -- -- -- -- -- -- --
Unrealized loss on available
for sale securities.......... -- -- -- -- -- -- --
Comprehensive loss............. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- --------
Balance at December 31, 1999..... 12,246,296 $12,246 1,847,603 $1,847 $44,293,680 $(1,272,014) $(95,600)
========== ======= ========= ====== =========== =========== ========
<CAPTION>
ACCUMULATED OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
INCOME (LOSS) DEFICIT EQUITY
----------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1996..... $ -- $(19,005,478) $ 1,512,350
Issuance of Series D preferred
stock........................ -- -- --
Issuance of Series E preferred
stock........................ -- -- 10,977,131
Issuance of Series F preferred
stock........................ -- -- 8,162,080
Issuance of common stock, net
of repurchases............... -- -- 84,836
Issuance of common stock for
technology and services...... -- -- 14,600
Deferred compensation.......... -- -- --
Amortization of deferred
compensation................. -- -- 104,345
Net loss....................... -- (5,739,969) (5,739,969)
Unrealized gain on available
for sale securities.......... 48,341 -- 48,341
-----------
Comprehensive loss............. -- -- (5,691,628)
-------- ------------ -----------
Balance at December 31, 1997..... 48,341 (24,745,447) 15,163,714
Issuance of common stock, net
of repurchases............... -- -- 25,452
Issuance of common stock for
technology................... -- -- 727,000
Deferred compensation.......... -- -- --
Amortization of deferred
compensation................. -- -- 607,788
Net loss....................... -- (4,356,402) (4,356,402)
Unrealized loss on available
for sale securities.......... (42,115) -- (42,115)
-----------
Comprehensive loss............. -- -- (4,398,517)
-------- ------------ -----------
Balance at December 31, 1998..... 6,226 (29,101,849) 12,125,437
Issuance of Series F-1
preferred stock.............. -- -- 992,882
Issuance of common stock, net
of repurchases............... -- -- 26,177
Deferred compensation.......... -- -- --
Amortization of deferred
compensation................. -- -- 675,122
Issuance of common stock and
options for services......... -- -- 24,918
Net loss....................... -- (7,855,748) (7,855,748)
Unrealized loss on available
for sale securities.......... (6,226) -- (6,226)
-----------
Comprehensive loss............. -- -- (7,861,974)
-------- ------------ -----------
Balance at December 31, 1999..... $ -- $(36,957,597) $ 5,982,562
======== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE> 81
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (5,739,969) $ (4,356,402) $ (7,855,748)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization........................... 879,327 1,498,312 1,711,501
Amortization of interest expense related to warrants.... 47,142 47,142 47,142
Amortization of deferred compensation................... 104,345 607,788 675,122
Amortization of purchased technology.................... -- 83,332 333,330
Common stock and stock options issued for technology and
services.............................................. 14,600 7,000 24,918
Deferred revenue under collaborative agreements......... 1,363,134 (2,334,111) 2,068,693
Deferred rent........................................... 10,316 96,538 (69,787)
Changes in operating assets and liabilities:
Other current assets.................................. 246,997 (354,667) 98,129
Accounts payable...................................... (158,004) 193,253 434,293
Accrued liabilities................................... 895,120 (335,235) (350,030)
------------ ------------ ------------
Net cash flows used for operating activities....... (2,336,992) (4,847,050) (2,882,437)
INVESTING ACTIVITIES
Purchases of short-term investments......................... (12,081,165) (15,585,368) (11,642,049)
Maturities of short-term investments........................ -- 21,216,533 15,285,956
Purchases of property and equipment......................... (630,220) (1,400,252) (92,979)
Purchase of technology...................................... -- (280,000) --
Other assets................................................ 341,038 (117,501) (37,161)
------------ ------------ ------------
Net cash flows provided by (used for) investing
activities....................................... (12,370,347) 3,833,412 3,513,767
FINANCING ACTIVITIES
Principal payments on obligations under capital leases,
equipment notes payable and promissory note............... (1,239,935) (1,251,920) (1,532,918)
Issuance of preferred stock, net............................ 19,139,211 -- 992,882
Issuance of common stock, net............................... 84,836 25,452 26,177
------------ ------------ ------------
Net cash flows provided by (used for) financing
activities....................................... 17,984,112 (1,226,468) (513,859)
Increase (decrease) in cash and cash equivalents............ 3,276,773 (2,240,106) 117,471
Cash and cash equivalents at beginning of year.............. 5,459,696 8,736,469 6,496,363
------------ ------------ ------------
Cash and cash equivalents at end of year.................... $ 8,736,469 $ 6,496,363 $ 6,613,834
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 469,565 $ 395,462 $ 452,884
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment........ $ 221,507 $ 2,343,033 $ 526,128
============ ============ ============
Issuance of common stock for technology..................... $ -- $ 720,000 $ --
============ ============ ============
Issuance of common stock for promissory notes from
stockholders.............................................. $ -- $ 95,600 $ --
============ ============ ============
Comprehensive income (loss) on investments.................. $ 48,341 $ (42,115) $ (6,226)
============ ============ ============
Deferred compensation related to stock options.............. $ 615,855 $ 1,019,170 $ 1,024,244
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE> 82
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is an integrated
drug discovery and development company focused on identifying new classes of
small molecule drugs that regulate disease-associated genes. Utilizing
biological information from the field of human genomics, the Company applies
advanced cellular, molecular and genomic technologies to map gene regulating
pathways in cells and to identify proprietary molecular targets that control
genes and result in disease. Signal is advancing the application of genomics
beyond identifying and elucidating the function of genes to designing novel
classes of disease-modifying drugs that selectively regulate the activation of
disease-causing genes.
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
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers instruments purchased with an original maturity of
three months or less, principally a money market account and U.S. government and
corporate debt securities, to be cash equivalents.
All investment securities are classified as available-for-sale, and are
carried at fair value. Unrealized gains and losses, if any, are reported in a
separate component of stockholders' equity. The cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
The amortization, along with realized gains and losses, is included in interest
income. The cost of securities sold is based on the specific identification
method.
CONCENTRATION OF CREDIT RISK
Cash, cash equivalents, and short-term investments are financial
instruments which potentially subject the Company to concentration of credit
risk. The Company invests its excess cash primarily in U.S. government
securities and marketable debt securities of financial institutions and
corporations with strong credit ratings. The Company also has established
guidelines relative to diversification and maturities to maintain safety and
liquidity. These guidelines are reviewed periodically and may be modified to
take advantage of trends in yields and interest rates. Pursuant to Company
policy, the Company has historically held the investments to maturity. However,
the Company has the ability to sell these investments before maturity and has
therefore classified the investments as available for sale. The Company has not
experienced any significant losses on its investments.
F-7
<PAGE> 83
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
The fair value of the financial instruments approximates their carrying
value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (three to five years) using the
straight-line method. Leasehold improvements are stated at cost and amortized on
a straight-line basis over the shorter of the estimated useful life of the
assets or the lease term.
PURCHASED TECHNOLOGY
Purchased technology is stated at cost and depreciated over the estimated
useful life of three years using the straight-line method. The purchased
technology is reported net of accumulated amortization of $83,332 and $416,662
as of December 31, 1998 and 1999, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, if indicators of
impairment exist, the Company assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets can
be recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company will value the asset at fair value. While the Company's
current and historical operating and cash flow losses are indicators of
impairment, the Company believes the future cash flows to be received from the
long-lived assets will exceed the assets' carrying value, and accordingly the
Company has not recognized any impairment losses through December 31, 1999.
REVENUE RECOGNITION
Contract revenue is recognized ratably over the period during which the
research is conducted, which approximates the actual costs incurred to perform
the research services. Up-front license fees received under these agreements are
recorded as deferred revenue and recognized ratably over the initial term of the
contract. Revenues from the achievement of research and development milestones
will be recognized when and if the milestones are achieved. Continuation of
certain contracts and grants are dependent upon the Company achieving specific
contractual milestones; however, none of the payments received to date are
refundable regardless of the outcome of the project. Grant revenue is recognized
as services are performed and generally equals the related research and
development expense.
Axys Pharmaceutical ("Axys") is a related party, as the chief executive
officer of Axys serves on the Board of Directors of the Company. Therefore,
revenues of $625,000 recognized in 1999 from Axys are classified as related
party revenue.
Ares Serono S.A. ("Ares") is a related party, based on its ownership
interest in the Company. Therefore, revenues of $3,000,000 and $3,900,000
recognized from Ares in 1998 and 1999, respectively, are classified as related
party revenue. The Company does not have the right or the obligation to
repurchase any of the rights provided to Ares, or to refund any research
payments received from Ares under the collaboration, nor does it intend to do
so.
F-8
<PAGE> 84
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's revenue is concentrated among a small number of customers, as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
DuPont..................................................... -- 12% 20%
Ares ...................................................... * 19% 33%
Roche Bioscience........................................... 21% * *
Organon.................................................... 34% 19% 13%
Nippon Kayaku.............................................. -- 12% 20%
Tanabe..................................................... 39% 27% --
Axys....................................................... -- -- *
</TABLE>
* Amount earned represents less than 10% of revenues for the year.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
SOFTWARE COSTS
Purchased software is capitalized at cost and amortized over the estimated
useful life, generally three years. The Company has no significant
internally-developed software.
STOCK-BASED COMPENSATION
As permitted by SFAS 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations ("APB 25")
in accounting for its employee stock options. Under APB 25, when the exercise
price of the Company's employee stock options equals the fair value of the
underlying stock on the date of grant, no compensation expense is recognized.
When the exercise price of the employee or director stock options is less
than the fair value of the underlying stock on the grant date, the Company
records deferred compensation for the difference and amortizes this amount to
expense in accordance with FASB Interpretation No. 28 ("FIN 28") over the
vesting period of the options. Options or stock awards issued to non-employees
and consultants are recorded at their fair value as determined in accordance
with SFAS No. 123 and EITF 96-18 and recognized over the related service period.
COMPREHENSIVE INCOME (LOSS)
In accordance with SFAS No. 130, Reporting Comprehensive Income, unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, are included in other comprehensive income
(loss).
SEGMENT REPORTING
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, requires the use of a management approach in identifying and
disclosing financial information about segments of an enterprise. Management has
determined that the Company operates in one business segment.
F-9
<PAGE> 85
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff
Accounting Bulletin (or SAB) No. 98, basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and common equivalent shares outstanding during the period. Potentially dilutive
securities composed of incremental common shares issuable upon the exercise of
stock options and warrants, and common shares issuable on conversion of
preferred stock, were excluded from historical diluted loss per share because of
their anti-dilutive effect.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the closing of the initial public offering
contemplated by this prospectus (using the as-if converted method from the
original date of issuance).
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Unaudited pro forma stockholders' equity at December 31, 1999 reflects the
conversion of the convertible preferred stock into 12,246,296 shares of common
stock.
NEW ACCOUNTING PRONOUNCEMENTS
The Company expects to adopt SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective January 1, 2001. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of the SFAS No. 133
will have a significant effect on its results of operations or financial
position.
2. BALANCE SHEET INFORMATION
INVESTMENTS
The following is a summary of the Company's cash, cash equivalents and
short-term investments, all of which mature within one year of the balance sheet
date:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------------------------- ------------------------------------
GROSS GROSS
UNREALIZED ESTIMATED UNREALIZED ESTIMATED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash................... $ 6,496,363 $ -- $ 6,496,363 $4,636,426 $-- $4,636,426
Corporate debt
securities........... 6,450,000 6,226 6,456,226 4,783,501 -- 4,783,501
----------- ------ ----------- ---------- --- ----------
$12,946,363 $6,226 $12,952,589 $9,419,927 $-- $9,419,927
=========== ====== =========== ========== === ==========
</TABLE>
There were no gross realized gains or losses on sales of available-for-sale
securities for the years ended December 31, 1998 and 1999. The gross unrealized
gains of $6,226 and $0 in 1998 and 1999, respectively, are reflected as a
separate component of stockholders' equity. The unrealized gain had no cash
effect and therefore is not reflected in the statement of cash flows.
F-10
<PAGE> 86
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Machinery and equipment............................... $ 4,818,472 $ 5,328,565
Office furniture and equipment........................ 1,597,943 1,655,263
Leasehold improvements................................ 1,915,689 1,967,383
----------- -----------
8,332,104 8,951,211
Less accumulated depreciation and amortization........ (3,834,563) (5,546,064)
----------- -----------
$ 4,497,541 $ 3,405,147
=========== ===========
</TABLE>
DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Deposits.................................................. $ 73,520 $ 52,605
Restricted cash........................................... 150,000 150,000
-------- --------
$223,520 $202,605
======== ========
</TABLE>
3. COMMITMENTS
LEASES
The Company leases its office and research facilities under three operating
lease agreements. The minimum annual rents are subject to specified annual
rental increases. The Company also reimburses the lessor for taxes, insurance
and operating costs associated with the leases. Under the terms of the lease,
the Company has an outstanding letter of credit for $150,000 in favor of the
lessor, which is fully collateralized by cash. Accordingly, such cash is
classified as restricted in the balance sheet.
In addition, the Company leases certain machinery and equipment and office
furniture under capital leases with three year terms and options to extend the
lease term to five years.
LONG-TERM DEBT
In November 1996, the Company issued a secured promissory note for
$3,000,000. The proceeds of the note payable were used for general corporate
purposes and working capital. The note payable accrues interest at a rate of
14%, is due May 22, 2000, and is secured by certain assets of the Company.
In conjunction with the issuance of the promissory note, the Company issued
the creditor a warrant to purchase 125,000 shares of Series C-1 Preferred Stock
at a price of $4.20 per share. The warrant expires at the earliest of ten years
from the date of grant or five years from the date of an initial public
offering. The warrant was valued at $165,000, which has been recorded as a
discount on the related debt. The value of the warrant is being amortized as
interest expense over the period of the debt.
F-11
<PAGE> 87
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Annual future minimum lease and equipment note payments as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL
LEASES AND
OPERATING EQUIPMENT
YEAR ENDING DECEMBER 31, LEASES NOTES PAYABLE
------------------------ ---------- -------------
<S> <C> <C>
2000................................................... $ 935,032 $ 964,616
2001................................................... 430,502 967,662
2002................................................... 432,295 857,701
2003................................................... 443,370 61,861
---------- ----------
Total minimum lease and equipment note payments... $2,241,199 2,851,840
==========
Less amount representing interest........................... (315,778)
----------
Present value of remaining minimum capital lease and
equipment lease line payments............................. 2,536,062
Less amount due in one year................................. (730,765)
----------
Long-term portion of obligations under capital leases and
equipment notes payable................................... $1,805,297
==========
</TABLE>
Rent expense for equipment and facility leases was $784,337, $809,028 and
$771,302 for the years ended December 31, 1997, 1998 and 1999, respectively.
Cost and accumulated depreciation of equipment under capital leases and
equipment notes payable were as follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
---------- ------------
<S> <C> <C>
December 31, 1998...................................... $2,943,246 $ 594,452
December 31, 1999...................................... $3,458,659 $1,213,886
</TABLE>
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS
In connection with certain license agreements, the Company paid fees of
$196,333 and $87,000 for the years ended December 31, 1998 and 1999,
respectively, which were charged to research and development. In addition, the
Company paid $280,000 in cash and issued 120,000 shares of common stock related
to a license agreement with the University of Massachusetts in 1998. The Company
determined the value of the common shares issued as $720,000 and capitalized the
value as purchased technology. The Company has future commitments to pay up to
an additional $4,100,000 to the licensees based on the achievement of certain
milestones, as well as royalties upon commercial sales, if any, of certain
products. Such fees or milestone payments may also involve the issuance of up to
30,000 shares of common stock, which would be recorded at the fair value at the
date of issuance.
Axys
On October 15, 1999, the Company entered into a two-year collaborative
research and license agreement with Axys to develop and commercialize certain
compounds for use in the prevention and/or treatment of certain human diseases.
The Company received an initial non-refundable license fee of $2,000,000 and
will receive additional payments based on the achievement of certain program
milestones, as well as royalties upon commercial sales of certain products, if
any. We may exercise a profit share option in the United States and possibly
other territories at a predetermined point during development in lieu of
royalties on product
F-12
<PAGE> 88
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
sales. In addition, Axys has agreed to pay the Company certain amounts for the
full time equivalent personnel working on the research.
Nippon Kayaku
In February 1998, the Company entered into a two-year collaborative
research and license agreement with Nippon Kayaku to develop and commercialize
products based on or derived from a compound supplied by Nippon Kayaku for the
treatment and prevention of diseases and disorders of the CNS and PNS. Nippon
Kayaku has agreed to pay the Company certain amounts for the full-time
equivalent personnel working on the research. Each party is obligated to pay the
other royalties on future product sales arising from the collaboration.
In February 2000, following the initial research phase of the
collaboration, the Company executed an interim agreement with Nippon Kayaku
under which the Company agreed to enter into a joint agreement to develop and
commercialize neuroprotectant drugs for PNS and CNS disorders.
Dupont
On December 26, 1997, the Company entered into a three-year collaborative
research and license agreement with DuPont Pharmaceuticals ("DuPont") to develop
and commercialize novel products for the treatment and prevention of human
immunodeficiency virus and hepatitis C virus infection. The Company received an
initial non-refundable license fee of $1,000,000 and will receive additional
payments based on the achievement of certain program milestones, as well as
royalties upon commercial sales of certain products, if any. In addition, DuPont
has agreed to pay the Company certain amounts for the full time equivalent
personnel working on the research. Due to the Company's achievement of a certain
milestone in 1999, DuPont purchased 144,354 shares of Series F-1 Preferred Stock
for total cash proceeds of $1,000,000. Pursuant to the collaborative research
agreement, DuPont is also obligated to purchase $2,000,000 of common stock in a
private transaction concurrent with the initial public offering of common stock
by the Company and at the public offering price per common share.
Ares-Serono
On November 25, 1997, the Company entered into a three-year collaborative
research, development and license agreement with Ares to perform research within
the field of the modulation of NF-kB. The Company will receive payments based on
the achievement of certain program milestones, as well as royalties upon
commercial sales of certain products, if any. In addition, Ares has agreed to
pay the Company certain amounts for the full time equivalent personnel working
on the research. In conjunction with the license agreement, Ares purchased
1,361,256 shares of the Company's Series F Preferred Stock at $6.02 per share
for a total of $8,194,761.
Roche Bioscience
On August 26, 1996, the Company entered into a three-year collaborative
research agreement with Roche Bioscience ("Roche") to conduct a joint research
program to develop human and rat nociceptive and/or sensory neuronal cell lines.
The Company received an initial non-refundable license fee of $500,000 and will
receive additional payments based on the achievement of certain program
milestones. In addition, Roche has paid the Company certain amounts for the full
time equivalent personnel working on the research. In 1999, the Company and
Roche agreed to conclude their collaboration; therefore, the Company has no
future performance obligations under this collaboration.
F-13
<PAGE> 89
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Organon
On July 30, 1996, the Company entered into a three-year collaborative
research agreement with N.V. Organon ("Organon") to assist Organon in the
discovery and development of tissue-specific, estrogen-regulated genes. The
Company received an initial non-refundable license fee of $1,000,000 and will
receive additional payments based on the achievement of certain program
milestones, as well as royalties upon commercial sales of certain products, if
any. In addition, Organon has paid the Company certain amounts for the full time
equivalent personnel performing the research. In 1999, the Company and Organon
agreed to conclude their collaboration; therefore, the Company has no future
performance obligations under this collaboration.
Tanabe
From March 1996 to March 1998, Signal and Tanabe were engaged in a
collaborative program under which Tanabe funded certain research by Signal in
target and drug discovery in the fields of inflammatory disease and
osteoporosis. In connection with the collaboration, Tanabe paid Signal an
initial $1,000,000 non-refundable license fee and reimbursed Signal for research
and development costs. Tanabe also purchased 250,000 shares of Signal's Series D
Preferred Stock at $8.00 per share. Pursuant to certain anti-dilution provisions
of the Series D Preferred Stock agreement triggered by the sale of shares of the
Company's Series E Preferred Stock at $3.82 per share, the Company issued an
additional 116,300 shares of Series D Preferred Stock to Tanabe during 1997.
In March 1998, Signal and Tanabe mutually agreed to conclude their
collaboration and Tanabe licensed from Signal a lead compound that was
discovered during the collaboration. Signal retained all other intellectual
property rights, including rights to all other drug targets and drug leads,
created before or during the collaboration. Tanabe paid an additional
non-refundable fee of $1,800,000 to Signal for the exclusive worldwide license
to the lead compound and is obligated to make payments to Signal based on the
achievement of certain research and development milestones and royalties on any
future product sales. Signal has no future performance obligations under this
collaboration.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of the convertible preferred stock at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
SHARES ISSUED PREFERENCE IN
AND OUTSTANDING LIQUIDATION
--------------- -------------
<S> <C> <C>
Series A........................................... 1,313,438 $ 2,626,892
Series B........................................... 1,437,498 3,450,000
Series C........................................... 4,395,710 12,308,005
Series D........................................... 366,300 2,000,000
Series E........................................... 3,227,740 12,329,929
Series F........................................... 1,361,256 8,194,761
Series F-1......................................... 144,354 1,000,000
---------- -----------
12,246,296 $41,909,587
========== ===========
</TABLE>
Each of the shares of Series A, B, C, D, E, F and F-1 preferred stock is
convertible on a one-for-one basis, at the option of the holder, into shares of
the Company's common stock. Therefore, 12,246,296 shares of common stock have
been reserved for issuance upon conversion of the preferred stock, subject to
certain
F-14
<PAGE> 90
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
anti-dilution adjustments. The preferred stock will convert automatically upon
the closing of an underwritten public offering of the Company's common stock
with proceeds to the Company of at least $15,000,000 and at a price not less
than $5.00 per share after adjustment for any stock splits. The holders of the
Series A, B, C, E and F preferred stock as a group are entitled to elect four
directors to the Board of Directors, and in all other matters the holder of each
share of preferred stock is entitled to one vote for each share of common stock
into which it would convert.
Annual dividends of $.16, $.19, $.22, $.64, $.32, $.48 and $.55 per share
of Series A, B, C, D, E, F and F-1 preferred stock, respectively, are payable
whenever funds are legally available and when and as declared by the Board of
Directors.
COMMON STOCK
In connection with certain stock purchase agreements, the Company has the
option to repurchase, at the original issue price, unvested shares in the event
of termination of employment or engagement. Shares issued under these agreements
generally vest over four to five years. At December 31, 1999, 128,911 shares
were subject to repurchase by the Company.
STOCK OPTION PLANS
In June 1993, the Company adopted the 1993 Founders' Stock Option Plan (the
"Founders' Plan"), under which 275,000 shares of common stock were reserved for
issuance upon exercise of options granted by the Company. The Founders' Plan
provides for the grant of incentive and nonstatutory options. The exercise price
of incentive stock options must equal at least the fair market value on the date
of grant, and the exercise price of nonstatutory stock options may be no less
than 85% of the fair market value on the date of grant. The maximum term of
options granted under the Founders' Plan is ten years. Options generally are
immediately exercisable. Common stock or options issued under the Founders' Plan
generally vest over five years. Unvested shares issued pursuant to the exercise
of options are subject to repurchase, at the original purchase price, in the
event of termination of employment or engagement.
In November 1993, the Company adopted the 1993 Stock Option Plan, under
which 225,000 shares of the Company's common stock were reserved for issuance
upon exercise of options granted by the Company under provisions similar to the
Founders' Plan. In 1995 and 1996, the Company authorized an additional 500,000
and 525,000 shares, respectively, of the Company's common stock to be reserved
for issuance upon exercise of options granted by the Company under the 1993
Stock Option Plan.
In June 1997, the Company adopted the 1997 Stock Option Plan, under which
500,000 shares of common stock were reserved for issuance upon exercise of
options granted by the Company. In February 1998, the Company authorized an
additional 1,000,000 shares of the Company's common stock to be reserved for
issuance upon exercise of options granted by the Company under the 1997 Stock
Option Plan. The options contain similar provisions to those options issued
under the 1993 Founders' Stock Option Plan and the 1993 Stock Option Plan.
F-15
<PAGE> 91
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 795,650 $.25 1,084,244 $.40 1,632,097 $ .67
Granted............................ 623,343 $.55 993,750 $.85 175,100 $1.00
Exercised.......................... (277,044) $.31 (356,651) $.38 (80,997) $ .30
Cancelled.......................... (57,705) $.32 (89,246) $.61 (232,593) $ .75
--------- --------- ---------
Outstanding at end of year......... 1,084,244 $.40 1,632,097 $.67 1,493,607 $ .72
========= ========= =========
Vested options at end of year...... 250,532 $.58 269,825 $.25 682,703 $ .64
========= ========= =========
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
$.20 to $1.00. The weighted average remaining contractual life of those options
is 6.8 years. The weighted-average fair value of options granted in 1997, 1998
and 1999, using the minimum value pricing model, was $.14, $.22 and $.22,
respectively.
As of December 31, 1999, options for 365,994 common shares were available
for future grant.
The Company recorded $615,855, $1,019,170 and $1,024,244 of deferred
compensation for options granted during the years ended December 31, 1997, 1998
and 1999, respectively, representing the difference between the option exercise
price and the estimated fair value of the underlying stock for financial
statement presentation purposes. The Company is amortizing the deferred
compensation over the vesting period of the options. The Company recorded
$104,355, $607,788 and $675,122 of compensation expense during the years ended
December 31, 1997, 1998 and 1999, respectively.
Pro forma information regarding net loss is required to be disclosed by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed in that Statement.
The fair value of these options was estimated at the date of grant using the
minimum value pricing model with the following weighted-average assumptions for
1997, 1998 and 1999: risk-free interest rate of 6%, dividend yield of 0%; and an
expected life of four years.
The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The adjusted pro forma net loss for the years ended December 31, 1997, 1998 and
1999 was $5,757,845, $4,384,804 and $7,913,695, respectively. The adjusted pro
forma net loss per share, basic and diluted, for the years ended December 31,
1997, 1998 and 1999 was $5.67, $3.33 and $4.82, respectively. The effects are
not likely to be representative of the effects on pro forma net loss in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to 1996.
F-16
<PAGE> 92
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 12,246,296
Stock option plans.......................................... 1,859,601
Warrants.................................................... 125,000
----------
14,230,897
==========
</TABLE>
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1999 are shown below. A valuation allowance of $15,290,000, of
which $2,779,000 is related to 1999, has been recognized as of December 31, 1999
to offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
DEFERRED TAX ASSETS: ------------ ------------
<S> <C> <C>
Capitalized research expenses........................... $ 965,000 $ 921,000
Net operating loss carryforwards........................ 9,276,000 11,389,000
Research and development credits........................ 1,458,000 1,877,000
Depreciation............................................ 57,000 952,000
Other, net.............................................. 755,000 151,000
------------ ------------
Total deferred tax assets............................... 12,511,000 15,290,000
Valuation allowance for deferred tax assets............. (12,511,000) (15,290,000)
------------ ------------
Net deferred taxes...................................... $ -- $ --
============ ============
</TABLE>
At December 31, 1999, the Company has federal and California net operating
loss carryforwards of approximately $30,621,000 and $11,680,000, respectively.
The difference between the federal and California tax loss carryforwards is
attributable to the capitalization of research and development expenses for
California tax purposes and the fifty percent limitation on California loss
carryforwards prior to 1997. The federal tax loss carryforwards will begin
expiring in 2007, unless previously utilized. The California tax loss
carryforwards will continue to expire in 2000 (approximately $1,035,000 expired
in 1999). The Company also has federal and California research and development
tax credit carryforwards of approximately $1,368,000 and $783,000, respectively,
which will begin expiring in 2008 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, the annual
use of the Company's net operating loss and credit carryforwards may be limited
if a cumulative change in ownership (as defined) of more than 50% occurs within
a three-year testing period.
F-17
<PAGE> 93
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENT
In January 2000, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its Common Stock in an initial
public offering. The Board of Directors also approved (subject to stockholder
ratification) that, prior to the effective date of the Offering contemplated by
this Prospectus, the Company will change the authorized shares of Preferred
Stock from 12,371,319 to 5,000,000 and the authorized shares of Common Stock
from 17,644,354 to 50,000,000; will reincorporate the Company in Delaware; will
effect a 1 for 2 stock split of the Preferred and Common Stock; will adopt a
2000 Equity Incentive Plan, which will amend the 1993 Stock Option Plans and the
1997 Stock Option Plan; increase the share reserve of the 2000 Equity Incentive
Plan to 3,500,000 shares; adopt the 2000 Non-Employee Directors' Stock Option
Plan with 250,000 shares reserved; and adopt the 2000 Employee Stock Purchase
Plan with 500,000 shares reserved. The financial statements and accompanying
notes have been retroactively restated to reflect the effect of the reverse
split and reincorporation in Delaware.
F-18
<PAGE> 94
[INSIDE BACK COVER ARTWORK]
OUR DISCOVERY ENGINE FOR GENE REGULATING TARGETS AND DRUGS
[Graphic depicting Signal's discovery engine for gene regulating targets
and drugs. The top portion of the graphic depicts Signal's target discovery
engine, consisting of cellular molecular and genomic technologies. The middle
portion of the graphic depicts Signal's drug discovery engine, consisting of
proprietary screens and compound libraries. The bottom portion of the graphic
depicts the profiling of Signal's drug candidates in specific disease models in
preparation for clinical development.]
Target Discovery Engine: We are developing and applying advanced cellular,
molecular, and genomic technologies to discover new gene regulating targets.
Drug Discovery Engine: Using our proprietary screens and compound
libraries, we identify and optimize drug leads which control disease processes
at the level of gene function.
Drug Development: We profile the ability of our drug candidates to
selectively control gene regulation pathways in specific disease models in
preparation for clinical development.
<PAGE> 95
[SIGNAL LOGO]
<PAGE> 96
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, the NASD filing fee and
the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 21,252
NASD filing fee............................................. 30,500
Nasdaq Stock Market Listing Application fee................. 95,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 120,000
Transfer agent and registrar fees........................... 15,000
Miscellaneous............................................... 38,248
--------
Total..................................................... $750,000
========
</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 Second Amended and Restated Certificate of Incorporation
and 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 executive 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> 97
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require the Registrant to indemnify such
persons against any and all expenses (including attorneys' fees), witness fees,
damages, judgments, fines, settlements and other amounts incurred (including
expenses of a derivative action) in connection with any action, suit or
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, an officer or
an employee 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.
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 January 1, 1997, the Registrant has sold and issued the following
unregistered securities (after giving effect to the 1-for-2 stock split to be
effected prior to the completion of this offering):
1. On September 9, 11 and 12, 1997, the Company sold an aggregate of
3,227,740 shares of Series E Preferred Stock at a price of $3.82 per share
to the following purchasers: Accel Investors '93 L.P., (1,870 shares),
Accel IV L.P. (42,307 shares), Accel Japan L.P. (4,044) shares), Accel
Keiretsu L.P. (910 shares), Ares-Serono S.A. (493,151 shares), Bayview
Investors Ltd. (30,408 shares), Biocentive (261,780 shares), Ellmore C.
Patterson Partners (1,112 shares), Finsbury Worldwide Pharmaceutical Trust,
plc (261,780 shares), Hambrecht & Quist LLC (21,596 shares), Harry F.
Hixson, Jr. Separate Property Trust, Dated December 15, 1995 (11,010
shares), InterWest Investors V (248 shares), InterWest Partners V (39,404
shares), Kleiner Perkins Caufield & Byers VI (50,546 shares), Lehman
Brothers (43,193 shares), Lombard Odier & Cie (785,340 shares),
Neuroscience Partners Limited Partnership (261,780 shares), New York Life
Insurance Company (392,670 shares), Oxford Bioscience Partners (Adjunct)
L.P. (5,287 shares), Oxford Bioscience Partners (Bermuda) L.P. (4,592
shares), Oxford Bioscience Partners, L.P. (16,555 shares), Pharma/wHealth
(261,780 shares), Prosper Partners (303 shares), Robertson, Stephens &
Company LLC (21,596 shares), Second Ventures II, L.P. (2,775 shares), The
Health Care and Biotechnology Venture Fund (130,890 shares), U.S. Venture
Partners IV, L.P. (22,866 shares), USVP Entrepreneur Partners II, L.P. (793
shares), Venrock Associates (21,735 shares), Venrock Associates II, L.P.
(28,811 shares), and Vertical Fund Associates, L.P. (6,608 shares).
2. On December 1, 1997, the Company sold 1,361,256 shares of Series F
Preferred Stock at a price of $6.02 per share to Ares-Serono, S.A.
3. On December 8, 1997, the Company issued 10,000 shares of Common
Stock, valued at $.56 per share, to the University of Massachusetts.
4. On December 31, 1997, the Company issued 1,250 shares of Common
Stock, valued at $7.20 per share, to Dr. David J. Baylink under a
consulting agreement.
5. On January 14, 1998, the Company issued 2,499 shares of Common
Stock, valued at $.56 per share, to The Regents of the University of
California.
6. On March 8, 1998, the Company issued 12,497 shares of Common Stock
in the aggregate, valued at $.56 per share, to five scientists affiliated
with The Regents of the University of California.
II-2
<PAGE> 98
7. On December 7, 1999, the Company sold 144,354 shares of Series F-1
Preferred Stock for an aggregate purchase price of $1,000,000 to DuPont
Pharmaceuticals Company.
8. As of February 16, 2000, the Company had granted options to
purchase an aggregate of 3,844,168, including options subsequently
cancelled that then became available for new option grants, shares of its
Common Stock to directors, employees and consultants under its 2000 Equity
Incentive Plan. The exercise prices for such options range from $0.20 to
$2.50 per share. As of February 16, 2000, the Company had issued an
aggregate of 1,352,432 shares of its Common Stock upon the exercise of
stock options under its 2000 Equity Incentive Plan.
The offers, sales and issuances of the above securities were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, and/or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving a public offering or transactions under compensatory
benefit plans and contracts relating to compensation as provided under such Rule
701. The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through employment or other relationships,
to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Articles of Incorporation effective prior to reincorporation
of the Company in Delaware.
3.2 Bylaws effective prior to reincorporation of the Company in
Delaware.
3.3 Certificate of Incorporation of the Company's Delaware
subsidiary.
3.4 Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective prior to the effectiveness
of this Registration Statement.
3.5 Form of Second Amended and Restated Certificate of
Incorporation, to be filed and become effective upon
completion of the offering.
3.6 Form of Bylaws to become effective prior to the
effectiveness of this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and
3.6.
4.2+ Form of Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP.
10.1 Second Amended and Restated Voting Agreement, dated
September 8, 1994, entered into between the Registrant and
certain of its stockholders.
10.2 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.3 Registrant's 2000 Equity Incentive Plan.
10.4 Form of Incentive and Nonstatutory Stock Option Agreements
under the 2000 Equity Incentive Plan.
10.5 Registrant's Employee Stock Purchase Plan and related
offering document.
10.6 Registrant's Non-Employee Directors' Stock Option Plan.
10.7 Form of Nonstatutory Stock Option under Registrant's
Non-Employee Directors' Stock Option Plan.
10.8 Registrant's Employees Retirement Investment Plan and Trust,
effective as of January 1, 1998.
10.9 Amended and Restated Investors' Rights Agreement, dated
September 9, 1997, entered into between the Registrant and
certain of its stockholders.
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.10 Amendment to the Amended and Restated Investors' Rights
Agreement dated November 25, 1997, entered into between the
Registrant and certain of its stockholders.
10.11 Loan and Security Agreement, dated November 22, 1996,
entered into between the Registrant and MMC/GATX Partnership
No. 1.
10.12 Warrant to Purchase 250,000 shares of Series C-1 Preferred
Stock, issued by the Registrant to MMC/GATX Partnership No.
1.
10.13 Secured Promissory Note, dated December 2, 1996, issued by
the Registrant to MMC/ GATX Partnership No. 1.
10.14 Series E Preferred Stock Purchase Agreement, dated September
9, 1997, between the Registrant and certain of its
stockholders.
10.15 Series F Preferred Stock Purchase Agreement, dated November
25, 1997, between the Registrant and Ares-Serono S.A.
10.16 Promissory Note, dated June 14, 1994, as amended on May 14,
1998 and October 27, 1999, issued to the Registrant by Alan
J. Lewis.
10.17 Security Agreement, dated June 14, 1994, entered into
between the Registrant to Alan J. Lewis.
10.18 Employment letter agreement, dated December 8, 1993, between
the Registrant and Alan J. Lewis.
10.19 Employment letter agreement, dated March 4, 1994, between
the Registrant and David W. Anderson.
10.20 Employment letter agreement, dated August 18, 1994, between
the Registrant and Bradley B. Gordon.
10.21 Consulting Agreement, dated April 1, 1996, between the
Registrant and John P. Walker.
10.22 Lease, dated April 30, 1993, as amended, between the
Registrant and Sorrento Valley Business Park.
10.23 Master Lease Agreement, dated July 8, 1993, between the
Registrant and E.I. DuPont de Nemours & Co.
10.24 Master Equipment Lease, dated September 1, 1993, between the
Registrant and Phoenix Leasing Incorporated.
10.25 Master Lease Agreement, dated January 1, 1998, between the
Registrant and Transamerica Business Credit Corporation.
10.26 Lease, dated January 1, 1998, between the Registrant and
Sorrento Valley Business Park.
10.27* Exclusive License Agreement, dated October 26, 1993, between
the Registrant and The Regents of the University of
California.
10.28* First Amendment to Exclusive License Agreement, dated June
22, 1997, between the Registrant and The Regents of the
University of California.
10.29* Second Amendment to Exclusive License Agreement, dated
February 2, 1998, between the Registrant and The Regents of
the University of California.
10.30* Restricted Stock Purchase Agreement, dated October 26, 1993,
between the Registrant and the Regents of the University of
California.
10.31* License Agreement, dated February 18, 1998, between the
Registrant and The Regents of the University of California.
10.32* Restricted Stock Purchase Agreement, dated February 18,
1998, between the Registrant and The Regents of the
University of California.
10.33* Collaborative Development and Licensing Agreement, dated
March 31, 1996, between the Registrant and Tanabe Seiyaku
Co., Ltd.
10.34* Amendment to Collaborative Development and Licensing
Agreement, dated March 31, 1998, between the Registrant and
Tanabe Seiyaku Co., Ltd.
</TABLE>
II-4
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.35 Stock Purchase Agreement, dated March 31, 1996, between the
Registrant and Tanabe Seiyaku Co., Ltd.
10.36* Agreement dated July 30, 1996, between the Registrant and
N.V. Organon.
10.37* First Amendment to Agreement, dated January 30, 1998,
between the Registrant and N.V. Organon.
10.38* Exclusive License Agreement, dated October 1996, between the
Registrant and the University of Massachusetts.
10.39* Restricted Stock Purchase Agreement, dated October 31, 1996,
between the Registrant and the University of Massachusetts.
10.40* License Agreement, dated October 28, 1997, between the
Registrant and the University of Massachusetts.
10.41* Restricted Stock Purchase Agreement, dated December 8, 1997,
between the Registrant and the University of Massachusetts.
10.42* Research, Development and License Agreement, dated November
25, 1997, between the Registrant and Ares Trading S.A.
10.43* Collaborative Research and License Agreement, dated December
26, 1997, between the Registrant and The DuPont Merck
Pharmaceutical Company.
10.44* Stock Purchase Agreement dated December 26, 1997, between
the Registrant and The DuPont Merck Pharmaceutical Company.
10.45* Collaboration Agreement, dated February 9, 1998, between the
Registrant and Nippon Kayaku Co., Ltd.
10.46 Promissory Note, dated May 8, 1998, issued to the Registrant
by Alan J. Lewis.
10.47* Collaborative Research and License Agreement, dated October
15, 1999, between the Registrant and Axys Pharmaceuticals,
Inc.
10.48 Lease, dated December 28, 1999, between the Registrant and
HUB Properties Trust.
10.49* First Amendment to Research, Development and License
Agreement, dated February 1999, between the Registrant and
Ares Trading S.A.
10.50 Memorandum of agreement, dated February 9, 2000, between the
Registrant and Nippon Kayaku Co., Ltd.
10.51 Employment Agreement, dated May 18, 1998, between the
Registrant and Douglas E. Richards.
10.52 Promissory Note, dated August 1998, issued to the Registrant
by Douglas E. Richards.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-7.
27.1 Financial Data Schedule.
</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.
+ To be filed by amendment.
(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-5
<PAGE> 101
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration statement 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.
(2) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities 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, 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-6
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on the 18th day of February, 2000.
By: /s/ BRADLEY B. GORDON
------------------------------------
Bradley B. Gordon
Senior Vice President Finance, Chief
Financial Officer and Corporate
Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Alan J. Lewis and Bradley
B. Gordon his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective amendments),
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ ALAN J. LEWIS President, Chief Executive Officer February 18, 2000
- ---------------------------------- and Director
Alan J. Lewis, Ph.D. (Principal Executive Officer)
/s/ BRADLEY B. GORDON Vice President, Finance, February 18, 2000
- ---------------------------------- Chief Financial Officer and
Bradley B. Gordon Secretary
(Principal Financial and
Accounting Officer)
/s/ JOHN P. WALKER Chairman of the Board February 18, 2000
- ----------------------------------
John P. Walker
/s/ HARRY F. HIXSON Director February 18, 2000
- ----------------------------------
Harry F. Hixson, Ph.D.
/s/ PATRICK F. LATTERELL Director February 18, 2000
- ----------------------------------
Patrick F. Latterell
/s/ GARY L. NEIL Director February 18, 2000
- ----------------------------------
Gary L. Neil, Ph.D.
/s/ ARNOLD ORONSKY Director February 18, 2000
- ----------------------------------
Arnold Oronsky, Ph.D.
</TABLE>
II-7
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Articles of Incorporation effective prior to reincorporation
of the Company in Delaware.
3.2 Bylaws effective prior to reincorporation of the Company in
Delaware.
3.3 Certificate of Incorporation of the Company's Delaware
subsidiary.
3.4 Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective prior to the effectiveness
of this Registration Statement.
3.5 Form of Second Amended and Restated Certificate of
Incorporation, to be filed and become effective upon
completion of the offering.
3.6 Form of Bylaws to become effective prior to the
effectiveness of this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and
3.6.
4.2+ Form of Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP.
10.1 Second Amended and Restated Voting Agreement, dated
September 8, 1994, entered into between the Registrant and
certain of its stockholders.
10.2 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.3 Registrant's 2000 Equity Incentive Plan.
10.4 Form of Incentive and Nonstatutory Stock Option Agreements
under the 2000 Equity Incentive Plan.
10.5 Registrant's Employee Stock Purchase Plan and related
offering document.
10.6 Registrant's Non-Employee Directors' Stock Option Plan.
10.7 Form of Nonstatutory Stock Option under Registrant's
Non-Employee Directors' Stock Option Plan.
10.8 Registrant's Employees Retirement Investment Plan and Trust,
effective as of January 1, 1998.
10.9 Amended and Restated Investors' Rights Agreement, dated
September 9, 1997, entered into between the Registrant and
certain of its stockholders.
10.10 Amendment to the Amended and Restated Investors' Rights
Agreement dated November 25, 1997, entered into between the
Registrant and certain of its stockholders.
10.11 Loan and Security Agreement, dated November 22, 1996,
entered into between the Registrant and MMC/GATX Partnership
No. 1.
10.12 Warrant to Purchase 250,000 shares of Series C-1 Preferred
Stock, issued by the Registrant to MMC/GATX Partnership No.
1.
10.13 Secured Promissory Note, dated December 2, 1996, issued by
the Registrant to MMC/ GATX Partnership No. 1.
10.14 Series E Preferred Stock Purchase Agreement, dated September
9, 1997, between the Registrant and certain of its
stockholders.
10.15 Series F Preferred Stock Purchase Agreement, dated November
25, 1997, between the Registrant and Ares-Serono S.A.
10.16 Promissory Note, dated June 14, 1994, as amended on May 14,
1998 and October 27, 1999, issued to the Registrant by Alan
J. Lewis.
10.17 Security Agreement, dated June 14, 1994, entered into
between the Registrant to Alan J. Lewis.
10.18 Employment letter agreement, dated December 8, 1993, between
the Registrant and Alan J. Lewis.
10.19 Employment letter agreement, dated March 4, 1994, between
the Registrant and David W. Anderson.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.20 Employment letter agreement, dated August 18, 1994, between
the Registrant and Bradley B. Gordon.
10.21 Consulting Agreement, dated April 1, 1996, between the
Registrant and John P. Walker.
10.22 Lease, dated April 30, 1993, as amended, between the
Registrant and Sorrento Valley Business Park.
10.23 Master Lease Agreement, dated July 8, 1993, between the
Registrant and E.I. Dupont de Nemours & Co.
10.24 Master Equipment Lease, dated September 1, 1993, between the
Registrant and Phoenix Leasing Incorporated.
10.25 Master Lease Agreement, dated January 1, 1998, between the
Registrant and Transamerica Business Credit Corporation.
10.26 Lease, dated January 1, 1998, between the Registrant and
Sorrento Valley Business Park.
10.27* Exclusive License Agreement, dated October 26, 1993, between
the Registrant and The Regents of the University of
California.
10.28* First Amendment to Exclusive License Agreement, dated June
22, 1997, between the Registrant and The Regents of the
University of California.
10.29* Second Amendment to Exclusive License Agreement, dated
February 2, 1998, between the Registrant and The Regents of
the University of California.
10.30* Restricted Stock Purchase Agreement, dated October 26, 1993,
between the Registrant and the Regents of the University of
California.
10.31* License Agreement, dated February 18, 1998, between the
Registrant and The Regents of the University of California.
10.32* Restricted Stock Purchase Agreement, dated February 18,
1998, between the Registrant and The Regents of the
University of California.
10.33* Collaborative Development and Licensing Agreement, dated
March 31, 1996, between the Registrant and Tanabe Seiyaku
Co., Ltd.
10.34* Amendment to Collaborative Development and Licensing
Agreement, dated March 31, 1998, between the Registrant and
Tanabe Seiyaku Co., Ltd.
10.35 Stock Purchase Agreement, dated March 31, 1996, between the
Registrant and Tanabe Seiyaku Co., Ltd.
10.36* Agreement dated July 30, 1996, between the Registrant and
N.V. Organon.
10.37* First Amendment to Agreement, dated January 30, 1998,
between the Registrant and N.V. Organon.
10.38* Exclusive License Agreement, dated October 1996, between the
Registrant and the University of Massachusetts.
10.39* Restricted Stock Purchase Agreement, dated October 31, 1996,
between the Registrant and the University of Massachusetts.
10.40* License Agreement, dated October 28, 1997, between the
Registrant and the University of Massachusetts.
10.41* Restricted Stock Purchase Agreement, dated December 8, 1997,
between the Registrant and the University of Massachusetts.
10.42* Research, Development and License Agreement, dated November
25, 1997, between the Registrant and Ares Trading S.A.
10.43* Collaborative Research and License Agreement, dated December
26, 1997, between the Registrant and The DuPont Merck
Pharmaceutical Company.
10.44* Stock Purchase Agreement dated December 26, 1997, between
the Registrant and The DuPont Merck Pharmaceutical Company.
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.45* Collaboration Agreement, dated February 9, 1998, between the
Registrant and Nippon Kayaku Co., Ltd.
10.46 Promissory Note, dated May 8, 1998, issued to the Registrant
by Alan J. Lewis.
10.47* Collaborative Research and License Agreement, dated October
15, 1999, between the Registrant and Axys Pharmaceuticals,
Inc.
10.48 Lease, dated December 28, 1999, between the Registrant and
HUB Properties Trust.
10.49* First Amendment to Research, Development and License
Agreement, dated February 1999, between the Registrant and
Ares Trading S.A.
10.50 Memorandum of agreement, dated February 9, 2000, between the
Registrant and Nippon Kayaku Co., Ltd.
10.51 Employment Agreement, dated May 18, 1998, between the
Registrant and Douglas E. Richards.
10.52 Promissory Note, dated May 18, 1998, between the Registrant
and Douglas E. Richards.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-7.
27.1 Financial Data Schedule.
</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.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF SIGNAL PHARMACEUTICALS, INC.,
a California corporation
The undersigned Alan J. Lewis and Bradley B. Gordon hereby certify that:
ONE: They are the duly elected and acting President and Chief Executive
Officer, and Secretary, respectively, of said corporation.
TWO: The Amended and Restated Articles of Incorporation of said
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Signal Pharmaceuticals, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Sixty Million Thirty-One Thousand Three Hundred Forty-Seven (60,031,347)
shares. Thirty-Five Million Two Hundred Eighty-Eight Thousand Seven Hundred
Eight (35,288,708) shares shall be Common Stock and Twenty-Four Million Seven
Hundred Forty-Two Thousand Six Hundred Thirty-Nine (24,742,639) shares shall be
Preferred Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 2,626,892 shares, the Series B
Preferred Stock, which series shall consist of 2,875,000 shares, the Series C
Preferred Stock, which series shall consist of 8,791,432 shares, the Series C-1
Preferred Stock, which series shall consist of 250,000 shares, the Series D
Preferred Stock, which series shall consist of 732,601 shares, the Series E
Preferred Stock, which
1.
<PAGE> 2
series shall consist of 6,455,493 shares, the Series F Preferred Stock, which
series shall consist of 2,722,513 shares, and the Series F-1 Preferred Stock,
which series shall consist of 288,708 shares, are set forth below in this
Article III(B).
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series C-1 Preferred Stock, the Series D Preferred Stock,
the Series E Preferred Stock, the Series F Preferred Stock and the Series F-1
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the corporation, including
pursuant to an event causing the Conversion Price of the Series A, Series B,
Series C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock
to be adjusted pursuant to Section 4(d)(i) hereof) on the Common Stock of the
corporation, at the rate of $0.08, $0.096, $0.112, $0.168, $0.32, $0.1528,
$0.24095 and $0.2771, respectively, per share per annum, payable when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
After payment of the dividend preference referred to above, outstanding
shares of Series A, Series B, Series C, Series C-1, Series D, Series E, Series F
and Series F-1 Preferred Stock shall participate with shares of Common Stock as
to any additional declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the corporation including pursuant to an event causing the Conversion
Price of the Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock to be adjusted pursuant to Section
4(d)(i) hereof), with the outstanding shares of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock
participating as though they had all been converted into Common Stock.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock which may from time to time come into
existence, the holders of Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F and Series F-1 Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of the
corporation to the holders of the Common Stock by reason of their ownership
thereof, an amount per share equal to the sum of (i) $1.00 for each outstanding
share of Series A Preferred Stock (the "Original Series A Issue Price") and (ii)
$1.20 for each
2.
<PAGE> 3
outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price") and (iii) $1.40 for each outstanding share of Series C Preferred Stock
(the "Original Series C Issue Price") and (iv) $2.10 for each outstanding share
of Series C-1 Preferred Stock (the "Original Series C-1 Issue Price") and (v)
$2.73 for each outstanding share of Series D Preferred Stock (the "Original
Series D Issue Price") and (vi) $1.91 for each outstanding share of Series E
Preferred Stock (the "Original Series E Issue Price") and (vii) $3.01192 for
each outstanding share of Series F Preferred Stock (the "Original Series F Issue
Price") and (viii) $3.4637 for each outstanding share of Series F-1 Preferred
Stock (the "Original Series F-1 Issue Price") and (ix) an amount equal to
declared but unpaid dividends on such share(s). If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F and Series F-1
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock which may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock in
proportion to the aggregate liquidation preferences of the respective series,
and ratably among the holders of each series in proportion to the amount of
stock in such series owned by each such holder.
(b) Upon completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution which may be
required with respect to series of Preferred Stock which may from time to time
come into existence, if assets remain in this corporation, the holder of each
share of Common Stock shall be entitled to receive an amount equal to $0.10 per
share.
(c) Upon the completion of the distribution required by
subparagraphs (a) and (b) of this Section 2, the remaining assets of the
corporation available for distribution to shareholders shall be distributed
among the holders of Series A, Series B, Series C, Series C-1, Series D, Series
E, Series F and Series F-1 Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming conversion of all
such Series A, Series B, Series C, Series C-1, Series D, Series E, Series F and
Series F-1 Preferred Stock) until, with respect to the holders of Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F and Series F-1
Preferred Stock, such holders shall have received an aggregate of $5.00 per
share (including amounts paid pursuant to subsection (a) of this Section 2);
thereafter, if assets remain in this corporation, the holders of the Common
Stock of this corporation shall receive all of the remaining assets of this
corporation pro rata based on the number of shares of Common Stock held by each.
3.
<PAGE> 4
(i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the corporation is other than cash its value will be deemed its fair
market value. Any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities
exchange or through Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty-day period ending three
(3) days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to reflect the
approximate fair market value thereof, as mutually determined by the corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
4.
<PAGE> 5
(iii) In the event the requirements of this
Subsection 2(d) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A, Series B,
Series C, Series C-1, Series D, Series E, Series F and Series F-1 Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(d)(iv) hereof.
(iv) The corporation shall give each holder of
record of Series A, Series B, Series C, Series C-1, Series D, Series E, Series F
and Series F-1 Preferred Stock written notice of such impending transaction not
later than twenty (20) days prior to the shareholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of holders of a majority of
each series of Preferred Stock.
3. REDEMPTION. The Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock are not redeemable.
4. CONVERSION. The holders of the Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Original Series A Issue Price,
the Original Series B Issue Price, the Original Series C Issue Price, the
Original Series C-1 Issue Price, the Original Series D Issue Price, the Original
Series E Issue Price, the Original Series F Issue Price or the Original Series
F-1
5.
<PAGE> 6
Issue Price, respectively, by the Conversion Price at the time in effect for
such share. The initial "Conversion Price" per share for shares of Series A
shall be the Original Series A Issue Price, the initial "Conversion Price" per
share for shares of Series B Preferred Stock shall be the Original Series B
Issue Price, the initial "Conversion Price" for shares of Series C shall be the
Original Series C Issue Price, the initial "Conversion Price" for shares of
Series C-1 shall be the Original Series C-1 Issue Price, the initial "Conversion
Price" for shares of Series D shall be the Original Series D Issue Price, the
initial "Conversion Price" for shares of Series E shall be the Original Series E
Issue Price, the initial "Conversion Price" for shares of Series F shall be the
Original Series F Issue Price and the initial "Conversion Price" for shares of
Series F-1 shall be the Original Series F-1 Issue Price; provided, however, that
the Conversion Price for the Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F and Series F-1 Preferred Stock shall be subject to adjustment
as set forth in this Section 4.
(ii) Each share of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Preferred Stock immediately upon the earlier of
(A) the consummation of the sale of the corporation's Common Stock in a bona
fide, firm commitment underwriting pursuant to a registration statement under
the Securities Act of 1933, as amended, the public offering price of which is
not less than $5.00 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) with aggregate gross proceeds to the Company
in excess of $15,000,000; (B) the date upon which the corporation obtains the
consent of the holders of at least 75% of the then outstanding shares of
Preferred Stock, to the conversion of their shares; (C) as to each of the Series
A, the Series B, the Series C, the Series C-1, the Series D, the Series E,
Series F and Series F-1 Preferred Stock, the date upon which there are less than
100,000 shares of such series of Preferred Stock then outstanding (such number
to be adjusted to reflect subsequent stock dividends, stock splits, combinations
or recapitalizations); or (D) as to the Series D Preferred Stock, ten (10) days
after written notice to all holders of the Series D Preferred Stock of the
occurrence of a material breach by Tanabe Seiyaku Co., Ltd., a Japanese
corporation ("Tanabe"), of that certain Stock Purchase Agreement dated as of
March 31, 1996 between the Company and Tanabe (the "Tanabe Agreement"), which
breach has not been cured by Tanabe pursuant to the terms of the Tanabe
Agreement.
(b) MECHANICS OF CONVERSION. Before any holder of Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Preferred Stock, and shall give written notice by mail, postage prepaid, to the
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for
6.
<PAGE> 7
shares of Common Stock are to be issued; provided, however, that in the event of
an automatic conversion in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
outstanding shares of Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the corporation or its
transfer agent; and provided further that the corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the corporation or its transfer agent as provided above, or
the holder notifies the corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion will, unless otherwise designated by the holder tendering Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, and the person(s) entitled to receive the
Common Stock issuable upon such conversion of such Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time or from time to time after
September 9, 1997 (the "Original Issue Date"), the Company issues or sells, or
is deemed by the express provisions of this subsection (c) to have issued or
sold, Additional Shares of Common Stock (as defined in subsection (c)(iv)
below)), other than as a dividend or other distribution on any class of stock as
provided in Section 4(d) below for an Effective Price (as defined in subsection
(c)(iv) below) less than the then effective Conversion Price for the Series A,
Series B, Series C, Series C-1 or Series E Preferred Stock, respectively, or the
then effective Series F Anti-Dilution Price for the Series F Preferred Stock or
the then effective Series F-1 Anti-Dilution Price for the Series F-1 Preferred
Stock, then and in each such case: (1) the then existing Conversion Price for
the Series A, Series B, Series C, Series C-1 and Series E Preferred Stock, as
applicable, and the then existing
7.
<PAGE> 8
Series F Anti-Dilution Price or Series F-1 Anti-Dilution Price, as applicable,
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying the then existing Conversion Price or
Series F Anti-Dilution Price or Series F-1 Anti-Dilution Price, as applicable,
by a fraction (i) the numerator of which shall be (A) the number of shares of
Common Stock deemed outstanding (as defined below) immediately prior to such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (as defined in subsection (c)(ii)) by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price or Series F Anti-Dilution Price or Series F-1
Anti-Dilution Price, and (ii) the denominator of which shall be the number of
shares of Common Stock deemed outstanding (as defined below) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued; and (2) the then existing Conversion Price for the Series F or Series
F-1 Preferred Stock, as applicable, shall be reduced, as of the opening of
business on the date of such issue or sale, to a price determined by subtracting
from the then existing Conversion Price the difference between the Series F
Anti-Dilution Price or the Series F-1 Anti-Dilution Price, as applicable, in
effect immediately prior to the issuance of the Additional Shares of Common
Stock and the Series F Anti-Dilution Price or the Series F-1 Anti-Dilution
Price, as applicable, in effect immediately after the issuance of the Additional
Shares of Common Stock. For the purposes of the preceding sentence, the number
of shares of Common Stock deemed to be outstanding as of a given date shall be
the sum of (A) the number of shares of Common Stock actually outstanding, (B)
the number of shares of Common Stock into which the then outstanding shares of
the Series A, Series B, Series C, Series C-1, Series D, Series E, Series F or
Series F-1 Preferred Stock could be converted if fully converted on the day
immediately preceding the given date, and (C) the number of shares of Common
Stock which could be obtained through the exercise or conversion of all other
rights, options and convertible securities on the day immediately preceding the
given date. For purposes of this Section 4(c), the original Series F
Anti-Dilution Price and the original Series F-1 Anti-Dilution Price shall each
be $1.91.
(ii) For the purpose of making any adjustment
required under this Section 4(c), the consideration received by the Company for
any issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as defined in subsection (c)(iii)
below) or rights or options to purchase either Additional Shares of Common Stock
or Convertible Securities are issued or sold together with other stock or
securities or other
8.
<PAGE> 9
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 4(c), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Conversion Price, Series F
Anti-Dilution Price or Series F-1 Anti-Dilution Price, as applicable, in each
case the Company shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Company shall be deemed to have
received the minimum amounts of consideration without reference to such clauses;
provided further that if the minimum amount of consideration payable to the
Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the
Conversion Price, Series F Anti-Dilution Price or Series F-1 Anti-Dilution
Price, as adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities. If any such rights or options or
the conversion privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price, Series F
Anti-Dilution Price and Series F-1 Anti-
9.
<PAGE> 10
Dilution Price, as adjusted upon the issuance of such rights, options or
Convertible Securities, shall be readjusted to the Conversion Price, Series F
Anti-Dilution Price and Series F-1 Anti-Dilution Price which would have been in
effect had an adjustment been made on the basis that the only Additional Shares
of Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and such Additional Shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of all such rights or options, whether
or not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of the Series A, Series B, Series C, Series C-1, Series E, Series F
or Series F-1 Preferred Stock.
(iv) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant
to this Section 4(c), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series
F-1 Preferred Stock; (B) shares of Common Stock and/or options, warrants or
other Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; and (C) shares of Common
Stock issued pursuant to the exercise of options, warrants or convertible
securities outstanding as of the Original Issue Date. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 4(c), into the
aggregate consideration received, or deemed to have been received by the Company
for such issue under this Section 4(c), for such Additional Shares of Common
Stock.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
STOCK DIVIDENDS AND STOCK SPLITS. The Conversion Price of the Series A, Series
B, Series C, Series C-1, Series D, Series E, Series F and Series F-1 Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) In the event the corporation should at any time
or from time to time after the date when the first shares of Series A, Series B,
Series C,
10.
<PAGE> 11
Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock,
respectively, are issued (the "Purchase Date" with respect to each such series)
fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A, Series B, Series
C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be increased in proportion to
such increase in the aggregate number of shares of Common Stock outstanding and
those issuable with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the corporation or other persons, assets or other
property or options or rights not referred to in Subsection 4(d)(i) (excluding
any dividends described in Section 1), then, in each such case for the purpose
of this subsection 4(e), the holders of the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A, Series B, Series C, Series C-1, Series D, Series
E, Series F and Series F-1 Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the corporation
entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Series A,
Series B, Series C, Series C-1, Series D,
11.
<PAGE> 12
Series E, Series F and Series F-1 Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock, respectively, the
number of shares of stock or other securities or property of the corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock after
the recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. The corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.
(i) No fractional shares shall be issued upon
conversion of the Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Such rounding shall be
based on the total number of shares of Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F or Series F-1 Preferred Stock pursuant to this
Section 4, the corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F or Series F-1 Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of Series A, Series B, Series C, Series C-1,
12.
<PAGE> 13
Series D, Series E, Series F or Series F-1 Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Series A, Series
B, Series C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred
Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by
the corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the corporation shall mail to each
holder of Series A, Series B, Series C, Series C-1, Series D, Series E Series E,
Series F and Series F-1 Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A, Series B, Series C, Series C-1, Series
D, Series E, Series F and Series F-1 Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F and Series F-1
Preferred Stock, in addition to such other remedies as shall be available to the
holders of such Preferred Stock, the corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including without limitation, using its best
efforts to obtain the requisite shareholder approval of any necessary amendment
to these Amended and Restated Articles of Incorporation.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at the address for such holder appearing on
the books of the corporation.
13.
<PAGE> 14
5. VOTING RIGHTS. Except as otherwise required by applicable law
or by Section 6 hereof, and so long as at least Five Million (5,000,000) shares
of Series A, Series B, Series C, Series C-1, Series E and Series F Preferred
Stock are outstanding, the holders of the Series A, Series B, Series C, Series
C-1, Series E and Series F Preferred Stock voting together shall vote as a
separate class to elect four (4) directors to the Board of Directors at each
annual meeting of shareholders. In voting on all other matters and in all other
cases the holder of each share of Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F or Series F-1 Preferred Stock shall have the right
to one vote for each share of Common Stock into which such series of Preferred
Stock could then be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the bylaws of the corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote.
6. PROTECTIVE PROVISIONS.
(a) Notwithstanding anything to the contrary in the
foregoing provisions, and provided that at least 1,000,000 shares of Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock in the aggregate remain outstanding then this corporation shall
not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series A, Series B, Series C, Series C-1, Series D, Series E, Series F
and Series F-1 Preferred Stock, voting together as one class:
(i) sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than 50% of the voting power of the corporation is disposed of; or
(ii) effect a dissolution or liquidation of the
corporation;
or
(iii) do any act or thing which would result in
taxation to the holders of shares of Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereinafter from time to time amended); or
14.
<PAGE> 15
(iv) increase the authorized number of shares of
Preferred Stock or Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock; or
(v) create (by new authorization, reclassification,
recapitalization, designation or otherwise) any class or series or issue any
previously unissued series, class or series of stock or any other securities
convertible into equity securities of the corporation having a preference over,
or being on a parity with, the Series A, Series B, Series C, Series C-1, Series
D, Series E, Series F or Series F-1 Preferred Stock; or
(vi) redeem, purchase or otherwise acquire (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment or service; or
(vii) amend the corporation's articles of
incorporation or bylaws; or
(VIII) amend this Section 6.
(b) Subject to the rights of series of Preferred Stock
which may from time to time come into existence, so long as any shares of any
series of Preferred Stock are outstanding (an "Existing Series"), this
corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of each Existing Series, alter or change the rights,
preferences or privileges of the outstanding shares of any Existing Series;
(c) Notwithstanding anything to the contrary in the
foregoing provisions, and provided that at least 500,000 shares of Series E
Preferred Stock remain outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series E Preferred
Stock, voting together as a single class, other than pursuant to a Qualifying
Financing (as defined below) (i) increase the authorized number of shares of
Preferred Stock or Series A, Series B, Series C, Series C-1, Series D, Series E
or Series F Preferred Stock, or (ii) create (by new authorization,
reclassification, recapitalization, designation or otherwise) any class or
series or issue any previously unissued series, class or series of stock or any
other securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Series E Preferred
15.
<PAGE> 16
Stock. For purposes of this subparagraph either of the following shall be deemed
to be a "Qualifying Financing:" (i) any sale by the corporation of any of its
equity securities to an investor or investors where the primary purpose of such
sale by the corporation is other than to raise capital, or (ii) any sale by the
corporation of any of its equity securities at a price per share of at least
$2.10 (appropriately adjusted for any stock split, dividend, combination or
other recapitalization), so long as such securities do not have a preference
over or are not senior to the Series E Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be reissuable by the corporation. The
Articles of Incorporation of the corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed to the holders of the Common Stock as provided in Section 2 of
subsection (B) of this Article III hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holders of the Common Stock voting as a
class shall have the right to elect one (1) director to the Board of Directors
at the annual meeting of shareholders. Except as set forth in this Section 4 of
subsection (C) of this Article III and in Section 5 of subsection (B) of this
Article III, all other directors shall be elected by the holders of the
Preferred Stock and Common Stock voting together on an as-converted basis. In
voting on all other matters and in all other cases, the holder of each share of
Common Stock shall have the right to one vote. In addition, such holder shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the corporation, and shall be entitled to vote upon such matters and in such
manner as may be provided by law.
16.
<PAGE> 17
ARTICLE IV
(A) ELIMINATION OF MONETARY DAMAGES. The liability of the directors of
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(B) INDEMNIFICATION. This corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, vote of
shareholders or disinterested directors, or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable limits set forth in Section 204 of
the California Corporations Code with respect to actions for breach of duty to
the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved by the
Board of Directors of said corporation.
FOUR: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Sections 902
and 903 of the California General Corporation Law; the total number of
outstanding shares of each class entitled to vote with respect to the foregoing
amendment was three million six hundred sixty-eight thousand two hundred
thirty-eight (3,668,238) shares of Common Stock, two million six hundred twenty
six thousand eight hundred ninety two (2,626,892) shares of Series A Preferred
Stock, two million eight hundred seventy-five thousand (2,875,000) shares of
Series B Preferred Stock, eight million seven hundred ninety one thousand four
hundred thirty two (8,791,432) shares of Series C Preferred Stock, seven hundred
thirty-two thousand six hundred one (732,601) shares of Series D Preferred
Stock, six million four hundred fifty-five thousand four hundred ninety-three
(6,455,493) shares of Series E Preferred Stock and two million seven hundred
twenty-two thousand five hundred thirteen (2,722,513) shares of Series F
Preferred Stock. The number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required, such required vote being a majority of
the outstanding shares of Common Stock and Preferred Stock, each voting
separately as a class. A separate series vote of the Series E Preferred Stock
was not required under Article III because the creation of the Series F-1
Preferred Stock constitutes a Qualifying Financing as defined in Article III,
Section (B)6.(c). No shares of Series C-1 Preferred Stock are outstanding.
17.
<PAGE> 18
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true to our own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
November 22, 1999 at San Diego, California.
/s/ Alan J. Lewis
-----------------------------------------
Alan J. Lewis, President and Chief
Executive Officer
/s/ Bradley B. Gordon
-----------------------------------------
Bradley B. Gordon, Secretary
18.
<PAGE> 1
EXHIBIT 3.2
_______________________________________________________________________________
BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(A CALIFORNIA CORPORATION)
______________________________________________________________________________
<PAGE> 2
<TABLE>
<CAPTION>
BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(a California corporation)
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I OFFICES....................................................... 1
Section 1.1: Principal Office.............................................. 1
Section 1.2: Other Offices................................................. 1
ARTICLE II DIRECTORS............................................................ 1
Section 2.1: Exercise of Corporate Powers.................................. 1
Section 2.2: Number........................................................ 1
Section 2.3: Need Not Be Shareholders...................................... 2
Section 2.4: Compensation.................................................. 2
Section 2.5: Election and Term of Office................................... 2
Section 2.6: Vacancies..................................................... 2
Section 2.7: Removal....................................................... 3
Section 2.8: Powers and Duties............................................. 3
ARTICLE III MEETINGS OF DIRECTORS................................................ 6
Section 3.1: Place of Meetings............................................. 6
Section 3.2: Regular Meetings.............................................. 6
Section 3.3: Special Meetings.............................................. 7
Section 3.4: Notice of Special Meetings.................................... 7
Section 3.5: Quorum........................................................ 7
Section 3.6: Conference Telephone.......................................... 7
Section 3.7: Waiver of Notice and Consent.................................. 8
Section 3.8: Action Without a Meeting...................................... 8
Section 3.9: Committees.................................................... 8
ARTICLE IV COMMITTEES........................................................... 8
Section 4.1: Appointment and Procedure..................................... 8
Section 4.2: Executive Committee Powers.................................... 8
Section 4.3: Powers of Other Committees.................................... 9
Section 4.4: Limitations on Powers of Committees........................... 9
ARTICLE V OFFICERS...................................................... 9
Section 5.1: Election and Qualifications................................... 9
Section 5.2: Term of Office and Compensation............................... 10
Section 5.3: Chief Executive Officer....................................... 10
Section 5.4: Chairman of the Board......................................... 11
Section 5.5: President..................................................... 11
Section 5.6: President Pro Tem............................................. 11
Section 5.7: Vice President................................................ 11
Section 5.8: Secretary..................................................... 11
Section 5.9: Chief Financial Officer....................................... 13
Section 5.10: Instruments in Writing....................................... 13
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI INDEMNIFICATION...................................................... 14
Section 6.1: Indemnification of Directors and
Officers...................................................... 14
Section 6.2: Advancement of Expenses....................................... 14
Section 6.3: Non-Exclusivity of Rights..................................... 14
Section 6.4: Indemnification Contracts..................................... 15
Section 6.5: Effect of Amendment........................................... 15
ARTICLE VII MEETINGS OF, AND REPORTS TO, SHAREHOLDERS............................ 15
Section 7.1: Place of Meetings............................................. 15
Section 7.2: Annual Meetings............................................... 15
Section 7.3: Special Meetings.............................................. 16
Section 7.4: Notice of Meetings............................................ 16
Section 7.5: Consent to Shareholders' Meetings............................. 17
Section 7.6: Quorum........................................................ 18
Section 7.7: Adjourned Meetings............................................ 18
Section 7.8: Voting Rights................................................. 18
Section 7.9: Action by Written Consents.................................... 19
Section 7.10: Election of Directors......................................... 20
Section 7.11: Proxies....................................................... 20
Section 7.12: Inspectors of Election........................................ 21
Section 7.13: Annual Reports,............................................... 21
ARTICLE VIII SHARES AND SHARE CERTIFICATES........................................ 21
Section 8.1: Shares Held By the Company.................................... 21
Section 8.2: Certificates for Shares....................................... 22
Section 8.3: Lost Certificates............................................. 22
Section 8.4: Restrictions on Transfer of Shares............................ 22
ARTICLE IX CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW....................................... 23
Section 9.1: Bylaw Provisions Construed as Additional
and Supplemental to Provisions of Law................................. 23
Section 9.2: Bylaws Provisions Contrary to or
Inconsistent with Provisions of Law................................... 23
ARTICLE X CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL
OF BYLAWS............................................................ 24
Section 10.1: By Shareholders.............................................. 24
Section 10.2: By the Board of Directors.................................... 24
Section 10.3: Certification and Inspection of Bylaws....................... 24
</TABLE>
ii.
<PAGE> 4
BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(a California corporation)
ARTICLE I
OFFICES
Section 1.1: Principal Office. The principal executive office for
the transaction of the business of this corporation (the "Company") shall be
located at such place as the Board of Directors may from time to time decide.
The Board of Directors is hereby granted full power and authority to change the
location of the principal executive office from one location to another.
Section 1.2: Other Offices. One or more branch or other
subordinate offices may at any time be fixed and located by the Board of
Directors at such place or places within or outside the State of California as
it deems appropriate.
ARTICLE II
DIRECTORS
Section 2.1: Exercise of Corporate Powers. Except as otherwise
provided by these Bylaws, by the Articles of Incorporation of the Company or by
the laws of the State of California now or hereafter in force, the business and
affairs of the Company shall be managed and all corporate powers shall be
exercised by or under the ultimate direction of a board of directors (the "Board
of Directors").
Section 2.2: Number. The authorized number of directors of the
Company shall initially be five (5). The authorized number of directors may be
varied from time to time by resolution of the Board of Directors, provided that
the minimum authorized number shall be not less than five (5) and the maximum
authorized number shall not be more than nine (9). Until changed by an amendment
of this Section by the shareholders of the Company, the authorized number of
directors of the Company may be varied by the Board of Directors, as opposed to
being fixed, within the range of the minimum and the maximum authorized numbers.
Any amendment to these Bylaws reducing such minimum number of authorized
directors to a number less than nine (9) cannot be adopted if the votes cast
against its adoption at a meeting, or the shares not consenting in
<PAGE> 5
the case of action by written consent, are equal to more than 16-2/3% of the
outstanding shares entitled to vote.
This Section 2.2 may only be amended with the approval of the
holders of a majority of the Company's outstanding Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, voting together.
Section 2.3: Need Not Be Shareholders. The directors of
the Company need not be shareholders of this Company.
Section 2.4: Compensation. Directors and members of committees
may receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving the Company in any
other capacity and receiving compensation therefor.
Section 2.5: Election and Term of Office. The directors shall be
elected annually by the shareholders at the annual meeting of the shareholders.
The term of office of the directors shall begin immediately after their election
and shall continue until the next annual meeting of the shareholders and until
their respective successors are elected. A reduction of the authorized number of
directors shall not shorten the term of any incumbent director or remove any
incumbent director prior to the expiration of such director's term of office.
Section 2.6: Vacancies. A vacancy or vacancies on the
Board of Directors shall exist:
(a) in the case of the death of any director; or
(b) in the case of the resignation or removal of any
director; or
(c) if the authorized number of directors is increased;
or
(d) if the shareholders fail, at any annual meeting of
shareholders at which any director is elected, to elect the full
authorized number of directors at that meeting.
The Board of Directors may declare vacant the office of a director if he or she
is declared of unsound mind by an order of court or convicted of a felony or if,
within 60 days after notice of his or her election, he or she does not accept
the office. Any vacancy, except for a vacancy created by removal of a director
as provided in Section 2.7 hereof, may be filled by a person selected by a
majority of the remaining directors then in office, whether or not less than a
quorum, or by a sole remaining director. Vacancies
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occurring in the Board of Directors by reason of removal of directors shall be
filled only by approval of shareholders. The shareholders may elect a director
at any time to fill any vacancy not filled by the directors. Any such election
by the written consent of shareholders, other than to fill a vacancy created by
removal, requires the consent of shareholders holding a majority of the
outstanding shares entitled to vote. If, after the filling of any vacancy by the
directors, the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors then in
office, any holder or holders of an aggregate of 5% or more of the total number
of shares at that time having the right to vote for such directors may call a
special meeting of shareholders to be held to elect the entire Board of
Directors. The term of office of any director then in office shall terminate
upon the election of such director's successor. Any director may resign
effective upon giving written notice to the Chairman of the Board, if any, the
President, the Secretary or the Board of Directors, unless the notice specifies
a later time for the effectiveness of such resignation. After the notice is
given and if the resignation is effective at a future time, a successor may be
elected or appointed to take office when the resignation becomes effective.
Section 2.7: Removal. The entire Board of Directors or any
individual director may be removed from office without cause by an affirmative
vote of shareholders holding a majority of the outstanding shares entitled to
vote. If the entire Board of Directors is not removed, however, then no
individual director shall be removed if the votes cast against removal of that
director, plus the votes not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively in an election at which
the following were true:
(a) the same total number of votes were cast, or, if such action
is taken by written consent, all shares entitled to vote were
voted; and
(b) the entire number of directors authorized at the time of the
director's most recent election were then being elected.
If any or all directors are so removed, new directors may be elected at the same
meeting or at a subsequent meeting. If at any time a class or series of shares
is entitled to elect one or more directors under authority granted by the
Articles of Incorporation, the provisions of this Section 2.7 shall apply to the
vote of that class or series and not to the vote of the outstanding shares as a
whole.
Section 2.8: Powers and Duties. Without limiting the
generality or extent of the general corporate powers to be
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exercised by the Board of Directors pursuant to Section 2.1 of these Bylaws, it
is hereby provided that the Board of Directors shall have full power with
respect to the following matters:
(a) To purchase, lease and acquire any and all kinds of property,
real, personal or mixed, and at its discretion to pay therefor in
money, in property and/or in stocks, bonds, debentures or other
securities of the Company.
(b) To enter into any and all contracts and agreementS which in
its judgment may be beneficial to the interests and purposes of
the Company.
(c) To fix and determine and to vary from time to time the amount
or amounts to be set aside or retained as reserve funds or as
working capital of the Company or for maintenance, repairs,
replacements or enlargements of its properties.
(d) To declare and pay dividends in cash, shares and/or property
out of any funds of the Company at the time legally available for
the declaration and payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of its
meetings and the management of the affairs of the Company as it
may deem proper.
(f) To prescribe the manner in which and the person or persons by
whom any or all of the checks, drafts, notes, bills of exchange,
contracts and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the
office of a director as provided in Section 2.6 hereof; and, in
case of vacancy in the office of directors, to fill the same to
the extent provided in Section 2.6 hereof.
(h) To create offices in addition to those for which provision is
made by law or these Bylaws; to elect and remove at pleasure all
officers of the Company, fix their terms of office, prescribe
their titles, powers and duties, limit their authority and fix
their salaries in any way it may deem advisable that is not
contrary to law or these Bylaws.
(i) To designate one or more persons to perform the duties and
exercise the powers of any officer of the Company during the
temporary absence or disability of such officer.
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(j) To appoint or employ and to remove at pleasure such agents
and employees as it may see fit, to prescribe their titles,
powers and duties, limit their authority and fix their salaries
in any way it may deem advisable that is not contrary to law or
these Bylaws.
(k) To fix a time in the future, which shall not be more than 60
days nor less than 10 days prior to the date of the meeting nor
more than 60 days prior to any other action for which it is
fixed, as a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting, or entitled to
receive any payment of any dividend or other distribution, or
allotment of any rights, or entitled to exercise any rights in
respect of any other lawful action; and in such case only
shareholders of record on the date so fixed shall be entitled to
notice of and to vote at the meeting or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on
the books of the Company after any record date fixed as
aforesaid. The Board of Directors may close the books of the
Company against transfers of shares during the whole or any part
of such period.
(l) To fix and locate from time to time the principal office for
the transaction of the business of the Company and one or more
branch or other subordinate offices of the Company within or
without the State of California; to designate any place within or
without the State of California for the holding of any meeting or
meetings of the shareholders or the Board of Directors, as
provided in Sections 3.1 and 7.1 hereof; to adopt, make and use a
corporate seal, and to prescribe the forms of certificates for
shares and to alter the form of such seal and of such
certificates from time to time as in its judgment it may deem
best, provided such seal and such certificates shall at all times
comply with the provisions of law now or hereafter in effect.
(m) To authorize the issuance of shares of stock of the Company
in accordance with the laws of the State of California and the
Articles of Incorporation.
(n) Subject to the limitation provided in Section 10.2 hereof, to
adopt, amend or repeal from time to time and at any time these
Bylaws and any and all amendments thereof.
(o) To borrow money, make guarantees of indebtedness or other
obligations of third parties and incur indebtedness
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on behalf of the Company, including the power and authority to
borrow money from any of the shareholders, directors or officers
of the Company; and to cause to be executed and delivered
therefor in the corporate name promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges (or other
transfers of property as security or collateral for a debt), or
other evidences of debt and securities therefor; and the note or
other obligation given for any indebtedness of the Company,
signed officially by any officer or officers thereunto duly
authorized by the Board of Directors, shall be binding on the
Company.
(p) To approve a loan of money or property to any officer or
director of the Company or any parent or subsidiary company,
guarantee the obligation of any such officer or director, or
approve an employee benefit plan authorizing such a loan or
guaranty to any such officer or director; provided that, on the
date of approval of such loan or guaranty, the Company has
outstanding shares held of record by 100 or more persons. Such
approval shall require a determination by the Board of Directors
that the loan or guaranty may reasonably be expected to benefit
the Company and must be by vote sufficient without counting the
vote of any interested director.
(q) Generally to do and perform every act and thing whatsoever
that may pertain to the office of a director or to a board of
directors.
ARTICLE III
MEETINGS OF DIRECTORS
Section 3.1: Place of Meetings. Meetings (whether regular,
special or adjourned) of the Board of Directors of the Company shall be held at
the principal executive office of the Company or at any other place within or
outside the State of California which may be designated from time to time by
resolution of the Board of Directors or which is designated in the notice of the
meeting.
Section 3.2: Regular Meetings. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting of the
shareholders (which regular directors' meeting shall be designated the "Regular
Annual Meeting") and at such other times as may be designated from time to time
by resolution of the Board of Directors. Notice of the time and place of all
regular meetings shall be given in the same manner as for special meetings,
except that no such notice need be given if (a)
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the time and place of such meetings are fixed by the Board of Directors or (b)
the Regular Annual Meeting is held at the principal executive office of this
Corporation and on the date specified by the Board of Directors.
Section 3.3: Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, if any, or the
President, or any Vice President, or the Secretary or by any two or more
directors.
Section 3.4: Notice of Special Meetings. Special meetings of the
Board of Directors shall be held upon no less than 4 days' notice by mail or 48
hours' notice delivered personally or by telephone or telegraph to each
director. Notice need not be given to any director who signs a waiver of notice
or a consent to holding the meeting or an approval of the minutes thereof,
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the home or office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. A
notice or waiver of notice need not specify the purpose of any meeting of the
Board of Directors. If the address of a director is not shown on the records of
the Company and is not readily ascertainable, notice shall be addressed to him
or her at the city or place in which meetings of the directors are regularly
held. If a meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to all directors not present at the time of adjournment.
Section 3.5: Quorum. A majority of the authorized number of
directors constitutes a quorum of the Board of Directors for the transaction of
business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors subject to provisions of law relating to interested directors
and indemnification of agents of the Company. A majority of the directors
present, whether or not a quorum is present, may adjourn any meeting to another
time and place. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
Section 3.6: Conference Telephone. Members of the Board
of Directors may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all
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directors participating in such meeting can hear one another. Participation in a
meeting pursuant to this Section constitutes presence in person at such meeting.
Section 3.7: Waiver of Notice and Consent. The transactions of
any meeting of the Board of Directors, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice if a quorum is present, and if, either before or after the meeting,
each of the directors not present signs a written waiver of notice, a consent to
holding such meeting or an approval of the minutes thereof. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 3.8: Action Without a Meeting. Any action required or
permitted by law to be taken by the Board of Directors may be taken without a
meeting, if all members of the Board of Directors shall individually or
collectively consent in writing to the taking of such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors at a duly held meeting.
Section 3.9: Committees. The provisions of this Article apply
also to committees of the Board of Directors and action by such committees.
ARTICLE IV
COMMITTEES
Section 4.1: Appointment and Procedure. The Board of Directors
may, by resolution adopted by a majority of the authorized number of directors,
appoint from among its members one or more committees, including without
limitation an executive committee, an audit committee and a compensation
committee, of two or more directors. Each committee may make its own rules of
procedure subject to Section 3.9 hereof, and shall meet as provided by such
rules or by a resolution adopted by the Board of Directors (which resolution
shall take precedence). A majority of the members of the committee shall
constitute a quorum, and in every case the affirmative vote of a majority of all
members of the committee shall be necessary to the adoption of any resolution.
Section 4.2: Executive Committee Powers. During the intervals
between the meetings of the Board of Directors, the Executive Committee, if any,
in all cases in which specific
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directions shall not have been given by 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 Company in such manner as the
Executive Committee may deem best for the interests of the Company.
Section 4.3: Powers of Other Committees. Other committees shall
have such powers as are given them in a resolution of the Board of Directors.
Section 4.4: Limitations on Powers of Committees. No
committee shall have the power to act with respect to:
(a) any action for which the laws of the State of California also
require shareholder approval or approval of the outstanding
shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the Board of Directors or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of
new Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not amendable or
repealable;
(f) a distribution to the shareholders of the Company, except at
a rate or in a periodic amount or within a price range as set
forth in the Articles of Incorporation or determined by the Board
of Directors; and
(g) the appointment of other committees of the Board of Directors
or the members thereof.
ARTICLE V
OFFICERS
Section 5.1: Election and Qualifications. The officers of the
Company shall consist of a President and/or a Chief Executive Officer, a
Secretary, a Chief Financial Officer and such other officers, including, but not
limited to, a Chairman of the Board of Directors, one or more Vice Presidents, a
Treasurer, and Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, as the Board of Directors shall deem expedient, who shall be chosen
in such manner and hold their offices for such
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terms as the Board of Directors may prescribe. Any number of offices may be held
by the same person. Any Vice President, Assistant Treasurer or Assistant
Secretary, respectively, may exercise any of the powers of the President, the
Chief Financial Officer or the Secretary, respectively, as directed by the Board
of Directors, and shall perform such other duties as are imposed upon him or her
by these Bylaws or the Board of Directors.
Section 5.2: Term of Office and Compensation. The term of office
and salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board of Directors from time to time at its pleasure, subject to
the rights, if any, of any officer under any contract of employment. Any officer
may resign at any time upon written notice to the Company, without prejudice to
the rights, if any, of the Company under any contract to which the officer is a
party. If any vacancy occurs in any office of the Company, the Board of
Directors may appoint a successor to fill such vacancy.
Section 5.3: Chief Executive Officer. Subject to the control of
the Board of Directors and such supervisory powers, if any, as may be given by
the Board of Directors, the powers and duties of the Chief Executive Officer of
the Company are:
(a) To act as the general manager and, subject to the control of
the Board of Directors, to have general supervision, direction
and control of the business and affairs of the Company.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board of Directors or if there be
no Chairman, at all meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the
Board of Directors to be held at such times and, subject to the
limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper.
(d) To affix the signature of the Company to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates
and other papers and instruments in writing which have been
authorized by the Board of Directors or which, in the judgment of
the Chief Executive Officer, should be executed on behalf of the
Company; to sign certificates for shares of stock of the Company;
and, subject to the direction of the Board of Directors, to have
general charge of the property of the Company and to supervise
and control all officers, agents and employees of the Company.
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The President shall be the Chief Executive Officer of the Company unless the
Board of Directors shall designate the Chairman of the Board or another officer
to be the Chief Executive Officer. If there is no President, then the Chairman
of the Board shall be the Chief Executive Officer.
Section 5.4: Chairman of the Board. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings of
the Board of Directors and shall have such other powers and shall be subject to
such other duties as the Board of Directors may from time to time prescribe.
Section 5.5: President. Subject to the supervisory powers of the
Chief Executive Officer, if not the President, and to such supervisory powers as
may be given by the Board of Directors to the Chairman of the Board, if one is
elected, or to any other officer, the President shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
Section 5.6: President Pro Tem. If neither the Chairman of the
Board of Directors, the President, nor any Vice President is present at any
meeting of the Board of Directors, a President pro tem may be chosen by the
directors present at the meeting to preside and act at such meeting. If neither
the President nor any Vice President is present at any meeting of the
shareholders, a President pro tem may be chosen by the shareholders present at
the meeting to preside at such meeting.
Section 5.7: Vice President. The titles, powers and duties of the
Vice President or Vice Presidents, if any, shall be as prescribed by the Board
of Directors. In case of the resignation, disability or death of the President,
the Vice President, or one of the Vice Presidents, shall exercise all powers and
duties of the President. If there is more than one Vice President, the order in
which the Vice Presidents shall succeed to the powers and duties of the
President shall be as fixed by the Board of Directors.
Section 5.8: Secretary. The powers and duties of the
Secretary are:
(a) To keep a book of minutes at the principal executive office
of the Company, or such other place as the Board of Directors may
order, of all meetings of its directors and shareholders with the
time and place of holding of such meeting, whether regular or
special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders'
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meetings and the proceedings thereof.
(b) To keep the seal of the Company and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal executive office
of the Company, or at the office of the transfer agent or agents,
a record of the shareholders of the Company, giving the names and
addresses of all shareholders and the number and class of shares
held by each, the number and date of certificates issued for
shares and the number and date of cancellation of every
certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the Company,
to fill in all certificates issued, and to make a proper record
of each such issuance; provided that, so long as the Company
shall have one or more duly appointed and acting transfer agents
of the shares, or any class or series of shares, of the Company,
such duties with respect to such shares shall be performed by
such transfer agent or transfer agents.
(e) To transfer upon the share books of the Company any and all
shares of the Company; provided that, so long as the Company
shall have one or more duly appointed and acting transfer agents
of the shares, or any class or series of shares, of the Company,
such duties with respect to such shares shall be performed by
such transfer agent or transfer agents, and the method of
transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to whom the certificate is
presented for transfer and, if the Company then has one or more
duly appointed and acting registrars, subject to the reasonable
regulations of the registrar to which a new certificate is
presented for registration; and, provided further, that no
certificate for shares of stock shall be issued or delivered or,
if issued or delivered, shall have any validity whatsoever until
and unless it has been signed or authenticated in the manner
provided in Section 8.2 hereof.
(f) To make service and publication of all notices that may be
necessary or proper in connection with meetings of the Board of
Directors of the shareholders of the Company. In case of the
absence, disability, refusal or neglect of the Secretary to make
service or publication of any notices, then such notices may be
served and/or published by the President or a Vice President, or
by any person thereunto authorized by either of them, or by the
Board of Directors, or by the holders of a majority of
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the outstanding shares of the Company.
(g) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
Section 5.9: Chief Financial Officer. The powers and
duties of the Chief Financial Officer are:
(a) To supervise and control the keeping and maintaining of
adequate and correct accounts of the Company's properties and
business transactions, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital,
surplus and shares. The books of account shall at all reasonable
times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Company and, at
his or her discretion, to cause any or all thereof to be
deposited for the account of the Company with such depository as
may be designated from time to time by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to
be given, receipts and acquittances for monies paid in for the
account of the Company.
(d) To disburse, or cause to be disbursed, all funds of the
Company as may be directed by the President or the Board of
Directors, taking proper vouchers for such disbursements.
(e) To render to the President or to the Board of Directors,
whenever either may require, accounts of all transactions as
Chief Financial Officer and of the financial condition of the
Company.
(f) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
Section 5.10: Instruments in Writing. All checks, drafts, demands
for money, notes and written contracts of the Company shall be signed by such
officer or officers, agent or agents, as the Board of Directors may from time to
time designate. No officer, agent, or employee of the Company shall have the
power to bind the Company by contract or otherwise unless authorized to do so by
these Bylaws or by the Board of Directors.
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ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Directors and Officers. The
Company shall indemnify each person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director or officer of a foreign or domestic
corporation which was a predecessor corporation of the Company or of another
enterprise at the request of such predecessor corporation, to the fullest extent
permitted by the California Corporations Code, against all expenses, including,
without limitation, attorneys' fees and any expenses of establishing a right to
indemnification, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such Proceeding, and such indemnification
shall continue as to a person who has ceased to be such a director or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such person; provided, however, that the Company shall indemnify any such person
seeking indemnity in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Board of Directors of the Company.
Section 6.2: Advancement of Expenses. The Company shall pay all
expenses incurred by such a director or officer in defending any Proceeding as
they are incurred in advance of its final disposition; provided, however, that
the payment of such expenses incurred by a director or officer in advance of the
final disposition of a Proceeding shall be made only upon receipt by the Company
of an agreement by or on behalf of such director or officer to repay such amount
if it shall be determined ultimately that such person is not entitled to be
indemnified under this Article VI or otherwise; and provided further that the
Company shall not be required to advance any expenses to a person against whom
the Company brings an action, alleging that such person committed an act or
omission not in good faith or that involved intentional misconduct or a knowing
violation of law, or that was contrary to the best interest of the Company, or
derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on
any person in this Article VI shall not be deemed exclusive of any other rights
that such person may have or hereafter acquire under any statute, by law,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to
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action in an official capacity and as to action in another capacity while
holding such office. Additionally, nothing in this Article VI shall limit the
ability of the Company, in its discretion, to indemnify or advance expenses to
persons whom the Company is not obligated to indemnify or advance expenses to
pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Company to enter into a contract with any director,
officer, employee or agent of the Company, or any person serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, providing for
indemnification rights equivalent to or, if the Board of Directors so
determines, greater than (to the extent permitted by the Company's Articles of
Incorporation and the California Corporations Code), those provided for in this
Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or
modification of any provision of this Article VI shall be prospective only, and
shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment, repeal
or modification.
ARTICLE VII
MEETINGS OF, AND REPORTS TO, SHAREHOLDERS
Section 7.1: Place of Meetings. Meetings (whether regular,
special or adjourned) of the shareholders of the Company shall be held at the
principal executive office for the transaction of business of the Company, or at
any place within or outside the State of California which may be designated by
written consent of all the shareholders entitled to vote thereat, or which may
be designated by resolution of the Board of Directors. Any meeting shall be
valid wherever held if held by the written consent of all the shareholders
entitled to vote thereat, given either before or after the meeting and filed
with the Secretary of the Company.
Section 7.2: Annual Meetings. The annual meetings of the
shareholders shall be held at the place provided pursuant to Section 7.1 hereof
and at such time in a particular year as may be designated by written consent of
all the shareholders entitled to vote thereat or which may be designated by
resolution of the Board of Directors of the Company. Said annual meetings shall
be held for the purpose of the election of directors, for the making of reports
of the affairs of the Company and for the transaction of such other business as
may properly come before the meeting.
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Section 7.3: Special Meetings. Special meetings of the
shareholders for any purpose or purposes whatsoever may be called at any time by
the President, the Chairman of the Board of Directors or by the Board of
Directors, or by two or more members thereof, or by one or more holders of
shares entitled to cast not less than 10% of the votes at the meeting. Upon
request in writing sent by registered mail to the Chairman of the Board of
Directors, President, Vice President or Secretary, or delivered to any such
officer in person, by any person entitled to call a special meeting of
shareholders, it shall be the duty of such officer forthwith to cause notice to
be given to the shareholders entitled to vote that a meeting will be held at a
time requested by the person or persons calling the meeting, which (except where
called by the Board of Directors) shall be not less than 35 days nor more than
60 days after the receipt of such request. If the notice is not given within 20
days after receipt of the request, the person entitled to call the meeting may
give the notice. Notices of meetings called by the Board of Directors shall be
given in accordance with Section 7.4.
Section 7.4: Notice of Meetings. Notice of any meeting of
shareholders shall be given in writing not less than 10 (or, if sent by
third-class mail, 30) nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat by the Secretary or an Assistant
Secretary, or such other person charged with that duty, or if there be no such
officer or person, or in case of his or her neglect or refusal, by any director
or shareholder. The notice shall state the place, date and hour of the meeting
and (a) in the case of a special meeting, the general nature of the business to
be transacted, and no other business may be transacted, or (b) in the case of
the annual meeting, those matters which the Board of Directors, at the time of
the mailing of the notice, intends to present for action by the shareholders,
but any proper matter may be presented at the meeting for such action, except
that notice must be given or waived in writing of any proposal relating to
approval of contracts between the Company and any director of the Company,
amendment of the Articles of Incorporation, reorganization of the Company or
winding up of the affairs of the Company. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by the Board of Directors for election.
Notice of a shareholders' meeting or any report shall be given to any
shareholder, either (a) personally or (b) by first-class mail, or, in case the
Company has outstanding shares held of record by 500 or more persons on the
record date for the shareholders' meeting, notice may be sent by third-class
mail, or other means of written communication, charges prepaid, addressed to
such shareholder at such shareholder's address appearing on the books of the
Company or given by such shareholder to the Company for the purpose of notice.
If a shareholder gives no address or no such address appears on the books of the
Company, notice shall be
16.
<PAGE> 20
deemed to have been given if sent by mail or other means of written
communication addressed to the place where the principal executive office of the
Company is located, or if published at least once in a newspaper of general
circulation in the county in which such office is located. The notice or report
shall be deemed to have been given at the time when delivered personally or
deposited in the United States mail, postage prepaid, or sent by other means of
written communication and addressed as hereinbefore provided. An affidavit or
declaration of delivery or mailing of any notice or report in accordance with
the provisions of this Section 7.4, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving of
the notice or report. If any notice or report addressed to the shareholder at
the address of such shareholder appearing on the books of the Company is
returned to the Company by the United States Postal Service marked to indicate
that the United States Postal Service is unable to deliver the notice or report
to the shareholder at such address, all future notices or reports shall be
deemed to have been duly given without further mailing if the same shall be
available for the shareholder upon written demand of the shareholder at the
principal executive office of the Company for a period of one year from the date
of the giving of the notice or report to all other shareholders.
Section 7.5: Consent to Shareholders' Meetings. The transactions
of any meeting of shareholders, however called and noticed, and wherever held,
are as valid as though they had taken place at a meeting duly held after regular
call and notice, if the following conditions are met:
(a) a quorum is present, either in person or by proxy,
and
(b) either before or after the meeting, each of the shareholders
entitled to vote, who was not present in person or by proxy,
signs a written waiver of notice or a consent to the holding of
such meeting or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute both a waiver of notice of
and presence at such meeting, except: (a) when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened; or (b) when the person expressly makes an
objection at some time during the meeting to the consideration of matters
required by law to be included in the notice but not so included.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of shareholders need be specified in any
17.
<PAGE> 21
written waiver of notice, consent to the holding of the meeting or approval of
the minutes thereof, except as to approval of contracts between the Company and
any of its directors, amendment of the Articles of Incorporation, reorganization
of the Company or winding up the affairs of the Company.
Section 7.6: Quorum. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business. Shares
shall not be counted to make up a quorum for a meeting if voting of such shares
at the meeting has been enjoined or for any reason they cannot be lawfully voted
at the meeting. Shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum. Except as provided
herein, the affirmative vote of a majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required.
Section 7.7: Adjourned Meetings. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares, the holders of which are either present in
person or represented by proxy thereat, but, except as provided in Section 7.6
hereof, in the absence of a quorum, no other business may be transacted at such
meeting. When a meeting is adjourned for more than 45 days or if after
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at a meeting. Except as aforesaid, it shall not be necessary to give any
notice of the time and place of the adjourned meeting or of the business to be
transacted thereat other than by announcement at the meeting at which such
adjournment is taken. At any adjourned meeting the shareholders may transact any
business which might have been transacted at the original meeting.
Section 7.8: Voting Rights. Only persons in whose names
shares entitled to vote stand on the stock records of the Company
at:
(a) the close of business on the business day
immediately preceding the day on which notice is given;
or
(b) if notice is waived, at the close of business on the business
day immediately preceding the day on which the
18.
<PAGE> 22
meeting is held; or
(c) if some other day be fixed for the determination of
shareholders of record pursuant to Section 2.8(k) hereof, then on
such other day, shall be entitled to vote at such meeting.
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors has been taken, shall be the day on which the first written consent
is given. In the absence of any contrary provision in the Articles of
Incorporation or in any applicable statute relating to the election of directors
or to other particular matters, each such person shall be entitled to one vote
for each share.
Section 7.9: Action by Written Consents. Any action which may be
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Unless the consents of all shareholders entitled to vote have
been solicited in writing, the Company shall provide notice of any shareholder
approval obtained without a meeting by less than unanimous written consent to
those shareholders entitled to vote but who have not yet consented in writing at
least 10 days before the consummation of the following actions authorized by
such approval: (a) contracts between the Company and any of its directors; (b)
indemnification of any person; (c) reorganization of the Company; or (d)
distributions to shareholders upon the winding-up of the affairs of the Company.
In addition, the Company shall provide, to those shareholders entitled to vote
who have not consented in writing, prompt notice of the taking of any other
corporate action approved by the shareholders without a meeting by less than
unanimous written consent. All notices given hereunder shall conform to the
requirements of Section 7.4 hereto and applicable law. When written consents are
given with respect to any shares, they shall be given by and accepted from the
persons in whose names such shares stand on the books of the Company at the time
such respective consents are given, or their proxies. Any shareholder giving a
written consent (including any shareholder's proxy holder, or a transferee of
the shares or a personal representative of the shareholder, or their respective
proxy holders) may revoke the consent by a writing. This writing must be
received by the Company prior to the time that written consents of the number of
shares required to authorize the proposed action have been filed with the
Secretary of the Company. Such revocation is effective upon its receipt by the
Secretary of the Company. Notwithstanding anything herein to the contrary, and
19.
<PAGE> 23
subject to Section 305(b) of the California Corporations Code, directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
Section 7.10: Election of Directors. Every shareholder entitled
to vote at any election of directors of the Company may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as such shareholder thinks
fit. No shareholder, however, may cumulate such shareholder's votes for one or
more candidates unless such candidate's or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting, prior to voting, of such shareholder's intention to cumulate such
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. The
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares shall be declared elected. Votes against the director and votes
withheld shall have no legal effect. Election of directors need not be by ballot
except upon demand made by a shareholder at the meeting and before the voting
begins.
Section 7.11: Proxies. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or such person's duly
authorized agent and filed with the Secretary of the Company. No proxy shall be
valid (a) after revocation thereof, unless the proxy is specifically made
irrevocable and otherwise conforms to this Section and applicable law, or (b)
after the expiration of eleven months from the date thereof, unless the person
executing it specifies therein the length of time for which such prosy is to
continue in force. Revocation may be effected by a writing delivered to the
Secretary of the Company stating that the proxy is revoked or by a subsequent
proxy executed by the person executing the prior proxy and presented to the
meeting, or as to any meeting by attendance at the meeting and voting in person
by the person executing the proxy. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted, a written notice of
such death or incapacity is received by the Secretary of the Company. In
addition, a proxy may be revoked, notwithstanding a provision making it
irrevocable, by a transferee of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability appears on
the certificate representing such shares.
20.
<PAGE> 24
Section 7.12: Inspectors of Election. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election. This appointment shall be valid at the
meeting and at any subsequent meeting that is a continuation of the meeting at
which the persons were originally appointed to be inspectors. If no inspectors
of election are so appointed, the Chairman of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one or three.
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy. These inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect
of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
Section 7.13: Annual Reports. Provided that the Company has 100
or fewer shareholders, the making of annual reports to the shareholders is
dispensed with and the requirement that such annual reports be made to
shareholders is expressly waived, except as may be directed from time to time by
the Board of Directors or the President.
ARTICLE VIII
SHARES AND SHARE CERTIFICATES
Section 8.1: Shares Held By the Company. Shares in
21.
<PAGE> 25
other companies standing in the name of the Company may be voted or represented
and all rights incident thereto may be exercised on behalf of the Company by any
officer of the Company authorized to do so by resolution of the Board of
Directors.
Section 8.2: Certificates for Shares. There shall be issued to
every holder of shares in the Company a certificate or certificates signed in
the name of the Company by the Chairman of the Board, if any, or the President
or a Vice President and by the Chief Financial Officer or an Assistant Chief
Financial Officer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Company with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
Section 8.3: Lost Certificates. Where the owner of any
certificate for shares of the Company claims that the certificate has been lost,
stolen or destroyed, a new certificate shall be issued in place of the original
certificate if the owner (a) so requests before the Company has notice that the
original certificate has been acquired by a bona fide purchaser and (b)
satisfies any reasonable requirements imposed by the Company, including without
limitation the filing with the Company of an indemnity bond or agreement in such
form and in such amount as shall be required by the President or a Vice
President of the Company. The Board of Directors may adopt such other provisions
and restrictions with reference to lost certificates, not inconsistent with
applicable law, as it shall in its discretion deem appropriate.
Section 8.4: Restrictions on Transfer of Shares.
(a) Before any shareholder of the Company may sell, assign, gift,
pledge or otherwise transfer any shares of the Company's capital stock, such
shareholder shall first notify the Company in writing of such transfer and such
transfer may not be effected unless and until legal counsel for the Company has
concluded that such transfer, when effected as proposed by such shareholder (i)
will comply with all applicable provisions of any applicable state and federal
securities laws, including but not limited to the Securities Act of 1933, as
amended, and the California Corporate Securities Law of 1968, as amended, and
(ii) will not jeopardize, terminate or adversely affect the Company's status as
an S Corporation, if applicable, as that term is defined in the Internal Revenue
Code of 1986, as amended. The Company may require that certificates representing
shares of stock
22.
<PAGE> 26
of the Company be endorsed with a legend describing the restrictions set forth
in this Section.
(b) If (i) any two or more shareholders of the Company shall
enter into any agreement abridging, limiting or restricting the rights of any
one or more of them to sell, assign, transfer, mortgage, pledge, hypothecate or
transfer on the books of the Company any or all of the shares of the Company
held by them, and if a copy of said agreement shall be filed with the Company,
or if (ii) shareholders entitled to vote shall adopt any Bylaw provision
abridging, limiting or restricting the rights of any shareholders mentioned
above, then, and in either of such events, all certificates of shares of stock
subject to such abridgments, limitations or restrictions shall have a reference
thereto endorsed thereon by an officer of the Company and such certificates
shall not thereafter be transferred on the books of the Company except in
accordance with the terms and provisions of such as the case may be; however, no
restriction shall be binding with respect to shares issued prior to adoption of
the restriction unless the holders of such shares voted in favor of, or
consented in writing to, the restriction.
(c) To the extent that the provisions of this Section 8.4
conflict with the restrictions on transfer of shares set forth in any stock
purchase agreement governing the purchase and sale of shares of the Company's
capital stock, any such conflicting provisions contained herein shall be void
with respect to such shares, and such restrictions on transfer of shares set
forth in any such stock purchase agreement shall govern the transfer of such
shares.
ARTICLE IX
CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 9.1: Bylaw Provisions Construed as Additional and
Supplemental to Provisions of Law. All restrictions, limitations, requirements
and other provisions of these Bylaws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the subject
matter thereof and shall be fully complied with in addition to the said
provisions of law unless such compliance shall be illegal.
Section 9.2: Bylaws Provisions Contrary to or Inconsistent with
Provisions of Law. Any article, section, subsection, subdivision, sentence,
clause or phrase of these Bylaws which, upon being construed in the manner
provided in Section 9.1 hereof, shall be contrary to or inconsistent with any
applicable provision of law, shall not apply so long as said provisions of law
23.
<PAGE> 27
shall remain in effect, but such result shall not affect the validity or
applicability of any other portion of these Bylaws, it being hereby declared
that these Bylaws, and each article, section, subsection, subdivision, sentence,
clause or phrase thereof, would have been adopted irrespective of the fact that
any one or more articles, sections, subsections, subdivisions, sentences,
clauses or phrases is or are illegal.
ARTICLE X
CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
Section 10.1: By Shareholders. Bylaws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. Bylaws specifying or changing a fixed
number of directors or the maximum or minimum number or changing from a fixed to
a variable board or vice versa may be adopted only by the shareholders.
Section 10.2: By the Board of Directors. Subject to the right of
shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or
amendment thereof specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa, these Bylaws may be adopted, amended or repealed by the Board of
Directors. A Bylaw adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal Bylaws.
Section 10.3: Certification and Inspection of Bylaws. The Company
shall keep at its principal executive office the original or a copy of these
Bylaws as amended or otherwise altered to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours.
24.
<PAGE> 28
CERTIFICATION OF BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(a California corporation)
KNOW ALL BY THESE PRESENTS:
I, Stephan Dolezalek, certify that I am Secretary of Signal
PHARMACEUTICALS, Inc.,. a California corporation (the "Company"), that I am
duly authorized to make and deliver this certification, and that the attached
Bylaws are a true and correct copy of the Bylaws of the Company in effect as of
the date of this certificate.
Dated: September 8, 1994
/s/ STEPHAN DOLEZALEK
--------------------------------
Stephan Dolezalek, Secretary
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
SIGNAL PHARMACEUTICALS, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Signal Pharmaceuticals, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, 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 National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
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
Thirty One Million One Hundred Thirteen Thousand Four Hundred Eighty Five
(31,113,485) shares, each having a par value of one-tenth of one cent ($.001).
Twenty Five Million (25,000,000) shares shall be Common Stock, $.001 par value,
and Six Million One Hundred Thirteen Thousand Four Hundred Eighty Five
(6,113,485) shares shall be Preferred Stock, $.001 par value.
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 (a
"Preferred Stock Designation") 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 of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series 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 to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
2.
<PAGE> 3
3. 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.
4. 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 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.
B.
1. 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.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except by written consent to the extent provided for in the Bylaws
or at an annual or special meeting of stockholders called in accordance with the
Bylaws.
4. 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
3.
<PAGE> 4
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 sections V, VI
and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Kelly A. Nelle Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
</TABLE>
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day of May,
1998 by the undersigned who affirms that the statements made herein are true and
correct.
-------------------------------
KELLY A. NELLE
Sole Incorporator
4.
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIGNAL PHARMACEUTICALS, INC.
Signal Pharmaceuticals, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The date the corporation filed its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was May 22,
1998.
2. This Amended and Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this corporation as
heretofore in effect and was duly adopted by the corporation's Board of
Directors in accordance with Sections 241 and 245 of the General Corporation Law
of the State of Delaware.
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
I.
The name of this corporation is SIGNAL PHARMACEUTICALS, INC.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, 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 National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
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
Sixty-Two Million Three Hundred Seventy-One Thousand Three Hundred Twenty-Two
(62,371,322) shares, each having a par value of one-tenth of one cent ($.001).
Fifty Million (50,000,000) shares shall be Common Stock and Twelve Million Three
Hundred Seventy-One Thousand Three Hundred Twenty-Two (12,371,322) shares shall
be Preferred Stock.
1.
<PAGE> 2
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of 1,313,446 shares, the Series B Preferred Stock, which
series shall consist of 1,437,500 shares, the Series C Preferred Stock, which
series shall consist of 4,395,717 shares, the Series C-1 Preferred Stock, which
series shall consist of 125,000 shares, the Series D Preferred Stock, which
series shall consist of 366,301 shares, the Series E Preferred Stock, which
series shall consist of 3,227,747 shares, the Series F Preferred Stock, which
series shall consist of 1,361,257 shares, and the Series F-1 Preferred Stock,
which series shall consist of 144,354 shares, as set forth below in this Article
IV.B.
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series C-1 Preferred Stock, the Series D Preferred Stock,
the Series E Preferred Stock, the Series F Preferred Stock, and Series F-1
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the corporation pursuant to
an event causing the Conversion Price of the Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F, or Series F-1 Preferred Stock to be
adjusted pursuant to Section IV.B.4.c.(i) hereof) on the Common Stock of the
corporation, at the rate of $0.16, $0.192, $0.224, $0.336, $0.64, $0.3056,
$0.4981 and $0.5542, respectively, per share per annum, payable when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
After payment of the dividend preference referred to above, outstanding
shares of Series A, Series B, Series C, Series C-1, Series D, Series E, Series
F, and Series F-1 Preferred Stock shall participate with shares of Common Stock
as to any additional declaration or payment of any dividend (payable other than
in Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the corporation including pursuant to an event causing the Conversion
Price of the Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock to be adjusted pursuant to Section
IV.B.4.c.(i) hereof), with the outstanding shares of Series A, Series B, Series
C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock
participating as though they had all been converted into Common Stock.
2. LIQUIDATION PREFERENCE.
a. In the event of any liquidation, dissolution or winding
up of the corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of Series A, Series B, Series C, Series C-1, Series D, Series E, Series
F and Series F-1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the corporation to the
holders of the Common Stock by reason of their ownership thereof, an amount per
share (the "Premium") equal to the sum of (i) $2.00 for each outstanding share
of Series A Preferred Stock (the "Original Series A Issue Price") and (ii) $2.40
for each outstanding share of Series B
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Preferred Stock (the "Original Series B Issue Price") and (iii) $2.80 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price") and (iv) $4.20 for each outstanding share of Series C-1 Preferred Stock
(the "Original Series C-1 Issue Price"), and (v) $5.46 for each outstanding
share of Series D Preferred Stock (the "Original Series D Issue Price") and (vi)
$3.82 for each outstanding share of Series E Preferred Stock (the "Original
Series E Issue Price") and (vii) $6.02384 for each outstanding share of Series F
Preferred Stock (the "Original Series F Issue Price") and (viii) $6.9274 for
each outstanding share of Series F-1 Preferred Stock (the "Original Series F-1
Issue Price") and (ix) an amount equal to declared but unpaid dividends on such
share(s). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F and Series F-1 Preferred Stock in proportion to the aggregate
liquidation preferences of the respective series, and ratably among the holders
of each series in proportion to the amount of stock in such series owned by each
such holder.
b. Upon completion of the distribution required by Section
IV.B.2.a. and any other distribution which may be required with respect to
series of Preferred Stock which may from time to time come into existence, if
assets remain in this corporation, the holder of each share of Common Stock
shall be entitled to receive, an amount equal to $0.20 per share.
c. Upon the completion of the distribution required by
subparagraphs (a) and (b) of this Section 2, the remaining assets of the
corporation available for distribution to shareholders shall be distributed
among the holders of Series A, Series B, Series C, Series C-1, Series D, Series
E, Series F and Series F-1 Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming conversion of all
such Series A, Series B, Series C, Series C-1, Series D, Series E, Series F and
Series F-1 Preferred Stock) until, with respect to the holders of Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F and Series F-1
Preferred Stock, such holders shall have received an aggregate of $5.00 per
share (including amounts paid pursuant to subsection (a) of this Section 2);
thereafter, if assets remain in this corporation, the holders of the Common
Stock of this corporation shall receive all of the remaining assets of this
corporation pro rata based on the number of shares of Common Stock held by each.
(i) For purposes of this Section IV.B.2., a
liquidation, dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of the corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation but, excluding
any merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for
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the corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the corporation is other than cash its value will be deemed its fair
market value. Any securities shall be valued as follows:
(a) Securities not subject to investment
letter or other similar restrictions on free marketability covered by Section
IV.B.2.d.(ii)(b) below:
(1) If traded on a securities
exchange or through Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty-day period ending three
(3) days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
(b) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in Section IV.B.2.d.(ii)(a)(1), (2) or (3) to
reflect the approximate fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of such Preferred Stock.
(iii) In the event the requirements of this Section
IV.B.2.d. are not complied with, this corporation shall forthwith either:
(a) cause such closing to be postponed until
such time as the requirements of this Section IV.B.2 have been complied with; or
(b) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A, Series B,
Series C, Series C-1, Series D, Series E, Series F and Series F-1 Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section IV.B.2.d.(iv) hereof.
(iv) The corporation shall give each holder of
record of Series A, Series B, Series C, Series C-1, Series D, Series E, Series F
and Series F-1 Preferred Stock written notice of such impending transaction not
later than twenty (20) days prior to the stockholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and
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conditions of the impending transaction and the provisions of this Section
IV.B.2., and the corporation shall thereafter give such holders prompt notice of
any material changes. The transaction shall in no event take place sooner than
twenty (20) days after the corporation has given the first notice provided for
herein or sooner than ten (10) days after the corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. REDEMPTION. The Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F, and Series F-1 Preferred Stock are not redeemable.
4. CONVERSION. The holders of the Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F, and Series F-1 Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
a. RIGHT TO CONVERT.
(i) Each share of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Original Series A Issue Price,
the Original Series B Issue Price, the Original Series C Issue Price, the
Original Series C-1 Issue Price, the Original Series D Issue Price, the Original
Series E Issue Price, the Original Series F Issue Price or the Original Series
F-1 Issue Price, respectively, by the Conversion Price at the time in effect for
such share. The initial "Conversion Price" per share for shares of Series A
shall be the Original Series A Issue Price, the initial "Conversion Price" per
share for shares of Series B Preferred Stock shall be the Original Series B
Issue Price, the initial "Conversion Price" for shares of Series C shall be the
Original Series C Issue Price, the initial "Conversion Price" for shares of
Series C-1 shall be the Original Series C-1 Issue Price, the initial "Conversion
Price" for shares of Series D shall be the Original Series D Issue Price, the
initial "Conversion Price" for shares of Series E shall be the Original Series E
Issue Price, the initial "Conversion Price" for shares of Series F shall be the
Original Series F Issue Price and the initial "Conversion Price" for shares of
Series F-1 shall be the Original Series F-1 Issue Price; provided, however, that
the Conversion Price for the Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F and Series F-1 Preferred Stock shall be subject to adjustment
as set forth in Section IV.B.4.c.
(ii) Each share of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Preferred Stock immediately upon the earlier of
(A) the consummation of the sale of the corporation's Common Stock in a bona
fide, firm commitment underwriting pursuant to a registration statement under
the Securities Act of 1933, as amended, the public offering price of which is
not less than $5.00 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) with aggregate gross proceeds to the Company
in excess of $15,000,000; (B) the date upon which the
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<PAGE> 6
corporation obtains the consent of the holders of at least 75% of the then
outstanding shares of Preferred Stock, to the conversion of their shares; (C) as
to each of the Series A, the Series B, the Series C, the Series C-1, the Series
D, the Series E, Series F and Series F-1 Preferred Stock, the date upon which
there are less than 100,000 shares of such series of Preferred Stock then
outstanding (such number to be adjusted to reflect subsequent stock dividends,
stock splits, combinations or recapitalizations); or (D) as to the Series D
Preferred Stock, ten (10) days after written notice to all holders of the Series
D Preferred Stock of the occurrence of a material breach by Tanabe Seiyaku Co.,
Ltd., a Japanese corporation ("Tanabe"), of that certain Stock Purchase
Agreement dated as of March 31, 1996 between the Company and Tanabe (the "Tanabe
Agreement"), which breach has not been cured by Tanabe pursuant to the terms of
the Tanabe Agreement.
b. MECHANICS OF CONVERSION. Before any holder of Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Preferred Stock, and shall give written notice by mail, postage prepaid, to the
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued; provided, however,
that in the event of an automatic conversion in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933, as
amended, the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
corporation or its transfer agent; and provided further that the corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion unless the certificates evidencing such shares of
Preferred Stock are either delivered to the corporation or its transfer agent as
provided above, or the holder notifies the corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the corporation to indemnify the corporation from any
loss incurred by it in connection with such certificates. The corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion will, unless otherwise
designated by the holder tendering Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F or Series F-1 Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, and the person(s) entitled to receive the Common Stock issuable upon
such conversion of such Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to the closing of such sale of
securities.
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<PAGE> 7
c. SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time or from time to time after
September 9, 1997 (the "Original Issue Date"), the Company issues or sells, or
is deemed by the express provisions of this subsection (c) to have issued or
sold, Additional Shares of Common Stock (as defined in subsection (c)(iv)
below)), other than as a dividend or other distribution on any class of stock as
provided in Section 4(d) below for an Effective Price (as defined in subsection
(c)(iv) below) less than the then effective Conversion Price for the Series A,
Series B, Series C, Series C-1 or Series E Preferred Stock, respectively, or the
then effective Series F Anti-Dilution Price for the Series F Preferred Stock or
the then effective Series F-1 Anti-Dilution Price for the Series F-1 Preferred
Stock, then and in each such case: (1) the then existing Conversion Price for
the Series A, Series B, Series C, Series C-1 and Series E Preferred Stock, as
applicable, and the then existing Series F Anti-Dilution Price or Series F-1
Anti-Dilution Price, as applicable, shall be reduced, as of the opening of
business on the date of such issue or sale, to a price determined by multiplying
the then existing Conversion Price or Series F Anti-Dilution Price or Series F-1
Anti-Dilution Price, as applicable, by a fraction (i) the numerator of which
shall be (A) the number of shares of Common Stock deemed outstanding (as defined
below) immediately prior to such issue or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration received (as defined in
subsection (c)(ii)) by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such Conversion Price or Series F
Anti-Dilution Price or Series F-1 Anti-Dilution Price, and (ii) the denominator
of which shall be the number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale plus the total number of
Additional Shares of Common Stock so issued; and (2) the then existing
Conversion Price for the Series F or Series F-1 Preferred Stock, as applicable,
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by subtracting from the then existing Conversion
Price the difference between the Series F Anti-Dilution Price or the Series F-1
Anti-Dilution Price, as applicable, in effect immediately prior to the issuance
of the Additional Shares of Common Stock and the Series F Anti-Dilution Price or
the Series F-1 Anti-Dilution Price, as applicable, in effect immediately after
the issuance of the Additional Shares of Common Stock. For the purposes of the
preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (A) the number of shares of
Common Stock actually outstanding, (B) the number of shares of Common Stock into
which the then outstanding shares of the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F or Series F-1 Preferred Stock could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and convertible securities
on the day immediately preceding the given date. For purposes of this Section
4(c), the original Series F Anti-Dilution Price and the original Series F-1
Anti-Dilution Price shall each be $1.91.
(ii) For the purpose of making any adjustment
required under this Section 4(c), the consideration received by the Company for
any issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the
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<PAGE> 8
Board of Directors, and (C) if Additional Shares of Common Stock, Convertible
Securities (as defined in subsection (c)(iii) below) or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board of Directors to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 4(c), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Conversion Price, Series F
Anti-Dilution Price or Series F-1 Anti-Dilution Price, as applicable, in each
case the Company shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Company shall be deemed to have
received the minimum amounts of consideration without reference to such clauses;
provided further that if the minimum amount of consideration payable to the
Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the
Conversion Price, Series F Anti-Dilution Price or Series F-1 Anti-Dilution
Price, as adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities. If any such rights or options or
the conversion privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price, Series F
Anti-Dilution Price and Series F-1 Anti-Dilution Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be readjusted
to the Conversion Price, Series F Anti-Dilution Price and Series F-1
Anti-Dilution Price which would have been in effect had an adjustment been made
on the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if
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any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of the Series A, Series B, Series C, Series C-1, Series E, Series F
or Series F-1 Preferred Stock.
(iv) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant
to this Section 4(c), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series
F-1 Preferred Stock; (B) shares of Common Stock and/or options, warrants or
other Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; and (C) shares of Common
Stock issued pursuant to the exercise of options, warrants or convertible
securities outstanding as of the Original Issue Date. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 4(c), into the
aggregate consideration received, or deemed to have been received by the Company
for such issue under this Section 4(c), for such Additional Shares of Common
Stock.
d. CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
STOCK DIVIDENDS AND STOCK SPLITS. The Conversion Price of the Series A, Series
B, Series C, Series C-1, Series D, Series E, Series F and Series F-1 Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) In the event the corporation should at any time
or from time to time after the date when the first shares of Series A, Series B,
Series C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred
Stock, respectively, are issued (the "Purchase Date" with respect to each such
series) fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A, Series B, Series
C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be increased in proportion to
such increase in the
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aggregate number of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
e. OTHER DISTRIBUTIONS. In the event the corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the corporation or other persons, assets or other
property or options or rights not referred to in Subsection 4(d)(i) (excluding
any dividends described in Section 1), then, in each such case for the purpose
of this subsection 4(e), the holders of the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A, Series B, Series C, Series C-1, Series D, Series
E, Series F and Series F-1 Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the corporation
entitled to receive such distribution.
f. RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F and Series F-1
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A, Series B, Series C, Series C-1, Series D, Series E, Series F and
Series F-1 Preferred Stock, respectively, the number of shares of stock or other
securities or property of the corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F and Series F-1 Preferred Stock after the recapitalization to the end
that the provisions of this Section 4 (including adjustment of the Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A, Series B, Series C, Series C-1, Series D, Series E, Series F and
Series F-1 Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
g. NO IMPAIRMENT. The corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or
10.
<PAGE> 11
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
h. NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon
conversion of the Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Such rounding shall be
based on the total number of shares of Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F and Series F-1 Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F or Series F-1 Preferred Stock pursuant to this
Section 4, the corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A, Series B, Series C, Series C-1, Series D,
Series E, Series F or Series F-1 Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of Series A, Series B, Series C, Series C-1,
Series D, Series E, Series F or Series F-1 Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Series A, Series
B, Series C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred
Stock.
(iii) NOTICES OF RECORD DATE. In the event of any
taking by the corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the corporation shall mail to each
holder of Series A, Series B, Series C, Series C-1, Series D, Series E Series E,
Series F and Series F-1 Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
i. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A, Series B, Series C, Series C-1, Series
D, Series E, Series F and Series F-1 Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A, Series B, Series C, Series
C-1, Series D, Series E, Series F and Series F-1 Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F
11.
<PAGE> 12
and Series F-1 Preferred Stock, in addition to such other remedies as shall be
available to the holders of such Preferred Stock, the corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including without limitation, using its
best efforts to obtain the requisite shareholder approval of any necessary
amendment to these Amended and Restated Articles of Incorporation.
j. NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A, Series B, Series C,
Series C-1, Series D, Series E, Series F and Series F-1 Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at the address for such holder appearing on
the books of the corporation.
5. VOTING RIGHTS. Except as otherwise required by applicable law
or by Section 6 hereof, and so long as at least Two Million Five Hundred
Thousand (2,500,000) shares of Series A, Series B, Series C, Series C-1, Series
E and Series F Preferred Stock are outstanding, the holders of the Series A,
Series B, Series C, Series C-1, Series E and Series F Preferred Stock voting
together shall vote as a separate class to elect four (4) directors to the Board
of Directors at each annual meeting of shareholders. In voting on all other
matters and in all other cases the holder of each share of Series A, Series B,
Series C, Series C-1, Series D, Series E, Series F or Series F-1 Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
series of Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the bylaws of the corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
6. PROTECTIVE PROVISIONS.
a. Notwithstanding anything to the contrary in the
foregoing provisions, and provided that at least 500,000 shares of Series A,
Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock in the aggregate remain outstanding then this corporation shall
not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series A, Series B, Series C, Series C-1, Series D, Series E, Series F
and Series F-1 Preferred Stock, voting together as one class:
(i) sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than 50% of the voting power of the corporation is disposed of; or
(ii) effect a dissolution or liquidation of the
corporation; or
12.
<PAGE> 13
(iii) do any act or thing which would result in
taxation to the holders of shares of Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereinafter from time to time amended); or
(iv) increase the authorized number of shares of
Preferred Stock or Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock; or
(v) create (by new authorization, reclassification,
recapitalization, designation or otherwise) any class or series or issue any
previously unissued series, class or series of stock or any other securities
convertible into equity securities of the corporation having a preference over,
or being on a parity with, the Series A, Series B, Series C, Series C-1, Series
D, Series E, Series F or Series F-1 Preferred Stock; or
(vi) redeem, purchase or otherwise acquire (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment or service; or
(vii) amend the corporation's articles of
incorporation or bylaws; or
(viii) amend this Section 6.
b. Subject to the rights of series of Preferred Stock
which may from time to time come into existence, so long as any shares of any
series of Preferred Stock are outstanding (an "Existing Series"), this
corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of each Existing Series, alter or change the rights,
preferences or privileges of the outstanding shares of any Existing Series;
c. Notwithstanding anything to the contrary in the
foregoing provisions, and provided that at least 250,000 shares of Series E
Preferred Stock remain outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series E Preferred
Stock, voting together as a single class, other than pursuant to a Qualifying
Financing (as defined below) (i) increase the authorized number of shares of
Preferred Stock or Series A, Series B, Series C, Series C-1, Series D, Series E,
Series F or Series F-1 Preferred Stock, or (ii) create (by new authorization,
reclassification, recapitalization, designation or otherwise) any class or
series or issue any previously unissued series, class or series of stock or any
other securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Series E Preferred Stock. For
purposes of this subparagraph either of the following shall be deemed to be a
"Qualifying Financing:" (i) any sale by the corporation
13.
<PAGE> 14
of any of its equity securities to an investor or investors where the primary
purpose of such sale by the corporation is other than to raise capital, or (ii)
any sale by the corporation of any of its equity securities at a price per share
of at least $4.20 (appropriately adjusted for any stock split, dividend,
combination or other recapitalization), so long as such securities do not have a
preference over or are not senior to the Series E Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series
A, Series B, Series C, Series C-1, Series D, Series E, Series F or Series F-1
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be reissuable by the corporation. The
Articles of Incorporation of the corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed to the holders of the Common Stock as provided in Section IV.B.2.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holders of the Common Stock voting as a
class shall have the right to elect one (1) director to the Board of Directors
at the annual meeting of stockholders. Except as set forth in this Section
IV.B.4. and in Section IV.B.5., all other directors shall be elected by the
holders of the Preferred Stock and Common Stock voting together on an
as-converted basis. In voting on all other matters and in all other cases, the
holder of each share of Common Stock shall have the right to one vote. In
addition, such holder shall be entitled to notice of any stockholders' meeting
in accordance with the Bylaws of the corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
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:
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
14.
<PAGE> 15
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 to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the 1933 Act covering the offer and sale of Common
Stock to the public (the "Initial Public Offering"), the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. 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.
4. 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 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.
15.
<PAGE> 16
1. Subject to Section 44 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.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except by written consent to the extent provided for in the Bylaws
or at an annual or special meeting of stockholders called in accordance with the
Bylaws; and following the closing of the Initial Public Offering no action shall
be taken by the stockholders by written consent.
4. 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 Section VII.B., 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 document relating thereto filed with the Delaware
Secretary of State, the affirmative vote of the holders of at least sixty-six
and two-thirds percent
16.
<PAGE> 17
(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.
17.
<PAGE> 18
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Alan J. Lewis, its President and
Chief Executive Officer, this _____ day of ________________, 2000.
-----------------------------------------
Alan J. Lewis,
President and Chief Executive Officer
ATTEST:
- -----------------------------
Bradley B. Gordon, Secretary
18.
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIGNAL PHARMACEUTICALS, INC.
SIGNAL PHARMACEUTICALS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. The name of the corporation is Signal Pharmaceuticals, Inc.
2. The corporation's original Certificate of Incorporation was filed
with the Secretary of State on May 22, 1998.
3. The Amended and Restated Certificate of Incorporation of this
corporation, in the form attached hereto as Exhibit A, has been duly adopted by
the Board of Directors and by the stockholders of the corporation in accordance
with Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
4. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and hereby incorporated
by reference.
IN WITNESS WHEREOF, Signal Pharmaceuticals, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by its Chairman of the
Board, President and Chief Executive Officer and attested to by its Chief
Financial Officer and Secretary this ____ day of ____________, 2000.
-----------------------------------------
Alan J. Lewis
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
- -------------------------------------
Bradley B. Gordon
Chief Financial Officer and Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIGNAL PHARMACEUTICALS, INC.
I.
The name of this corporation is SIGNAL PHARMACEUTICALS, INC.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, 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 National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. 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-five million
(55,000,000) shares. Fifty million (50,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
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 (a
"Preferred Stock Designation") 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 of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any
1.
<PAGE> 3
such series 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:
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 to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be entered for a full-term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or
2.
<PAGE> 4
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
3. 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.
4. 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 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.
1. 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.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except by written consent to the extent provided for in the Bylaws
or at an annual or special meeting of stockholders called in accordance with the
Bylaws; and following the closing of the Initial Public Offering no action shall
be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the
3.
<PAGE> 5
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.
<PAGE> 1
EXHIBIT 3.6
BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Offices....................................................................1
Section 1. Registered Office..........................................................1
Section 2. Other Offices..............................................................1
ARTICLE II Corporate Seal.............................................................1
Section 3. Corporate Seal.............................................................1
ARTICLE III Stockholders' Meetings.....................................................1
Section 4. Place Of Meetings..........................................................1
Section 5. Annual Meetings............................................................2
Section 6. Special Meetings...........................................................3
Section 7. Notice Of Meetings.........................................................4
Section 8. Quorum.....................................................................4
Section 9. Adjournment And Notice Of Adjourned Meetings...............................5
Section 10. Voting Rights..............................................................5
Section 11. Joint Owners Of Stock......................................................5
Section 12. List Of Stockholders.......................................................6
Section 13. Action Without Meeting.....................................................6
Section 14. Organization...............................................................7
ARTICLE IV Directors..................................................................7
Section 15. Number And Term Of Office..................................................7
Section 16. Powers.....................................................................7
Section 17. Classes Of Directors.......................................................7
Section 18. Vacancies..................................................................8
Section 19. Resignation................................................................9
Section 20. Meetings...................................................................9
(a) Annual Meetings.............................................................9
(b) Regular Meetings............................................................9
(c) Special Meetings............................................................9
(d) Telephone Meetings..........................................................9
(e) Notice Of Meetings..........................................................9
(f) Waiver Of Notice...........................................................10
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Section 21. Quorum And Voting.........................................................10
Section 22. Action Without Meeting....................................................10
Section 23. Fees And Compensation.....................................................10
Section 24. Committees................................................................11
(a) Executive Committee........................................................11
(b) Other Committees...........................................................11
(c) Term.......................................................................11
(d) Meetings...................................................................12
Section 25. Organization..............................................................12
ARTICLE V Officers..................................................................12
Section 26. Officers Designated.......................................................12
Section 27. Tenure And Duties Of Officers.............................................13
(a) General....................................................................13
(b) Duties Of Chairman Of The Board Of Directors...............................13
(c) Duties Of President........................................................13
(d) Duties Of Vice Presidents..................................................13
(e) Duties Of Secretary........................................................13
(f) Duties Of Chief Financial Officer..........................................14
Section 28. Delegation Of Authority...................................................14
Section 29. Resignations..............................................................14
Section 30. Removal...................................................................14
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities Owned
By The Corporation........................................................14
Section 31. Execution Of Corporate Instruments........................................14
Section 32. Voting Of Securities Owned By The Corporation.............................15
ARTICLE VII Shares Of Stock...........................................................15
Section 33. Form And Execution Of Certificates........................................15
Section 34. Lost Certificates.........................................................16
Section 35. Transfers.................................................................16
Section 36. Fixing Record Dates.......................................................16
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Section 37. Registered Stockholders...................................................17
ARTICLE VIII Other Securities Of The Corporation.......................................18
Section 38. Execution Of Other Securities.............................................18
ARTICLE IX Dividends.................................................................18
Section 39. Declaration Of Dividends..................................................18
Section 40. Dividend Reserve..........................................................18
ARTICLE X Fiscal Year...............................................................19
Section 41. Fiscal Year...............................................................19
ARTICLE XI Indemnification...........................................................19
Section 42. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents......................................19
(a) Directors And Executive Officers...........................................19
(b) Other Officers, Employees and Other Agents.................................19
(c) Expenses...................................................................19
(d) Enforcement................................................................20
(e) Non-Exclusivity Of Rights..................................................21
(f) Survival Of Rights.........................................................21
(g) Insurance..................................................................21
(h) Amendments.................................................................21
(i) Saving Clause..............................................................21
(j) Certain Definitions........................................................21
ARTICLE XII Notices....................................................................22
Section 43. Notices...................................................................22
(a) Notice To Stockholders.....................................................22
(b) Notice To Directors........................................................22
(c) Address Unknown............................................................23
(d) Affidavit Of Mailing.......................................................23
(e) Time Notices Deemed Given..................................................23
(f) Methods Of Notice..........................................................23
(g) Failure To Receive Notice..................................................23
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(h) Notice To Person With Whom Communication Is Unlawful.......................23
(i) Notice To Person With Undeliverable Address................................23
ARTICLE XIII Amendments.................................................................24
Section 44. Amendments................................................................24
ARTICLE XIV Loans To Officers.........................................................24
Section 45. Loans To Officers.........................................................24
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iv.
<PAGE> 6
BYLAWS
OF
SIGNAL PHARMACEUTICALS, INC.
(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 at 5555 Oberlin Drive, San Diego,
California 92121, or at such other 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 MEETINGS.
(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.
1.
<PAGE> 7
(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 later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; 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 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
2.
<PAGE> 8
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. Except as
may be required pursuant to the Certificate of Incorporation, 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 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 of
Directors, (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 of
Directors 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.
At any time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five percent
(5%) or more of the outstanding shares shall have the right to call a special
meeting of stockholders as set forth in Section 18(c) herein.
(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
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
3.
<PAGE> 9
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 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, except as set forth in
Section 17 herein, 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 the 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 the 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.
4.
<PAGE> 10
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 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. 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. JOINT OWNERS OF STOCK. 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 Delaware General Corporation Law, 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 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.
5.
<PAGE> 11
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are 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.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given as provided in Section
228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
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
6.
<PAGE> 12
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.
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. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
7.
<PAGE> 13
SECTION 18. VACANCIES.
(a) 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.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the Delaware
General Corporation Law.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors, the directors then in office who have been elected by stockholders
shall constitute less than a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. 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. 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.
8.
<PAGE> 14
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 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 two 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. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
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
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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 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
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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. Each member of a committee 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 Bylaw 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.
(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
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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, 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.
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.
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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents 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 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. The Chief Financial
Officer 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, 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 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 the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller, to the extent such officers have
been designated by the Board of Directors, to assume and perform the duties of
the Chief Financial Officer in the absence or disability of the Chief Financial
Officer, and each Treasurer and 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.
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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
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
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.
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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 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, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(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) Prior to the Initial Public Offering, 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 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. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, 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 applicable 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 the 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 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
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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 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
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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, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director in connection with any proceeding (or part thereof)
initiated by such person 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 Delaware General Corporation Law or (iv) such indemnification is required to
be made under subsection (d).
(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
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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 to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(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
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 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
19.
<PAGE> 25
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 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 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
20.
<PAGE> 26
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, 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
21.
<PAGE> 27
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.
(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 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.
22.
<PAGE> 28
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 of the
corporation entitled to vote at an election of the directors. 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 these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
23.
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT is made as of the th day of
September, 1994, by and among SIGNAL PHARMACEUTICALS, INC., a California
corporation (the "Company"), Accel IV L.P., Accel Japan, Accel Keiretsu L.P.,
Accel Investors '93 L.P., Ellmore C. Patterson Partners, Prosper Partners
(hereinafter collectively referred to as "Accel Partners"), Kleiner Perkins
Caufield & Byers VI and KPCB VI Founders Fund (hereinafter collectively referred
to as "Kleiner Perkins Caufield & Byers"), Venrock Associates and Harry F.
Hixson, Jr. (together Accel Partners, Kleiner Perkins Caufield & Byers, Venrock
Associates and Harry F. Hixson, Jr. may be referred to collectively, as the "Old
Investors") and the parties listed on Schedule A, attached hereto, (the "New
Investors"). The Old Investors and the New Investors are herein referred to
collectively as the "Investors" or the "Voting Parties". All terms not otherwise
defined herein shall have the meaning ascribed such terms in the Series C
Preferred Stock Purchase Agreement or the Investors' Rights Agreement among the
Company and certain investors of even date herewith.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Agreement to Vote. During the term of this Agreement, the Voting
Parties agree to vote all of the shares of the Company's voting securities now
or hereafter owned by them, whether beneficially or otherwise (the "Shares"), at
any regular or special meeting of stockholders of the Company, or, in lieu of
any such meeting, to give their written consent, in the election or removal of
directors of the Company as provided in this Agreement.
2. Election of Directors After the First Closing.
(a) During the term of this Agreement, with respect to the election
of the directors of the Company that the holders of Preferred Stock (voting
together as a class) are entitled to elect, the Voting Parties agree to vote to
elect (i) one person designated by Accel Partners, such person to initially be
Luke Evnin; (ii) one person designated by Venrock Associates, such person to
initially be Patrick Latterell; (iii) one person designated by Kleiner Perkins
Caufield & Byers, such person to initially be Brook Byers; and (iv) one person
designated by InterWest Partners, such person to initially be Arnold Oronsky.
(b) Notwithstanding the provisions of subsection (a) above, Accel
Partners, Venrock Associates, Kleiner Perkins Caufield & Byers, and InterWest
Partners, respectively, shall forfeit their right to designate a nominee to the
Board of Directors if at any time following the First Closing, such Investor
holds less than 50% of the
<PAGE> 2
aggregate number of shares of Series C Preferred Stock set forth opposite such
Investor's name on Schedule B attached hereto.
(c) In the event any of Accel Partners, Venrock Associates, Kleiner
Perkins Caufield & Byers or InterWest Partners forfeits their right to designate
a nominee to the Board of Directors pursuant to subsection (b) above, then the
nominee for the resulting vacancy shall be designated by the holders of a
majority of the outstanding Preferred Stock and all Voting Parties hereby agree
to vote to elect such designee.
3. Replacement of Director. In the event of any termination or
resignation of any Director, the Voting Parties shall take all actions necessary
and appropriate to cause such vacancy to be filled in accordance with the
provisions hereof.
4. Successors in Interest of the Parties.
(a) The provisions of this Agreement shall be binding upon the
successors in interest of the Voting Parties to any of the Shares. The Company
shall not permit the transfer of any Shares on its books or issue a new
certificate representing any Shares unless and until the person to whom such
security is to be transferred shall have executed a written agreement pursuant
to which such person becomes a party to this Agreement and agrees to be bound by
all the provisions hereof as if such person was a Voting Party hereunder.
(b) Each certificate representing any Shares shall be endorsed by
the Company with a legend reading substantially as follows:
The Shares evidenced hereby are subject to a Voting Agreement dated as
of September 8, 1994, (a copy of which may be obtained upon written
request from the issuer), and by accepting any interest in such shares
the person accepting such interest shall be deemed to agree to and shall
become bound by all the provisions of said Voting Agreement.
5. Covenants of the Company. So long as the Voting Parties are
entitled to the rights granted to them under this Voting Agreement, the
Company agrees to use its best efforts to ensure that such rights are
effective and that the Voting Parties enjoy the benefits thereof. Such
actions include, without limitation, the use of the Company's best
efforts to cause the nomination and election of the Directors as
provided in Section 2. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms
to be performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all of the provisions of this
Agreement and in the taking of all such actions as may be necessary,
appropriate or reasonably requested by the holders of a majority of the
outstanding voting securities held by the Voting Parties assuming
exercise and conversion of all
2.
<PAGE> 3
outstanding securities in order to protect the rights of the parties hereunder
against impairment.
6. No Liability for Election of Recommended Directors. Neither the
Company, nor the Investors, nor any officer, director, shareholder, partner,
employee or agent of such party makes any representation or warranty as to the
fitness or competence of any nominee designated pursuant to Section 2 above to
serve on the Board of Directors of the Company by virtue of such party's
execution of this Voting Agreement or by the act of such party in voting for the
nominees.
7. Grant of Proxy. Should the provisions of this Voting Agreement
be construed to constitute the granting of proxies, such proxies shall be deemed
coupled with an interest and, to the extent permitted by law, are irrevocable
for the term of this Voting Agreement.
8. Specific Enforcement. It is agreed and understood that monetary
damages would not adequately compensate an injured Voting Party for the breach
of this Voting Agreement by any Voting Party, that this Voting Agreement shall
be specifically enforceable, and that any breach or threatened breach of this
Voting Agreement shall be the proper subject of a temporary or permanent
injunction or restraining order. Further, each Voting Party hereto waives any
claim or defense that there is an adequate remedy at law for such breach or
threatened breach.
9. Manner of Voting. The voting of shares pursuant to this Voting
Agreement may be effected in person, by proxy, by written consent, or in any
other manner permitted by applicable law.
10. Termination. This Agreement shall terminate upon the earlier of
(i) the date the Company has consummated a bona fide, firmly underwritten public
offering of shares of Common Stock, registered under the Act pursuant to a
registration statement on Form S-1, at an offering price of at least $5.00 per
share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization) and $12,500,000 of aggregate proceeds, (ii) the date
which is ten (10) years after the date of this Agreement, or (iii) the date the
Voting Parties lose the right to elect 4 directors to the Board of Directors
pursuant to Article III subsection (B)(5) of the Amended and Restated Articles
of Incorporation in effect as of the date of the First Closing.
11. Amendment of Prior Voting Agreement. The undersigned Old
Investors, constituting all of the parties to that certain Amended and Restated
Voting Agreement dated as of April 12, 1993 by and between the Company and the
Old Investors (the "First Amended and Restated Voting Agreement") hereby agree
that upon the execution by them of this Agreement, the First Amended and
Restated Voting Agreement shall be deemed amended and restated in its entirety
to read as set forth in
3.
<PAGE> 4
this Agreement and this Agreement shall supersede in its entirety the First
Amended and Restated Voting Agreement.
12. Amendments and Waivers. Any term hereof, may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of a majority of the outstanding voting
securities held by the Voting Parties (assuming exercise or conversion of all
outstanding securities). Any amendment or waiver so effected shall be binding
upon the parties hereto.
13. Stock Splits, Stock Dividends, etc. In the event of any stock
split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the Shares shall become Shares for purposes of
this Agreement and shall be endorsed with the legend set forth in Section 5(b)
hereof.
14. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
15. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to contracts among
California residents entered into and to be performed entirely within
California.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Successors and Assigns. Except as otherwise expressly provided
in this Agreement, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ ALAN J. LEWIS
------------------------------------
Alan J. Lewis, President
INVESTORS:
ACCEL IV L.P.
By: Accel IV Associates, L.P.
Its General Partner
By:
------------------------------------
General Partner
ACCEL JAPAN
By: Accel Japan Associates, L.P.
------------------------------------
Its General Partner
By:
------------------------------------
General Partner
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
SIGNAL PHARMACEUTICALS, INC.
By:
------------------------------------
Alan J. Lewis, President
INVESTORS:
ACCEL IV L.P.
By: Accel IV Associates, L.P.
Its General Partner
By: [SIG]
------------------------------------
General Partner
ACCEL JAPAN
By: Accel Japan Associates, L.P.
------------------------------------
Its General Partner
By: [SIG]
------------------------------------
General Partner
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 7
ACCEL KEIRETSU L.P.
By: Accel Partners & Co., Inc.
Its General Partner
By: [SIG]
------------------------------------
General Partner
ACCEL INVESTORS '93 L.P.
By: [SIG]
------------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By: [SIG]
------------------------------------
General Partner
PROSPER PARTNERS
By: [SIG]
------------------------------------
Attorney-In-Fact
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 8
VENROCK ASSOCIATES
By: [SIG]
------------------------------------
General Partner
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 9
KLEINER PERKINS CAUFIELD & BYERS VI
By: KLEINER PERKINS CAUFIELD &
BYERS VI ASSOCIATES, General
Partner
By: [SIG]
------------------------------------
KPCB VI FOUNDERS FUND
By: KLEINER PERKINS CAUFIELD &
BYERS VI ASSOCIATES, General
Partner
By: [SIG]
------------------------------------
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 10
HIXSON FAMILY TRUST DATED 08/25/86
By: [SIG]
------------------------------------
Trustee
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 11
INTERWEST PARTNERS V
By: [SIG]
------------------------------------
Its: General Partner
-----------------------------------
INTERWEST INVESTORS V
By: [SIG]
------------------------------------
Its: General Partner
-----------------------------------
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 12
OXFORD BIOSCIENCE PARTNERS L.P.
By: OBP Management L.P.
Its: General Partner
By: /s/EDMUND M. OLIVIER
-----------------------------------
Edmund M. Olivier
Its: General Partner
OXFORD BIOSCIENCE PARTNERS
(BERMUDA) LIMITED PARTNERSHIP
By: OBP Management Bermuda) Limited
Partnership
Its: General Partner
By: /s/EDMUND M. OLIVIER
-----------------------------------
Edmund M. Olivier
Its: General Partner
OXFORD BIOSCIENCE PARTNERS
(ADJUNCT) L.P.
By: OBP Management L.P.
Its: General Partner
By: /s/EDMUND M. OLIVIER
-----------------------------------
Edmund M. Olivier
Its: General Partner
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 13
USVP ENTREPRENEUR PARTNERS II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By: [SIG]
------------------------------------
Its: Attorney In Fact
-----------------------------------
SECOND VENTURES II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By: [SIG]
------------------------------------
Its: Attorney In Fact
-----------------------------------
U.S. VENTURE PARTNERS IV, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By: [SIG]
------------------------------------
Its: Attorney In Fact
-----------------------------------
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 14
VERTICAL MEDICAL PARTNERS, L.P.
By: [SIG]
-----------------------------------
Its: General Partner
-----------------------------------
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 15
SCHEDULE A
InterWest Partners V, Interwest Investors V (InterWest Partners V and
InterWest Investors V, collectively, "InterWest")
Oxford Bioscience Partners L.P.
Oxford Bioscience Partners (Bermuda) Limited Partnership
Oxford Bioscience Partners (Adjunct) L.P.
USVP Entrepreneur Partners II, L.P.
Second Ventures II, L.P.
U.S. Venture Partners IV, L.P.
Vertical Medical Partners, L.P.
SIGNATURE PAGE FOR SECOND AMENDED AND
RESTATED VOTING AGREEMENT
<PAGE> 16
SIGNAL PHARMACEUTICALS, INC.
AGREEMENT TO BE BOUND
BY THE TERMS OF
SECOND AMENDED AND RESTATED VOTING AGREEMENT
Reference is made to that certain Second Amended and Restated Voting
Agreement (the "Voting Agreement"), dated as of September 8, 1994, between
Signal Pharmaceuticals, Inc. (the "Company") and certain investors, including
the Hixson Family Trust dated August 25, 1986 (the "Trust"), which placed
certain restrictions on the voting and transfer of all of the Series A, Series
B, and Series C Preferred Shares of the Company owned by the Trust (the
"Shares"). A copy of the Voting Agreement is attached hereto as Exhibit A.
WHEREAS, the Voting Agreement provides that the Shares may not be
transferred by the Trust, as represented by its trustee, Harry F. Hixson, Jr.,
unless the transferee agrees to be bound by the provisions of the Voting
Agreement; and
WHEREAS, pursuant to the terms of a dissolution of marriage judgment,
the Trust is seeking to transfer (i) sixty-two thousand five hundred (62,500)
shares of Series A Preferred Stock, (ii) one hundred twenty-five thousand
(125,000) shares of Series B Preferred Stock, and (iii) one hundred ten thousand
(110,000) shares of Series C Preferred Stock (the "Transferred Shares") to the
undersigned;
NOW, THEREFORE, to induce the Company to effect the transfer of the
Transferred Shares to the undersigned:
1. The undersigned hereby agrees to be bound by all of the provisions of
the Voting Agreement as if the undersigned was an original signatory thereto and
hereby acknowledges that, notwithstanding the transfer of such Transferred
Shares to the undersigned, such Transferred Shares shall remain subject to the
restrictions on transfer, voting rights and all of the other provisions of the
Voting Agreement.
2. The undersigned understands and agrees that all certificates
evidencing the Settlement Shares to be issued to the undersigned may bear the
following legend:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN VOTING AGREEMENT(S)
AS AMENDED FROM TIME TO TIME (COPIES OF WHICH MAY BE OBTAINED UPON WRITTEN
REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE
PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT(S).
Dated as of August ____, 1997
----------------------------------------
GEORGIANA B. HIXSON
1 Moss Landing
Laguna Niguel, CA 92677
<PAGE> 17
EXHIBIT A
VOTING AGREEMENT
<PAGE> 18
SIGNAL PHARMACEUTICALS, INC.
AGREEMENT TO BE BOUND
BY THE TERMS OF
SECOND AMENDED AND RESTATED VOTING AGREEMENT
Reference is made to that certain Second Amended and Restated Voting
Agreement (the "Voting Agreement"), dated as of September 8, 1994, between
Signal Pharmaceuticals, Inc. (the "Company") and certain investors, including
the Hixson Family Trust dated August 25, 1986 (the "Trust"), which placed
certain restrictions on the voting and transfer of all of the Series A, Series
B, and Series C Preferred Shares of the Company owned by the Trust (the
"Shares"). A copy of the Voting Agreement is attached hereto as Exhibit A.
WHEREAS, the Voting Agreement provides that the Shares may not be
transferred by the Trust, as represented by its trustee, Harry F. Hixson, Jr.,
unless the transferee agrees to be bound by the provisions of the Voting
Agreement; and
WHEREAS, pursuant to the terms of a dissolution of marriage judgment,
the Trust is seeking to transfer (i) sixty-two thousand five hundred (62,500)
shares of Series A Preferred Stock, (ii) one hundred twenty-five thousand
(125,000) shares of Series B Preferred Stock, and (iii) one hundred ten thousand
(110,000) shares of Series C Preferred Stock (collectively, the "Transferred
Shares") to the undersigned;
NOW, THEREFORE, to induce the Company to effect the transfer of the
Transferred Shares to the undersigned:
1. The undersigned hereby agrees to be bound by all of the provisions of
the Voting Agreement as if the undersigned was an original signatory thereto and
hereby acknowledges that, notwithstanding the transfer of such Transferred
Shares to the undersigned, such Transferred Shares shall remain subject to the
restrictions on transfer, voting rights and all of the other provisions of the
Voting Agreement.
2. The undersigned understands and agrees that all certificates
evidencing the Settlement Shares to be issued to the undersigned may bear the
following legend:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN VOTING AGREEMENT(S)
AS AMENDED FROM TIME TO TIME (COPIES OF WHICH MAY BE OBTAINED UPON WRITTEN
REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE
PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT(S).
Dated as of August ____, 1997
----------------------------------------
HARRY F. HIXSON, JR., TRUSTEE
HARRY F. HIXSON, JR. SEPARATE PROPERTY
TRUST DATED 12/15/95
<PAGE> 19
EXHIBIT A
VOTING AGREEMENT
<PAGE> 1
EXHIBIT 10.2
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _____________,
2000 by and between SIGNAL PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), and ______________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Company in his
capacity as an officer or director of the Company;
WHEREAS, the stockholders of the Company have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Company, including persons serving at the
request of the Company 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 Company 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 an officer or
director of the Company, the Company has determined and agreed to enter into
this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as an
officer or director after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE COMPANY. Agent will serve, at the will of the Company
or under separate contract, if any such contract exists, as an officer or
director of the Company or as a director, officer or other fiduciary of an
affiliate of the Company (including any employee benefit plan of the Company)
faithfully and to the best of his ability so long as he is duly elected and
qualified in accordance with the provisions of the Bylaws or other applicable
charter documents of the Company 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 Company or any affiliate shall have no obligation under
this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Company 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
1.
<PAGE> 2
amendment permits the Company 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 Company 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 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
Company) to which Agent is, was or at any time becomes a party, or is threatened
to be made a party, by reason of the fact that Agent is, was or at any time
becomes a director, officer, employee or other agent of Company, or is or was
serving or at any time serves at the request of the Company 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 Company under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Company:
(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 Company
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;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Company 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 Company 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
2.
<PAGE> 3
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Company 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 Company, (iii) such indemnification is provided by
the Company, in its sole discretion, pursuant to the powers vested in the
Company under the Code, or (iv) the proceeding is initiated pursuant to Section
9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Agent is a director,
officer, employee or other agent of the Company (or is or was serving at the
request of the Company 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 Company for a portion of the 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 in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Company 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
Company under this Agreement, notify the Company of the commencement thereof;
but the omission so to notify the Company 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 Company of
the commencement thereof:
(a) the Company will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Company 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 Company to Agent of its
election to assume the defense thereof, the Company 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 Company 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 Company, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Company and Agent in the conduct
3.
<PAGE> 4
of the defense of such action or (iii) the Company 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
Company. The Company shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Company or as to which Agent
shall have made the conclusion provided for in clause (ii) above; and
(c) the Company 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 Company 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.
8. EXPENSES. The Company 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 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 Company) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Company (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 Company (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.
10. SUBROGATION. In the event of payment under this Agreement, the
Company 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 Company
effectively to bring suit to enforce such rights.
11. 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 Company'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.
4.
<PAGE> 5
12. 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 Company or to serve at the request of the Company 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 Company 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 Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. 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 Company shall nevertheless indemnify Agent to
the fullest extent provided by the Bylaws, the Code or any other applicable law.
14. ENTIRE AGREEMENT. This Agreement and the agreements referenced
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto pertaining to the subject matters hereof are
superseded and expressly canceled.
15. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
16. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
17. 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.
18. 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.
19. 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
5.
<PAGE> 6
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 Company, to
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
or to such other address as may have been furnished to Agent by the Company.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of
the day and year first above written.
SIGNAL PHARMACEUTICALS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AGENT
------------------------------------
Address:
------------------------------------
------------------------------------
<PAGE> 1
EXHIBIT 10.3
SIGNAL PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
ADOPTED FEBRUARY 16, 2000
APPROVED BY STOCKHOLDERS _______________, 2000
TERMINATION DATE: FEBRUARY 15, 2010
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
(d) PRIOR PLANS. On February 16, 2000 the Company amended and restated both its
1993 Founders' Stock Option Plan, its 1993 Stock Option Plan, and its 1997 Stock
Option Plan into this 2000 Equity Incentive Plan (the "Prior Plans"). No options
shall be granted under the Prior Plans after the date on which the Company's
initial public offering of shares of common stock becomes effective (the
"Effective Date"). The terms of options granted prior to the Effective Date are
not affected by the terms of this Plan.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
1.
<PAGE> 2
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means SIGNAL PHARMACEUTICALS, INC., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
2.
<PAGE> 3
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
3.
<PAGE> 4
(x) "PLAN" means this SIGNAL PHARMACEUTICALS, INC. 2000 Equity Incentive
Plan.
(y) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4.
<PAGE> 5
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate 3,500,000 shares
(after giving effect to any reverse stock split effected on or prior to the
Effective Date and following adoption hereof, by way of reincorporation of the
Company or otherwise (the "Reverse Split")) of the Common Stock. This share
reserve shall be comprised of (i) shares subject to options granted under the
1993 Stock Option Plan, the 1993 Founders' Stock Option Plan, and the 1997 Stock
Option Plan which are outstanding as of the Effective Date, plus (ii) the shares
available for grant under the 1993 Stock Option Plan, the 1993 Founders' Stock
Option Plan and the 1997 Stock Option Plan as of the Effective Date plus (iii)
an additional approximately 1,500,000 shares (after giving effect to the Reverse
Split) of common stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full,
5.
<PAGE> 6
the shares of Common Stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than seven hundred fifty
thousand (750,000) shares of Common Stock during any calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but
6.
<PAGE> 7
each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding
7.
<PAGE> 8
the foregoing, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option
8.
<PAGE> 9
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified herein, the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date twelve (12) months
following the date of death (or such longer or shorter period specified in the
Option Agreement) or (2) the expiration of the term of such Option as set forth
in the Option Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
9.
<PAGE> 10
(iii) Any such Re-Load Option may be an Incentive Stock
Option or a Nonstatutory Stock Option, as the Board may designate at the time of
the grant of the original Option; provided, however, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on the exercisability of Incentive
Stock Options described in subsection 9(d) and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted
10.
<PAGE> 11
stock purchase agreement. The purchase price shall not be less than eighty-five
percent (85%) of the Common Stock's Fair Market Value on the date such award is
made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
11.
<PAGE> 12
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with
12.
<PAGE> 13
applicable securities laws, including, but not limited to, legends restricting
the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. . In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
50% of the Company's outstanding voting power of the surviving entity (or its
parent) following the consolidation, merger or reorganization or (iii) any
transaction (or series of related transactions involving a person or entity, or
a group of affiliated persons or entities) in which in excess of fifty percent
(50%) of the Company's outstanding voting power is transferred, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c) for those outstanding under the
Plan. In the event any surviving corporation or acquiring corporation refuses to
13.
<PAGE> 14
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14.
<PAGE> 15
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
15.
<PAGE> 1
EXHIBIT 10.4
SIGNAL PHARMACEUTICALS, INC.
STOCK OPTION GRANT NOTICE
(2000 EQUITY INCENTIVE PLAN)
SIGNAL PHARMACEUTICALS, INC. (the "Company"), pursuant to its 2000 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee an option to purchase the
number of shares of the Company's common stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and III, which are incorporated herein in their entirety.
Optionee: _________________________________
Date of Grant: _________________________________
Vesting Commencement Date: _________________________________
Shares Subject to Option: _________________________________
Exercise Price Per Share: _________________________________
Expiration Date: _________________________________
____ Incentive Stock Option ____ Nonstatutory Stock Option
EXERCISE SCHEDULE: Exercisable as vested.
VESTING SCHEDULE: One fourth (1/4th) of the shares subject to this
option shall vest on the first anniversary of the
date of grant of this option and the balance of
the shares shall vest in equal successive monthly
installments over each of the next thirty-six (36)
months until this option is fully vested or vesting
terminates as provided in the Plan or the Stock
Option Agreement.
PAYMENT: Any one or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement
or (iii) by delivering shares of previously-owned common stock of the Company,
as set forth in the Stock Option Agreement.
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionee and the Company regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS:
-----------------------------------------
-----------------------------------------
SIGNAL PHARMACEUTICALS, INC. OPTIONEE:
By:
-------------------------------- Signature
Title: ------------------------------------
-----------------------------
Date:
------------------------------
<PAGE> 2
Attachment I: Stock Option Agreement
Attachment II: 2000 Equity Incentive Plan
Attachment III: Notice of Exercise
2
<PAGE> 3
SIGNAL PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Signal Pharmaceuticals, Inc. (the "Company") has granted
you an option under its 2000 Equity Incentive Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold are
exercisable for the first time by you during any calendar year (under all plans
of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), your option(s) or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as nonstatutory stock
options.
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4. METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to make payment
of the exercise price in cash or by check or in any other manner PERMITTED BY
YOUR GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
5. WHOLE SHARES. You may exercise your option only for whole shares
of Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your option
must also comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.
7. TERM. You may not exercise your option before the commencement
of its term or after its term expires. The term of your option commences on the
Date of Grant and expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
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<PAGE> 5
(c) twelve (12) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the day before the tenth (10th) anniversary of the Date of
Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire
upon exercise of your option are subject to any right of first refusal that may
be described in the Company's bylaws in effect at such time the Company elects
to exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
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11. RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.
12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
or service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
14. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to you at
the last address you provided to the Company.
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<PAGE> 7
15. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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<PAGE> 8
NOTICE OF EXERCISE
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Date of Exercise:_________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option: ___ Incentive ___ Nonstatutory
Stock option dated: __________________
Number of shares as
to which option is
exercised: __________________
Certificates to be
issued in name of: __________________
Total exercise price: $_________________
Cash payment delivered
herewith: $_________________
Value of ______ shares of
Signal Pharmaceuticals, Inc.
common stock delivered herewith(1): $_________________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Signal Pharmaceuticals, Inc. 2000
Equity Incentive Plan, (ii) to provide for the payment by me to you (in the
manner designated by you) of your withholding obligation, if any, relating to
the exercise of the Option, and (iii) to the extent the Option is an incentive
stock option, to notify you in writing within fifteen (15) days after the date
of any disposition of any of the shares of Common Stock issued upon exercise of
this Option that occurs within two (2) years after the date of grant of the
Option or within one (1) year after such shares of Common Stock are issued upon
exercise of the Option.
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(1) Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
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I hereby make the following certification and representation with
respect to the number of shares of Common Stock (the "Shares"), which are being
acquired by me for my own account upon exercise of the Option as set forth
above:
I acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon appropriate
legends reflecting any restrictions imposed pursuant to the Company's Articles
of Incorporation, Bylaws and/or applicable securities laws.
Very truly yours,
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<PAGE> 1
EXHIBIT 10.5
SIGNAL PHARMACEUTICALS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS FEBRUARY 16, 2000
APPROVED BY STOCKHOLDERS _______________ , 2000
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the United States Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "COMPANY" means Signal Pharmaceuticals, Inc., a Delaware
corporation.
(f) "DIRECTOR" means a member of the Board.
(g) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
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(h) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
(i) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(j) "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
(k) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(l) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(m) "OFFERING" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.
(n) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.
(o) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
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(p) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
(q) "PLAN" means this Employee Stock Purchase Plan.
(r) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "RIGHT" means an option to purchase Shares granted pursuant to the
Plan.
(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
(v) "SHARE" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts
as it deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
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(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the Shares that may be sold pursuant to Rights
granted under the Plan shall not exceed in the aggregate five hundred thousand
(500,000) Shares. If any Right granted under the Plan shall for any reason
terminate without having been exercised, the Shares not purchased under such
Right shall again become available for the Plan.
(b) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.
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6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate.
(i) Except as provided in subparagraph 6(b), an Employee shall
not be eligible to be granted Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Affiliate, as
the case may be, for such continuous period preceding such grant as the Board
may require in the Offering, but in no event shall the required period of
continuous employment be equal to or greater than two (2) years.
(ii) The Board may provide in an Offering that Employees whose
customary employment is twenty (20) hours or less per week shall not be eligible
to participate.
(iii) The Board may provide in an Offering that Employees whose
customary employment is for not more than five (5) months in any calendar year
shall not be eligible to participate.
(iv) The Board may provide in an Offering that Employees who are
highly compensated Employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
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(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of the fair market value of such Shares
(determined at the time such Rights are granted) for each calendar year in which
such Rights are outstanding at any time.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of Shares purchasable either:
(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that,
as the Board determines for a particular Offering, (1) shall be withheld, in
whole or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Offering Date; or
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(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such withdrawal
from the Offering by a Participant, the Company shall distribute to such
Participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire Shares for the
Participant) under the Offering, without interest unless otherwise specified in
the Offering, and such Participant's interest in that Offering shall be
automatically terminated. A Participant's withdrawal from an Offering will have
no effect upon such Participant's eligibility to participate in any other
Offerings under the Plan but such Participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under
the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the terminated Employee) under
the Offering, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
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(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent
unless the Shares to be issued upon such exercise under the Plan (including
Rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to the
Plan. If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no Rights granted under the Plan or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the Plan is subject to such an effective registration statement
and such compliance, except that the Purchase Date shall not be delayed more
than twelve (12) months and the Purchase Date shall in no event be more than
twenty-seven (27) months from the Offering Date. If, on the Purchase Date of any
Offering hereunder, as delayed to the maximum extent permissible, the Plan is
not registered and in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then
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<PAGE> 9
the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the
Plan shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue
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<PAGE> 10
of the merger into other property, whether in the form of securities, cash or
otherwise, then: (1) any surviving or acquiring corporation shall assume Rights
outstanding under the Plan or shall substitute similar rights (including a right
to acquire the same consideration paid to Stockholders in the transaction
described in this subparagraph 13(b)) for those outstanding under the Plan, or
(2) in the event any surviving or acquiring corporation refuses to assume such
Rights or to substitute similar rights for those outstanding under the Plan,
then, as determined by the Board in its sole discretion such Rights may continue
in full force and effect or the Participants' accumulated payroll deductions
(exclusive of any accumulated interest which cannot be applied toward the
purchase of Shares under the terms of the Offering) may be used to purchase
Shares immediately prior to the transaction described above under the ongoing
Offering and the Participants' Rights under the ongoing Offering thereafter
terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or
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<PAGE> 11
governmental regulations, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the effective date set by the Board.
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<PAGE> 12
SIGNAL PHARMACEUTICALS, INC.
EMPLOYEE STOCK PURCHASE PLAN
OFFERING
ADOPTED FEBRUARY 16, 2000
1. GRANT OF RIGHTS.
(a) The Board of Directors ("Board") of Signal Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), pursuant to the Company's Employee Stock
Purchase Plan (the "Plan"), hereby authorizes the grant of Rights to purchase
Shares of the Company to all Eligible Employees (an "Offering"). Defined terms
not explicitly defined in this Offering but defined in the Plan shall have the
same definitions as in the Plan. In the event of any conflict between the
provisions of an Offering and those of the Plan (including interpretations,
amendments, rules and regulations that may from time to time be promulgated and
adopted pursuant to the Plan), the provisions of the Plan shall control.
(b) An "Offering Date" is the first day of an Offering. An Offering may
consist of one purchase period or may be divided into shorter purchase periods
("Purchase Periods"). A "Purchase Date" is the last day of a Purchase Period or
the Offering, as the case may be.
(c) Except as otherwise provided, each Offering hereunder shall be
twenty-four (24) months long and shall be divided into four (4) shorter Purchase
Period approximately six (6) months in length. Offerings shall be consecutive. A
new Offering shall start the day after the current Offering ends.
(d) The first Offering shall begin on the effective date of the initial
public offering of the Shares and end on July 31, 2001 (the "Initial Offering");
provided, however, that the Initial Offering cannot exceed twenty-seven (27)
months. The Initial Offering will be divided into three (3) shorter Purchase
Periods of approximately six (6) months in duration, with the initial Purchase
Period ending on July 31, 2000, the second Purchase Period ending on January 31,
2001, and the third Purchase Period ending on July 31, 2001.
Thereafter consecutive 18-month Offerings shall begin on the first day
of the first calendar month following the calendar month in which the preceding
Offering ended, and end on the last day of the eighteenth calendar month
measured beginning with the calendar month in which the Offering began;
provided, however, that if on the first day of a new Purchase Period during the
Offering the fair market value of the Shares is less than it was on the Offering
Date for that Offering, that day shall become the next Offering Date, and the
Offering that would otherwise have continued in effect shall immediately
terminate. Each Offering after the Initial Offering shall end on the day prior
to the 18-month anniversary of its Offering Date unless sooner terminated as
provided above.
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<PAGE> 13
(e) Prior to the commencement of any Offering, the Board may change any
or all terms of such Offering and any subsequent Offerings. The granting of
Rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (i) the Board (or such Committee)
determines that such Offering shall not occur, or (ii) no Shares remain
available for issuance under the Plan in connection with the Offering.
(f) Notwithstanding any other provisions of an Offering, if the terms of
an Offering as previously established by the Board of Directors of the Company
would, as a result of a change to applicable accounting standards, generate a
charge to earnings, such Offering shall terminate effective as of the day prior
to the date such change to accounting standards would otherwise first apply to
the Offering (the "Offering Termination Date"), and such Offering Termination
Date shall be the final Purchase Date of such Offering. A subsequent Offering
shall commence on such date and on such terms as shall be provided by the Board
of Directors of the Company.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates incorporated
in the United States shall be granted Rights to purchase Shares under each
Offering on the Offering Date of such Offering, provided that each such employee
otherwise meets the employment requirements of subparagraph 6(a) of the Plan and
has been continuously employed for at least ten (10) days on the Offering Date
of such Offering (an "Eligible Employee"); however, the ten- (10-) day
eligibility requirement shall be waived with respect to the Initial Offering
only.
(b) Notwithstanding the foregoing, the following employees shall not be
Eligible Employees or be granted Rights under an Offering: (i) part-time or
seasonal employees whose customary employment is twenty (20) hours or less per
week or five (5) months or less per calendar year or (ii) 5% stockholders
(including ownership through unexercised options) described in subparagraph 6(c)
of the Plan.
(c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during any Offering will, on the next February 1 or August 1
during that Offering, receive a Right under such Offering, which Right shall
thereafter be deemed to be a part of the Offering. Such Right shall have the
same characteristics as any Rights originally granted under the Offering except
that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right; and
(ii) the Offering for such Right shall begin on its Offering Date
and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the Right to purchase the
number of Shares purchasable
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<PAGE> 14
with up to fifteen percent (15%) of such Eligible Employee's Earnings paid
during such Offering after the Eligible Employee first commences participation;
provided, however, that no employee may purchase Shares on a particular Purchase
Date that would result in more than fifteen percent (15%) of such employee's
Earnings in the period from the Offering Date to such Purchase Date having been
applied to purchase Shares under all ongoing Offerings under the Plan and all
other Company plans intended to qualify as "employee stock purchase plans" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) For this Offering, "Earnings" means the total compensation paid to
an employee, including all salary, wages (including amounts elected to be
deferred by the employee, that would otherwise have been paid, under any cash or
deferred arrangement established by the Company), overtime pay, commissions,
bonuses, and other remuneration paid directly to the employee, but excluding
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation.
(c) Notwithstanding the foregoing, the maximum number of Shares an
Eligible Employee may purchase on any Purchase Date in an Offering shall be such
number of Shares as has a fair market value (determined as of the Offering Date
for such Offering) equal to (x) $25,000 multiplied by the number of calendar
years in which the Right under such Offering has been outstanding at any time,
minus (y) the fair market value of any other Shares (determined as of the
relevant Offering Date with respect to such Shares) which, for purposes of the
limitation of Section 423(b)(8) of the Code, are attributed to any of such
calendar years in which the Right is outstanding. The amount in clause (y) of
the previous sentence shall be determined in accordance with regulations
applicable under Section 423(b)(8) of the Code based on (i) the number of Shares
previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of Shares subject to other Rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
(d) The maximum aggregate number of Shares available to be purchased by
all Eligible Employees under an Offering shall be the number of Shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
Shares upon exercise of Rights granted under the Offering would exceed the
maximum aggregate number of Shares available, the Board shall make a pro rata
allocation of the Shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
(a) The purchase price of the Shares under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Shares on
the Offering Date or eighty-five percent (85%) of the fair market value of the
Shares on the Purchase Date, in each case rounded up to the nearest whole cent
per Share.
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<PAGE> 15
(b) For the Initial Offering, the fair market value of the Shares at the
time when the Offering commences shall be the price per Share at which Shares
are first sold to the public in the Company's initial public offering as
specified in the final prospectus with respect to that offering.
5. PARTICIPATION.
(a) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering or such later date specified in subparagraph 2(c).
(b) A Participant who is enrolled in an Offering automatically will be
enrolled in the next Offering that commences after the current Offering ends.
(c) An Eligible Employee shall become a Participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole percentages, with a minimum percentage of one percent (1%) and a
maximum percentage of fifteen percent (15%) of Earnings. A Participant may not
make additional payments into his or her account. The agreement shall be made on
such enrollment form as the Company provides, and must be delivered to the
Company at least ten (10) days before the Offering Date, or before such later
date specified in subparagraph 2(c), in advance of the date of participation to
be effective, unless a later time for filing the enrollment form is set by the
Board for all Eligible Employees with respect to a given Offering Date. For the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering may be after the Offering Date, as determined by the
Company and communicated to such Eligible Employees.
(d) If the agreement authorizing payroll deductions is required to be
delivered to the Company or designated Affiliate a specified number of days
before the Offering Date to be effective, then an employee who becomes eligible
during the required delivery period shall not be considered to be an Eligible
Employee at the beginning of the Offering but may elect to participate during
the Offering as provided in subparagraph 2(c).
6. CHANGING PARTICIPATION LEVEL DURING OFFERING; WITHDRAWAL FROM OFFERING.
(a) A Participant may not increase his or her deductions during the
course of a Purchase Period. A Participant may increase or decrease his or her
deductions prior to the beginning of a new Purchase Period or a new Offering, to
be effective at the beginning of such new Purchase Period or new Offering. A
Participant shall make a change in the his or her participation level by
delivering a notice to the Company in such form as the Company provides and up
to ten (10) days before the start of such new Purchase Period or new Offering
(or such shorter period of time determined by the Company and communicated to
Participants).
(b) A Participant may reduce (including to zero) his or her deductions
once (and only once) during a Purchase Period, effective as soon as
administratively practicable. A Participant shall make a change in the his or
her participation level by delivering a notice to the Company in
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<PAGE> 16
such form as the Company provides and up to ten (10) days before the end of such
Purchase Period (or such shorter period of time determined by the Company and
communicated to Participants).
(c) Except as otherwise specifically provided herein, a Participant may
not increase or decrease his or her participation level during the course of an
Offering.
(d) Notwithstanding the foregoing, a Participant may withdraw from an
Offering and receive his or her accumulated payroll deductions from the Offering
(reduced to the extent, if any, such deductions have been used to acquire Shares
for the Participant on any prior Purchase Dates), without interest, or reduce
his or her participation percentage to zero (0), at any time prior to the end of
the Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to Participants) by delivering a withdrawal notice to the Company
in such form as the Company provides.
7. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
Participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole Shares, up to the maximum number of
Shares permitted under the Plan and the Offering.
8. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
9. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The Rights granted under an Offering are subject to the approval of the
Plan by the Shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
10. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan.
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<PAGE> 1
EXHIBIT 10.6
SIGNAL PHARMACEUTICALS, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON FEBRUARY 16, 2000
APPROVED BY STOCKHOLDERS _______________, 2000
EFFECTIVE DATE: _______________, 2000
TERMINATION DATE: NONE
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria specified in subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means SIGNAL PHARMACEUTICALS, INC., a Delaware
corporation.
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<PAGE> 2
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the criteria specified in subsection 6(a) of the Plan.
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<PAGE> 3
(p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "PLAN" means this SIGNAL PHARMACEUTICALS, INC. Non-Employee
Directors' Stock Option Plan.
(x) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
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<PAGE> 4
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE. The Board may delegate administration of
the Plan to a Committee or Committees of one (1) or more members of the Board,
and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate two hundred fifty
thousand (250,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each
Non-Employee Director shall be granted an Initial Grant as follows: After the
IPO Date, each person who is elected or appointed for the first time to be a
Non-Employee Director automatically shall, upon the date of his or her initial
election or appointment to be a Non-Employee Director by the Board or
stockholders of the Company, be granted an Initial Grant to purchase twenty
thousand (20,000) shares of Common Stock on the terms and conditions set forth
herein.
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<PAGE> 5
(b) ANNUAL GRANTS. Without any further action of the Board, a
Non-Employee Director shall be granted an Annual Grant as follows: On the day
following each Annual Meeting commencing with the Annual Meeting in 2000, (i)
each person (other than the Chairman of the Board of Directors of the Company)
who is a Non-Employee Director and has been a Non-Employee Director for at least
six (6) months automatically shall be granted an Annual Grant to purchase five
thousand (5,000) shares of Common Stock on the terms and conditions set forth
herein, and (ii) the Chairman of the Board of Directors of the Company (provided
such Chairman of the Board is a Non-Employee Director and has been a
Non-Employee Director for at least six (6) months) automatically shall be
granted an Annual Grant to purchase seven thousand five hundred (7,500) shares
of Common Stock on the terms and conditions set forth herein.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms
and conditions as required by the Plan. Each Option shall contain such
additional terms and conditions, not inconsistent with the Plan, as the Board
shall deem appropriate. Each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of the following methods:
(i) By cash or check.
(ii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that the Optionholder has held for
the period required to avoid a charge to the Company's reported earnings
(generally six months) or that the Optionholder did not acquire, directly or
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes shall include delivery to
the Company of the Optionholder's attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
the Optionholder may not exercise the Option by tender to the Company of Common
Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
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<PAGE> 6
(iii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution and to such further extent as
permitted by the Rule as to Use of Form S-8 specified in the General
Instructions of the Form S-8 Registration Statement under the Securities Act,
and shall be exercisable during the lifetime of the Optionholder only by the
Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(e) EXERCISE SCHEDULE. The Option shall be exercisable as the shares of
Common Stock subject to the Opton vest.
(f) EARLY EXERCISE. Notwithstanding the foregoing, the option may, but
need not, include a provision whereby the optionholder may elect at any time
while providing Continuous Service as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate to exercise the option as to any part
of all of the shares subject to the option prior to the full vesting of the
option. Any unvested shares so purchased may be subject to a repurchase right in
favor of the Company or to any other restriction the Board determines to be
appropriate. The Company will not exercise its repurchase option until at least
six (6) months (or such longer or shorter period of time required to avoid a
charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in the
Option.
(g) VESTING SCHEDULE. Options shall vest as follows:
(i) Initial Grants shall provide for vesting of one thousand two
hundred fifty (1,250) of the shares of Common Stock subject to the Option at the
end of each three- (3-) month period after the date of the grant of the Option
over a period of four (4) years.
(ii) Annual Grants shall vest in equal monthly installments after
the date of the grant of the Option over a period of one (1) year.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
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<PAGE> 7
(i) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date six (6) months following
such termination or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date six (6) months following
the date of death or (2) the expiration of the term of such Option as set forth
in the Option Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
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<PAGE> 8
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
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<PAGE> 9
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Options outstanding under the Plan or shall substitute similar Options
(including an option to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(c) for those outstanding
under the Plan). In the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar Options for those
outstanding under the Plan, then with respect to Options held by Optionholders
whose Continuous Service has not terminated, the vesting of such Options (and,
if applicable, the time during which such Options may be exercised) shall be
accelerated in full, and the Options shall terminate if not exercised at or
prior to such event. With respect to any other Options outstanding under the
Plan, such Options shall terminate if not exercised prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors and provided
that such acquisition is not a result of, and does not constitute a transaction
described in, subsection 11(c) hereof, then with respect to Options held by
Optionholders whose Continuous Service has not terminated, the vesting of such
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<PAGE> 10
Options and any shares of Common Stock acquired under such Options (and, if
applicable, the time during which such Options may be exercised) shall be
accelerated in full.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
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EXHIBIT 10.7
SIGNAL PHARMACEUTICALS, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
STOCK OPTION AGREEMENT
(NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Signal Pharmaceuticals, Inc. (the "Company") has granted
you an option under its Non-Employee Directors' Stock Option Plan (the "Plan")
to purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement; and
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to make payment
of the exercise price in cash or by check or by one or more of the following:
<PAGE> 2
(a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
5. WHOLE SHARES. You may exercise your option only for whole shares
of Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your option
must also comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) six (6) months after the termination of your Continuous
Service due to your Disability;
(c) six (6) months after your death if you die either during your
Continuous Service or within three (3) months after your Continuous Service
terminates; or
<PAGE> 3
(d) the Expiration Date indicated in your Grant Notice.
8. EXERCISE.
(e) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(f) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of the exercise of your
option.
9. TRANSFERABILITY. Your option is not transferable, except (i) by
will or by the laws of descent and distribution, and (ii) to such further extent
as permitted by the Rule as to Use of Form S-8 specified in the General
Instructions of the Form S-8 Registration Statement under the Securities Act.
Your option is exercisable during your life only by you or a transferee
satisfying the above-stated conditions. The right of a transferee to exercise
the transferred portion of your option after termination of your Continuous
Service shall terminate in accordance with your right to exercise your option as
specified in your option. In the event that your Continuous Service terminates
due to your death, your transferee will be treated as a person who acquired the
right to exercise your option by bequest or inheritance. In addition to the
foregoing, the Company may require, as a condition of the transfer of your
option to a trust or by gift, that your transferee enter into an option transfer
agreement provided by, or acceptable to, the Company. The terms of your option
shall be binding upon your transferees, executors, administrators, heirs,
successors, and assigns. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may designate
a third party who, in the event of your death, shall thereafter be entitled to
exercise your option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
or service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
11. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to you at
the last address you provided to the Company.
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated
<PAGE> 4
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the Plan
shall control.
<PAGE> 5
SIGNAL PHARMACEUTICALS, INC.
STOCK OPTION GRANT NOTICE
INITIAL GRANT
(NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)
Signal Pharmaceuticals, Inc. (the "Company"), pursuant to its Non-Employee
Directors' Stock Option Plan (the "Plan"), hereby grants to Optionholder an
option to purchase the number of shares of the Company's Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.
Optionholder: _____________________________
Date of Grant: _____________________________
Vesting Commencement Date: Date of Grant
Number of Shares Subject to Option: _____________________________
Exercise Price (Per Share): _____________________________
Total Exercise Price: _____________________________
Expiration Date: The day before the 10th anniversary
of the Date of Grant
TYPE OF GRANT: Nonstatutory Stock Option
EXERCISE SCHEDULE: Early Exercise Permitted
VESTING SCHEDULE: 1/16th of the shares vest one quarterly after the Vesting
Commencement Date over the next four years.
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
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SIGNAL PHARMACEUTICALS, INC. OPTIONHOLDER:
By:
---------------------------------- --------------------------------
Signature Signature
Title: Date:
------------------------------- ---------------------------
Date:
--------------------------------
ATTACHMENTS: Stock Option Agreement, Non-Employee Directors' Stock Option Plan
and Notice of Exercise
<PAGE> 6
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE> 7
ATTACHMENT II
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE> 8
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE> 9
SIGNAL PHARMACEUTICALS, INC.
STOCK OPTION GRANT NOTICE
ANNUAL GRANT
(NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)
Signal Pharmaceuticals, Inc. (the "Company"), pursuant to its Non-Employee
Directors' Stock Option Plan (the "Plan"), hereby grants to Optionholder an
option to purchase the number of shares of the Company's Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.
Optionholder: _____________________________
Date of Grant: _____________________________
Vesting Commencement Date: Date of Grant
Number of Shares Subject to Option: [5,000] [7,500]
Exercise Price (Per Share): _____________________________
Total Exercise Price: _____________________________
Expiration Date: The day before the 10th anniversary
of the Date of Grant
TYPE OF GRANT: Nonstatutory Stock Option
EXERCISE SCHEDULE: Early Exercise Permitted
VESTING SCHEDULE: 1/12th of the shares vest monthly over one year after the
Vesting Commencement Date.
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
--------------------------------------
--------------------------------------
SIGNAL PHARMACEUTICALS, INC. OPTIONHOLDER:
By:
---------------------------------- --------------------------------
Signature Signature
Title: Date:
------------------------------- ---------------------------
Date:
--------------------------------
ATTACHMENTS: Stock Option Agreement, Non-Employee Directors' Stock Option Plan
and Notice of Exercise
<PAGE> 10
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE> 11
ATTACHMENT II
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE> 12
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE> 1
Exhibit 10.8
[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS FUND DISTRIBUTORS, INC.
401(k) PROFIT SHARING
PLAN AND TRUST
MAY, 1995
<PAGE> 2
MFS FUND DISTRIBUTORS, INC.
401(k) PROFIT SHARING PLAN AND TRUST
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
<TABLE>
<S> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS ........................................ 6
2.2 DETERMINATION OF TOP HEAVY STATUS .................................. 6
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER ........................ 8
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY ............................ 8
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES ...................... 8
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR ............................. 8
2.7 RECORDS AND REPORTS ................................................ 8
2.8 APPOINTMENT OF ADVISERS ............................................ 8
2.9 INFORMATION FROM EMPLOYER .......................................... 8
2.10 PAYMENT OF EXPENSES ............................................... 9
2.11 MAJORITY ACTIONS .................................................. 9
2.12 CLAIMS PROCEDURE .................................................. 9
2.13 CLAIMS REVIEW PROCEDURE ........................................... 9
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY .......................................... 9
3.2 EFFECTIVE DATE OF PARTICIPATION .................................... 9
3.3 DETERMINATION OF ELIGIBILITY ....................................... 9
3.4 TERMINATION OF ELIGIBILITY ......................................... 9
3.5 OMISSION OF ELIGIBLE EMPLOYEE ...................................... 9
3.6 INCLUSION OF INELIGIBLE EMPLOYEE ................................... 9
3.7 ELECTION NOT TO PARTICIPATE ........................................ 9
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE .............................. 10
ARTICLX IV
CONTRIBUTTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION .................... 10
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION ............................ 10
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION ......................... 12
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS ............... 12
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ................................... 14
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS ..................... 15
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ............................... 16
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS ................. 18
4.9 MAXIMUM ANNUAL ADDITIONS ........................................... 19
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS ......................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.11 TRANSFERS FROM QUALIFIED PLANS .................................... 22
4.12 VOLUNTARY CONTRIBUTIONS ........................................... 22
4.13 DIRECTED INVESTMENT ACCOUNT ....................................... 23
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS ........................ 23
4.15 INTEGRATION IN MORE THAN ONE PLAN ................................. 23
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND ........................................ 23
5.2 METHOD OF VALUATION ................................................ 23
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT .......................... 23
6.2 DETERMINATION OF BENEFITS UPON DEATH ............................... 24
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ................... 24
6.4 DETERMINATION OF BENEFITS UPON TERMINATION ......................... 24
6.5 DISTRIBUTION OF BENEFITS ........................................... 26
6.6 DISTRIBUTION OF BENEFITS UPON DEATH ................................ 27
6.7 TIME OF SEGREGATION OR DISTRIBUTION ................................ 29
6.8 DISTRIBUTION FOR MINOR BENEFICIARY ................................. 29
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN ..................... 29
6.10 PRE-RETIREMENT DISTRIBUTION ....................................... 30
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP ................................. 30
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS ......................... 30
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS ................................ 30
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE .............................. 30
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE ........................ 31
7.3 OTHER POWERS OF THE TRUSTEE ........................................ 31
7.4 LOANS TO PARTICIPANTS .............................................. 32
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS ........................... 33
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES ...................... 33
7.7 ANNUAL REPORT OF THE TRUSTEE ....................................... 33
7.8 AUDIT .............................................................. 33
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE ...................... 34
7.10 TRANSFER OF INTEREST .............................................. 34
7.11 TRUSTEE INDEMNIFICATION ........................................... 34
7.12 EMPLOYER SECURITIES AND REAL PROPERTY ............................. 34
7.13 PASSIVE TRUSTEE ................................................... 34
7.14 DIRECT ROLLOVER ................................................... 34
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT .......................................................... 35
8.2 TERMINATION ........................................................ 35
8.3 MERGER OR CONSOLIDATION ............................................ 35
</TABLE>
ii
<PAGE> 4
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C>
9.1 EMPLOYER ADOPTIONS ................................................. 35
9.2 PARTICIPANT'S RIGHTS ............................................... 35
9.3 ALIENATION ......................................................... 36
9.4 CONSTRUCTION OF PLAN ............................................... 36
9.5 GENDER AND NUMBER .................................................. 36
9.6 LEGAL ACTION ....................................................... 36
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS ............................. 36
9.8 BONDING ............................................................ 36
9.9 INSURER'S PROTECTIVE CLAUSE ........................................ 36
9.10 RECEIPT AND RELEASE FOR PAYMENTS .................................. 36
9.11 ACTION BY THE EMPLOYER ............................................ 36
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY ................ 36
9.13 HEADINGS .......................................................... 37
9.14 APPROVAL BY INTERNAL REVENUE SERVICE .............................. 37
9.15 UNIFORMITY ........................................................ 37
9.16 PAYMENT OF BENEFITS ............................................... 37
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER ....................... 37
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ........................... 37
10.3 DESIGNATION OF AGENT .............................................. 37
10.4 EMPLOYEE TRANSFERS ................................................ 37
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES ............. 37
10.6 AMENDMENT ......................................................... 38
10.7 DISCONTINUANCE OF PARTICIPATION ................................... 38
10.8 ADMINISTRATOR'S AUTHORITY ......................................... 38
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE ................. 38
</TABLE>
iii
<PAGE> 5
ARTICLE I
DEFINITIONS
As used in this Plan. the following words and phrases shall have the meanings
set forth herein unless a different meaning is clearly required by the context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974. as it may
be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed by the
Employer and accepted by the Trustee which sets forth the elective provisions of
this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.5 "Aggregate Account" means with respect to each Participant, the value of all
accounts maintained on behalf of a Participant, whether attributable to Employer
or Employee contributions, subject to the provisions of Section 2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased Participant's
interest in the Plan is payable, subject to the restrictions of Sections 6.2 and
6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
1.9 "Compensation" with respect to any Participant means one of the following:
(a) Compensation on Form W-2. Compensation is defined as wages, as
defined in Code Section 3401(a), and all other payments of
Compensation to an Employee by the Employer (in the course of
the Employer's trade or business) for which the Employer is
required to furnish the Employee a written statement under Code
Sections 6041(d) and 6051(a)(3). Compensation must be determined
without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2).
Compensation for any Self-Employed Individual shall be equal to
his Earned Income.
(b) Code Section 3401(a) wages. Compensation is defined as wages
within the meaning of Code Section 3401(a) for the purposes of
income tax withholding at the source but determined without
regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor
in Code Section 3401(a)(2)).
(c) 415 safe-harbor compensation. Compensation is defined as wages,
salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of
employment with the Employer maintaining the Plan to the extent
that the amounts are includible in gross income (including, but
not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses fringe benefits, and
reimbursements, or other expense allowances under a
nonaccountable plan (as described in Regulation Section
1.622(c)), and excluding the following:
1) Employer contributions to a plan of Deferred
Compensation which are not includible in the Employee's
gross income for the taxable year in which contributed,
or Employer contributions under a simplified employee
pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a
plan of Deferred Compensation;
(2) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option and
(4) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under
a salary reduction agreement) towards the purchase of an
annuity contract described in section 403(b) of the
Internal Revenue Code (whether or not the contributions
are actually excludable from the gross income of the
Employee).
In addition, if specified in the Adoption Agreement, Compensation for all Plan
purposes shall also include compensation which is not currently includible in
the Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount shall be
adjusted at the same time and in such manner as permitted under Code Section
415(d).
Notwithstanding the above, for Plan Years beginning on or after January 1, 1994.
the Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation
limit is $150,000 as adjusted by the Commissioner for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months. over which Compensation is determined (determination period) beginning
in such calendar yew. If a determination period consists of fewer than 12
months, over which Compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, over which Compensation is determined (determination period) beginning
in each calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction.
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this Plan
to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual
compensation limit set forth in this Section.
In applying these limitations, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q)(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules, the adjusted limitation is exceeded, then (except for
purposes of determining the portion of Compensation up to the integration level
if this plan is integrated), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this Section prior to the application of this limitation.
1
<PAGE> 6
For Plan Years beginning prior to January 1, 1989 the $200,000 limit (without
regard to Family Member aggregation) shall apply only for Top Heavy Plan Years
and shall not be adjusted.
1.10 "Contract" or "Policy" means any life insurance policy, retirement income
policy, or annuity contract (group or individual) issued by the Insurer. In the
event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "Deferred Compensation" means that portion of a Participant's total
Compensation that such Participant has elected to defer for a Plan Year pursuant
to Section 4.2
1.12 "Early Retirement Date" means the date specified in the Adoption Agreement
on which a Participant or Former Participant has satisfied the age and service
requirements specified in the Adoption Agreement (Early Retirement Age). A
Participant shall become fully Vested upon satisfying this requirement if still
employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
1.13 "Earned Income" means with respect to a Self-Employed Individual, the net
earnings from self-employment in the trade or business with respect to which the
Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings am reduced by contributions by the Employer to a qualified
Plan to the extent deductible under Code Section 404. In addition, for Plan
Years beginning after December 31, 1989, net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f).
1.14 "Elective Contribution" means the Employer's contributions to the Plan that
are made pursuant to the Participant's deferral election pursuant to Section
4.2. In addition, if selected in E3 of the Adoption Agreement, the Employer's
matching contribution made pursuant to Section 4.1(b) shall be considered an
Elective Contribution for purposes of the Plan. Elective Contributions shall be
subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be
required to satisfy the discrimination requirements of Regulation
1.401(k)-1(b)(3), the provisions of which are specifically incorporated herein
by reference.
1.15 "Eligible Employee" means any Employee specified in D1 of the Adoption
Agreement.
1.16 "Employee" means any person who is employed by the Employer, but excludes
any person who is employed as an independent contractor. The term Employee shall
also include Leased Employees as provided in Code Section 414(n) or (o).
Except as provided in the Non-Standardized Adoption Agreement, all Employees of
all entities which are an Affiliated Employer will be treated as employed by a
single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this
Plan, any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is integrated with
Social Security, a Participant's Compensation which is in excess of the amount
set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess of
Elective Contributions and Qualified Non-Elective Contributions made on behalf
of Highly Compensated Participants for the Plan Year over the maximum amount of
such contributions permitted under Section 4.5(a).
1.20 "Excess Deferred Compensation" means, with respect to any taxable year of a
Participant the excess of the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section 4.2(f) actually made
on behalf of such Participant for such taxable year, over the dollar limitation
provided for in Code Section 402(g), which is incorporated herein by reference.
1.21 "Family Member" means, with respect to an affected Participant, such
participants spouse, and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, (b)
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any monies or other property of the Plan or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and the Administrator.
1.23 "Fiscal Year" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a Terminated
Participant whose Vested benefit is zero, such Terminated Participant shall be
deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.25 "Former Participant" means a person who has been a Participant, but who has
ceased to be a Participant for any reason.
1.26 "414(s) Compensation" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of tins Section, Compensation
shall be Compensation paid and shall be determined by including, in the case of
a non-standardized Adoption Agreement, any items that are excluded from
Compensation pursuant to the Adoption Agreement. The amount of "414(s)
Compensation" with respect to any Employee shall include "414(s) Compensation"
during the entire twelve (12) month period ending on the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1,
1992, or the date that is sixty (60) days after the date final Regulations are
issued, "414(s) Compensation" shall only be recognized as of an Employee's
effective date of participation.
In addition, if specified in the Adoption Agreement "414(s) Compensation" shall
also include compensation which is not currently includible in the Participant's
gross income by reason of the application of Code Sections 125, 402(e)(3),
402(h)(1)(B), or 403(b), plus Elective Contributions attributable to Deferred
Compensation recharacterized as voluntary Employee contributions pursuant to
4.6(a).
1.27 "415 Compensation" means compensation as defined in Section 4.9(f)(2).
1.28 "Highly Compensated Employee" means an Employee described in Code Section
414(q) and the Regulations thereunder and generally means an Employee who
performed services for the Employer during the "determination year" and is in
one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in
Section 1.35(c).
2
<PAGE> 7
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top
Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415
Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code
Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees: or
(ii) the greater of 3 employees or 10 percent of all employees.
If the Employer does not have at least one officer whose annual
"415 Compensation" is in excess of 50 percent of the Code
Section 415(b)(1)(A) limit, then the highest paid officer of the
Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination
year" and are also described in (b),(c) or (d) above when these
paragraphs are modified to substitute "determination year" for
"look-back year".
The "determination year" shall be the Plan Year for which
testing is being performed, and the "look-back year" shall be
the immediately preceding twelve-month period. However, if the
Plan Year is a calendar year, or if another Plan of the Employer
so provides, then the "look-back year" shall be the calendar
year ending with or within the Plan Year for which testing is
being performed, and the "determination year" (if applicable)
shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for
which testing is being performed (the "lag period"). With
respect to this election, it shall be applied on a uniform and
consistent basis to all plans, entities, and arrangements of the
Employer.
For purposes of this Section, the determination of "415 Compensation" shall be
made by including amounts that would otherwise be excluded from a Participant's
gross income by reason of the application of Code Sections
125.402(e)(3), 402(h)(l)(B) and, in the case of Employer contributions made
pursuant to a salary reduction agreement Code Section 403(b). Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. The exclusion of Leased Employees for
this purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. In addition, Highly Compensated Former Employees
shall be treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year".
1.29 "Highly Compensated Former Employee" means a form Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000) or was a "five percent owner". For purposes
of this Section, "determination year", "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.28. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated Employee who
is eligible to participate in the Plan.
1.31 "Hour of Service" means (1)each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period: (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period. (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are required to
be credited to an Employee on account of any single continuous period during
which the Employee performs no duties (whether or not such period occurs in a
single computation period); (ii) an hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period during which no
duties are performed is not required to be credited to the Employee if such
payment is made or due under a plan maintained solely for the purpose of
complying with applicable worker's compensation, or unemployment compensation or
disability insurance laws, and (iii) Hours of Service are not required to be
credited for a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or due
from the Employer regardless of whether such payment is made by or due from this
Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits a 1-Year Break
in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c)
are incorporated herein by reference.
Hours of Service will be credited for employment with all Affiliated Employers
and for any individual considered to be a Leased Employee pursuant to Code
Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected in the
Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall issue one
or more policies under the Plan.
1.33 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fidu-
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ciary responsibility to the Plan in writing. Such entity must be a person, firm,
or corporation registered as an investment adviser under the Investment
Advisers, Act of 1940, a bank, or an insurance company.
1.34 "Joint and Survivor Annuity" means an annuity for the life of a Participant
with a survivor annuity for the life of the Participant's spouse which is not
less that 1/2, nor greater than the amount of the annuity payable during the
joint lives of the Participant and the Participant's spouse. The Joint and
Survivor Annuity will be the amount of benefit which can be purchased with the
Participant's Vested interest in the Plan.
1.35 "Key Employee" means an Employee as defined in Code Section 416(i) and the
Regulations thereunder. Generally, any Employee or former Employee (as well as
each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from
the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c)(1)(A) for the calendar year
in which such Plan Year ends and owning (or considered as owning
within the meaning of Code Section 318) both more than one-half
percent interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than
five percent (5%) of the total combined voting power of all
stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the
capital or profits merest in the Employer. In determining
percentage ownership hereunder, employers that would otherwise
be aggregated under Code Sections 414(b), (c), (m) and
(o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than one
percent (1%) of the outstanding stock of the Employer or stock
possessing more than one percent (1%) of the total combined
voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one
percent (1%) of the capital or profits interest in the Employer.
In determining percentage ownership hereunder, employers that
would otherwise be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be treated as separate employers. However, in
determining whether an individual has "415 Compensation" of more
than $150,000. "415 Compensation" from each employer required to
be aggregated under Code Sections 414(b), (c), (m) and (o) shall
be taken into account.
For purposes of this Section, the determination of "415 Compensation" shall be
made by including amounts that would otherwise be excluded from a Participant's
gross income by reason of the application of Code Sections 125,402(e)(3),
402(h)(1)(B) and, in the case of Employer contributions made pursuant to a
salary reduction agreement Code section 403(b).
1.36 "Late Retirement Date" means the date of, or the first day of the month or
the Anniversary Date coinciding with or next following, whichever corresponds to
the election made for the Normal Retirement Date, a Participant's actual
retirement after having reached his Normal Retirement Date.
1.37 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A leased employee shall not be considered an Employee of the recipient if: (i)
such employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10 percent of compensation,
as defined in Code Section 415(c)(3), but including amounts contributed pursuant
to a salary reduction agreement which am excludable from the employee's gross
income under Code Sections 125, 402(e)(3), 402(h), or 403(b), (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased employees do
not constitute more than 20 percent of the recipient's non-highly compensated
workforce.
1.38 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income, or for
contributions made by the Employer to this Plan and any other qualified plan.
1.39 "Non-Elective Contribution" means the Employer's contributions to the Plan
other than those made pursuant to the Participant's deferral election made
pursuant to Section 4.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4. 1 (b) shall be considered a
Non-Elective Contribution for purposes of the Plan.
1.40 "Non-Highly Compensated Participant" means any Participant who is neither a
Highly Compensated Employee nor a Family Member.
1.41 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "Normal Retirement Age" means the age specified in the Adoption Agreement
at which time a Participant shall become fully Vested in his Participant's
Account.
1.43 "Normal Retirement Date" means the date specified in the Adoption Agreement
on which a Participant shall become eligible to have his benefits distributed to
him.
1.44 "1-Year Break in Service" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service. Hours of Service shall be recognized for
"authorized leaves of absence" and "maternity and paternity leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from active
employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means for Plan Years beginning
after December 31, 1994, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee
4
<PAGE> 9
from incurring a 1-Year Break in Service, or, in any other case, in the
immediately following computation period. The Hours of Service credited for a
"maternity or paternity leave of absence" shall be those which would normally
have been credited but for such absence. or, in any case in which the
Administrator is unable to determine such hours normally credited, eight (8)
Hours of Service per day. The total Hours of Service required to be credited for
a "maternity or paternity leave of absence" shall not exceed 501.
1.45 "Owner-Employee" means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than 10% of either the capital interest
or the profits interest in the Employer and who receives income for personal
services from the Employer.
1.46 "Participant" means any Eligible Employee who participates in the Plan as
provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.47 "Participant's Account" means the account established and maintained by the
Administrator for each Participant with respect to his total interest under the
Plan resulting from the Employer's Non-Elective Contributions. A separate
accounting shall be maintained for matching contributions if they are deemed to
be Non-Elective Contributions.
1.48 "Participant's Combined Account" means the total aggregate amount of each
Participant's Elective Account, Qualified Non-Elective Account, and
Participant's Account.
1.49 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions made pursuant to Section 4.2. Employer matching contributions if
they are deemed to be Elective Contributions, and any Qualified Non-Elective
Contributions.
1.50 "Participant's Rollover Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with
Section 4.11.
1.51 "Plan" means this instrument (hereinafter referred to as MFS
Fund Distributors, Inc. 401(k) Profit Sharing Plan and Trust Basic
Plan Document #02) including all amendments thereto, and the Adoption Agreement
as adopted by the Employer.
1.52 "Plan Year" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
1.53 "Pre-Retirement Survivor Annuity" means an immediate annuity for the life
of the Participant's spouse, the payments under which must be equal to die
actuarial equivalent of 50% of the Participant's Vested interest in the Plan as
of the date of death.
1.54 "Qualified Non-Elective Account" means the account established hereunder to
which Qualified Non-Elective Contributions are allocated.
1.55 "Qualified Non-Elective Contribution" means the Employer's contributions to
the Plan that are made pursuant to Section 4.1(d) and Section 4.6(b) which are
used to satisfy the "Actual Deferral Percentage" tests. Qualified Non-Elective
Contributions are nonforfeitable when made and are distributable only as
specified in Sections 4.2(c) and 6.11. In addition, the Employer's
contributions to the Plan that are made pursuant to Section 4.8(h) and which are
used to satisfy the "Actual Contribution Percentage" tests shall be considered
Qualified Non-Elective Contributions.
1.56 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the Participant's
tax deductible qualified voluntary employee contributions made pursuant to
Section 4-14.
1.57 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.58 "Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.59 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date. Early or Late Retirement Date
(see Section 6.1).
1.60 "Self-Employed Individual" means an individual who has earned income for
the taxable year from the trade or business for which the Plan is established,
and, also, an individual who would have had earned income but for the fact that
the trade or business had no net profits for the taxable year. A Self-Employed
Individual shall be treated as an Employee.
1.61 "Shareholder-Employee" means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which the
Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.62 "Short Plan Year" means, if specified in the Adoption Agreement, that the
Plan Year shall be less than a 12 month period. If chosen, the following rules
shall apply in the administration of this Plan. In determining whether an
Employee has completed a Year of Service for benefit accrual purposes in the
Short Plan Year. the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2(c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.64 "Taxable Wage Base" means, with respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code Section
3121(a)(1).
1.65 "Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
1.66 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.67 "Top Heavy Plan Year" means a Plan Year commencing after December 31. 1983
during which the Plan is a Top Heavy Plan.
1.68 "Top Paid Group" shall be deemed pursuant to Code Section 414(q) and the
Regulations thereunder and generally means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (as determined pursuant to Section 1.28)
received from the Employer during such year. All affiliated Employers shall be
taken into account as a single employer and Leased Employees shall be treated as
Employees pursuant to Code Section 414(n) or (o). Employees who are non-resident
aliens who received no earned income (within the meaning of Code Section
911(d)(2)) from the Employer constituting United States source income within the
meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, for the purpose of determining the number of active Employees in
any year the following additional Employees shall also be excluded, however,
such Employees shall still be considered for the purpose of identifying the
particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
(d) Employees who have not yet attained age 21.
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In addition, if 90 percent or more of the Employees of the Employer are covered
under agreements the Secretary of Labor finds to be collective bargaining
agreements between Employee representatives and the Employer, and the Plan
covers only Employees who are not covered under such agreements, then Employees
covered by such agreements shall be excluded from both the total number of
active Employees as well as from the identification of particular Employees in
the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a uniform
and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.69 "Total and Permanent Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
disability of a Participant shall be determined by a licensed physician chosen
by the Administrator. However, if the condition constitutes total disability
under the federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled for the
purposes of this Plan. The determination shall be applied uniformly to all
Participants.
1.70 "Trustee" means the person or entity named in B6 of the Adoption Agreement
and any successors.
1.71 "Trust Fund" means the assets of the Plan and Trust as the same shall exist
from time to time.
1.72 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.73 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant to Section
4.6(a) shall remain subject to the limitations of Sections 4.2(b) and 4.2(c).
Therefore, a separate accounting shall be maintained with respect to that
portion of the Voluntary Contribution Account attributable to voluntary Employee
contributions made pursuant to Section 4.12.
1.74 "Year of Service" means the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial computation period
shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after a
1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The suceeding computation periods shall begin
with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period. the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with 1,000 Hours of Service in both
the initial eligibility computation period and the first Plan Year which
commences prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two Years of Service for purposes of
eligibility to Participate.
For vesting purposes, and all other purposes not specifically addressed in this
Section, the computation period shall be the Plan Year including periods prior
to the Effective Date of the Plan unless specifically excluded pursuant to the
Adoption Agreement.
Years of service and breaks in service will be measured on the same computation
period.
Years of Service with any predecessor Employer which maintained this Plan shall
be recognized. Years of Service with any other predecessor Employer shall be
recognized as specified in the Adoption Agreement
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4(i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date.
(1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under
this Plan and all plans of an Aggregation Group, exceeds sixty
percent (60%) of the Present Value of Accrued Benefits and the
Aggregate Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but
such Participant was a Key Employee for any prior Plan Year,
such Participant's Present Value of Accrued Benefit and/or
Aggregate Account balance shall not be taken into account for
purposes of determining whether this Plan is a Top Heavy or
Super Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top Heavy Group). In addition if a
Participant or Former Participant has not performed any services
for any Employer maintaining the Plan at any time during the
five year period ending on the Determination Date, any accrued
benefit for such Participant or Former Participant shall not be
taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
beginning after December 31, 1983, in which, as of the
Determination Date, (1) the Present Value of Accrued Benefits of
Key Employees and (2) the sum of the Aggregate Accounts of Key
Employees under this Plan and all plans of an Aggregation Group,
exceeds ninety percent (90%) of the Present Value of Accrued
Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the
most recent valuation occurring within a twelve (12)
month period ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount
of any contributions actually made after the valuation
date but on or before the Determination Date, except for
the first Plan Year when such adjustment shall also
reflect the amount of any contributions made after the
Determination Date that are allocated as of a date in
that first Plan Year;
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of
distributions made after the valuation date and prior to
the Determination Date, such distributions are not
included
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as distributions for top heavy purposes to the extent
that such distributions are already included in the
Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to the
contrary, all distributions, including distributions
made prior to January 1, 1984, and distributions under a
terminated plan which if it had not been terminated
would have been required to be included in an
Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of
life insurance policies) of a Participant's account
balance because of death shall be treated as a
distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax
deductible qualified voluntary employee contributions
shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee
and made from a plan maintained by one employer to a
plan maintained by another employer), if this Plan
provides the rollovers or plan-to-plan transfers, it
shall always consider such rollovers or plan-to-plan
transfers as a distribution for the purposes of this
Section. If this Plan is the plan accepting such
rollovers or plan-to-plan transfers, it shall not
consider such rollovers or plan-to-plan transfers
accepted after December 31, 1983 as part of the
Participant's Aggregate Account balance. However,
rollovers or plan-to-plan transfers accepted prior to
January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or
made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer. it
shall not be counted as a distribution for purposes of
this Section. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider
such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance. irrespective of
the date on which such rollover or plan-to-plan transfer
is accepted.
(7) For the purposes of determining whether two employers
are to be treated as the same employer in 2.2(c)(5) and
2.2(c)(6) above, all employers aggregated under Code
Section 414(b),(c),(m) and (o) are treated as the same
employer.
(d) "Aggregation Group" means either a Required Aggregation Group or
a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each qualified plan of the
Employer, including any Simplified Employee Pension
Plan, in which a Key Employee is a participant in the
Plan Year containing the Determination Date or any of
the four Preceding Plan Years, and each other qualified
plan of the Employer which enables any qualified plan in
which a Key Employee participates to meet the
requirements of Code Sections 401(a)(4) or 410, will be
required to be Aggregated. Such group shall be known as
a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan
in the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan
in the Required Aggregation Group will be considered a
Top Heavy Plan if the Required Aggregation Group is not
a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan of the Employer, including any
Simplified Employee Pension Plan, not required to be
included in the Required Aggregation Group, provided the
resulting group, taken as a whole, would continue to
satisfy the provisions of Code Sections 401(a)(4) and
410. Such group shall be known as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will
be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in the
Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a
Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) When aggregating plans, the value of Aggregate Accounts
and Accrued Benefits will be calculated with reference
to the Determination Dates that fall within the same
calendar year.
(5) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last
five (5) years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding
Plan Year, or (b) in the case of the first Plan Year, the last
day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee shall be as determined
using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C). The determination of the Present Value of
Accrued Benefit shall be determined as of the most recent
valuation date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in
Code Section 416 and the Regulations thereunder for the first
and second plan years of a defined benefit plan.
However, any such determination must include present value of
accrued benefit attributable to any Plan distributions referred
to in Section 2.2(c)(3) above, any Employee contributions
referred to in Section 2.2(c)(4) above or any related or
unrelated rollovers referred to in Sections 2.2(c)(5) and
2.2(c)(6) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group,
and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined
for all Participants.
(h) The Administrator shall determine whether this Plan is a Top
Heavy Plan on the Anniversary Date specified in the Adoption
Agreement. Such determination of the top heavy ratio shall be in
accordance with Code Section 416 and the Regulations thereunder.
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<PAGE> 12
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure
that the Plan is being operated for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the
terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method",
i.e., it shall determine whether the Plan has a short run need
for liquidity (e.g., to pay benefits) or whether liquidity is a
long run goal and investment growth (and stability of same) is a
more current need, or shall appoint a qualified person to do so.
The Employer or its delegate shall communicate such needs and
goals to the Trustee, who shall coordinate such Plan needs with
its investment policy. The communication of such a "funding
policy and method" shall not, however, constitute a directive to
the Trustee as to investment of the Trust Funds. Such "funding
policy and method" shall be consistent with the objectives of
this Plan and with the requirements of Title I of the Act.
(c) The Employer may, in its discretion, appoint an Investment
Manager to manage all or a designated portion of the assets of
the Plan. In such event, the Trustee shall follow the directive
of the Investment Manager in investing the assets of the Plan
managed by the Investment Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be
satisfied by formal periodic review by the Employer or by a
qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation or through other
appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person, including,
but not limited to, the Employees of the Employer, shall be eligible to serve as
an Administrator. Any person so appointed shall signify his acceptance by filing
written acceptance with the Employer. An Administrator may resign by delivering
his written resignation to the Employer or be removed by the Employer by
delivery of written notice of removal to take effect at a date specified
therein, or upon delivery to the Administrator if no date is specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator, the Employer, will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities of
each Administrator may be specified by the Employer and accepted in writing by
each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINSTRATOR
The primary responsibility of the Administrator is to administer the Plan for
the exclusive benefit of the Participants and their Beneficiaries, subject to
the specific terms of the Plan. The Administrator shall administer the Plan in
accordance with its terms and shall have the power and discretion to construe
the terms of the plan and determine all questions arising in connection with the
administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general administration
of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall
be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the
Trust Fund;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the
terms hereof;
(f) to determine the size and type of any Contract to be purchased
from any Insurer, and to designate the Insurer from which such
Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from
time to time the sums of money necessary or desirable to be
contributed to the Trust Fund;
(h) to consult with die Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect Joint
and Survivor Annuities and Pre-Retirement Survivor Annuities if
required by the Code and Regulations thereunder;
(j) to prepare and implement a procedure to notify Eligible
Employees that they may elm to have a portion of their
Compensation deferred or paid to them in cash;
(k) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep all
others books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator, may
appoint counsel, specialists, advisers, and other persons as the Administrator
or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
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shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours, of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require, and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless paid by
the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been denied a
benefit by a decision of the Administrator pursuant to Section 2.12 shall be
entitled to request the Administrator to give further consideration to his claim
by filing with the Administrator a written request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and expense and at which the claimant shall have an opportunity to
submit written and oral evidence and arguments in support of his claim. At the
hearing (or prior thereto upon 5 business days written notice to the
Administrator) the claimant or his representative shall have an opportunity to
review all documents in the possession of the Administrator which are pertinent
to the claim at issue and its disallowance. Either the claimant or the
Administrator may cause a court reporter to attend the hearing and record the
proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
any such court reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. A final decision as to the allowance
of the claim shall be made by the Administrator within 60 days of receipt of the
appeal (unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated to the claimant within the 60 day period). Such communication
shall be written in a manner calculated to be understood by the claimant and
shall include specific reasons for the decision and specific references to the
Pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the date he
has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall become a
Participant effective as of the day specified in the Adoption Agreement.
In the event an Employee who has satisfied the Plan's eligibility requirements
and would otherwise have become a Participant shall go from a classification of
a noneligible Employee to an Eligible Employee, such Employee shall become a
Participant as of the date he becomes an Eligible Employee.
In the event an Employee who has satisfied the Plan's eligibility requirements
and would otherwise become a Participant shall go from a classification of an
Eligible Employee to a noneligible Employee and becomes ineligible to
participate and has not incurred a 1-Year Break in Service, such Employee shall
participate in the Plan as of the date he returns to an eligible class of
Employees. If such Employee does incur a 1-Year Break in Service, eligibility
will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of Service completed while a
noneligible Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant in
the Plan is erroneously omitted and discovery of such omission is not made until
after a contribution by his Employer for the year has been made, the Employer
shall make a subsequent contribution, if necessary after the application of
Section 4.4(e), so that the omitted Employee receives a total amount which the
said Employee would have received had he not been omitted. Such contribution
shall be made regardless of whether or not it is deductible in whole or in part
in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily not
to participate in the Plan. The election not to participate must be communicated
to the Employer, in writing, at least thirty (30) days before the beginning of a
Plan Year. For Standardized
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Plans, a Participant or an Eligible Employee may not elect not to participate.
Furthermore, the foregoing election not to participate shall not be available
with respect to partners in a partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this
Plan is established and one or more other entities, this Plan
and the plan established for other trades or businesses must,
when looked at as a single Plan, satisfy Code Sections 401(a)
and (d) for the Employees of this and all other entities.
(b) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must
be included in a plan which satisfies Code Sections 401(a) and
(d) and which provides contributions and benefits not less
favorable than provided for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans
of two or more trades or businesses which are not controlled and
the individual controls a trade or business, then the benefits
or contributions of the employees under the plan of the trades
or businesses which are controlled must be as favorable as those
provided for him under the most favorable plan of the trade or
business which is not controlled.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or
two or more Owner-Employees, will be considered to control an
entity if the Owner-Employee, or two or more Owner-Employees
together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent
of either the capital interest or the profits interest
in the partnership.
(e) For purposes of the preceding sentence, an Owner-Employee, or
two or more Owner-Employees shall be treated as owning any
interest in a Partnership which is owned, directly or
indirectly, by a partnership which such Owner-Employee, or such
two or more Owner-Employees, are considered to control within
the meaning of the preceding sentence.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4-2(a), which amount shall
be deemed an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the Percentage specified in the Adoption
Agreement of the Deferred Compensation of each Participant
eligible to sham in the allocations of the matching
contribution, which amount shall be deemed an Employer's
Non-Elective or Elective Contribution as selected in the
Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a discretionary
amount, if any, which shall be deemed an Employer's Non-Elective
Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a Qualified
Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Fiscal Year shall not exceed the maximum
amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the
Employer shall be made in cash or in such property as is
acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net
Profit or the amount which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer his Compensation which would
have been received in the Plan Year, but for the deferral
election, subject to the limitations of this Section and the
Adoption Agreement. A deferral election (or modification of an
earlier election) may not be made with respect to Compensation
which is currently available on or before the date the
Participant executed such election, or if later, the latest of
the date the Employer adopts this cash or deferred arrangement
or the date such arrangement first became effective. Any
elections made pursuant to this Section shall become effective
as soon as is administratively feasible.
Additionally, if elected in the Adoption Agreement, each
Participant may elect to defer and have allocated for a Plan
Year all or a portion of any cash bonus attributable to services
performed by the Participant for the Employer during such Plan
Year and which would have been received by the Participant on or
before two and one-half months following the end of the Plan
Year but for the deferral. A deferral election may not be made
with respect to cash bonuses which am currently available on or
before the date the Participant executed such election.
Notwithstanding the foregoing, cash bonuses attributable to
services performed by the Participant during a Plan Year but
which are to be paid to the Participant later than two and
one-half months after the close of such Plan Year will be
subjected to whatever deferral election is in effect at the time
such cash bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced
shall be that Participant's Deferred Compensation and be treated
as an Employer Elective Contribution and allocated to that
Participant's Elective Account.
Once made, a Participant's election to reduce Compensation shall
remain in effect until modified or terminated. Modifications may
be made as specified in the Adoption Agreement, and
terminations, may be made at any time. Any modification or
termination of an election will become effective as soon as is
administratively feasible.
(b) The balance in each Participant's Elective Account shall be
fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the
Plan, but in no event prior to the earlier of:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant subject
to the limitations of Section 6.11.
(4) the termination of the Plan without the existence at the
time of Plan termination of another defined contribution
plan (other than an employee stock ownership pin as
defined in Code Section 4975(e)(7)) or the
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establishment of a successor defined contribution plan
(other than an employee stock ownership plan as defined
in Code Section 4975(e)(7)) by the Employer or an
Affiliated Employer within the period ending twelve
months after distribution of all assets from the Plan
maintained by the Employer:
(5) the date of the sale by the Employer to an entity that
is not an Affiliated Employer of substantially all of
the assets (within the meaning of Code Section
409(d)(2)) with respect to a Participant who continues
employment with the corporation acquiring such assets;
or
(6) the date of the sale by the Employer or an Affiliated
Employer of its interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) to an entity that is
not an Affiliated Employer with respect to a Participant
who continues employment with such subsidiary.
(d) In any Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all
other plans, contracts or arrangements of the Employer
maintaining this Plan shall not exceed the limitation imposed by
Code Section 402(g), as in effect for the calendar year in which
such Plan Year began. If such dollar limitation is excluded
solely from elective deferrals under this Plan or any other Plan
maintained by the Employer, a Participant will be deemed to have
notified the Administrator of such excess amount which shall be
distributed in a manner consistent with Section 4.2(f). This
dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other
plan maintained by the Employer or from his Participant's
Elective Account pursuant to Section 6.11 (c), then such
Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period
of twelve (12) months following the receipt of the distribution.
Furthermore, the dollar limitation under Code Section 402(g)
shall be reduced, with respect to the Participant's taxable year
following the taxable year in which the hardship distribution
was made, by the amount of such Participant's Deferred
Compensation, if any, made pursuant to this Plan (and any other
plan maintained by the Employer) for the taxable year of the
hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred
arrangement (as defined in Code Section 401(k)), a simplified
employee pension (as defined in Code Section 408(k)), a salary
reduction arrangement (within the meaning of Code Section
3121(a)(5)(D)), a deferred compensation plan under Code Section
457, or a trust described in Code Section 501(c)(18)
cumulatively exceed the limitation imposed by Code Section
402(g) (as adjusted annually in accordance with the method
provided in Code Section 415(d) pursuant to Regulations) for
such participant's taxable year, the Participant may, not later
than March 1st following the close of his taxable Year, notify
the Administrator in writing of such excess and request that his
Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator
shall direct the Trustee to distribute such excess amount (and
any Income allocable to such excess amount) to the Participant
not later than the first April 15th following the close of the
Participant's taxable year. Distributions in accordance with
this paragraph may be made for any taxable year of the
Participant which begins after December 31, 1986. Any
distribution of less than the entire amount of Excess Deferred
Compensation and Income shall be treated as a pro rata
distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's
taxable year must satisfy each of the following conditions:
(1) the Participant shall designate the distribution as
Excess Deferred Compensation;
(2) the distribution must be made after the date on which
the Plan received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
(4) Any distribution made pursuant to this Section shall be
made first from unmatched Deferred Compensation and,
thereafter. simultaneously from Deferred Compensation
which is matched and matching contributions which relate
to such Deferred Compensation. However, any such
matching contributions which are not Vested shall be
forfeited in lieu of being distributed.
Any distribution under this Section shall be made first from
unmatched Deferred Compensation and, thereafter, simultaneously
from Deferred Compensation which is matched and matching
contributions which relate to such Deferred Compensation.
However, any such matching contributions which are not Vested
shall be forfeited in lieu of being distributed.
For the purpose of this Section, "Income" means the amount of
income or loss allocable to a Participant's Excess Deferred
Compensation and shall be equal to the sum of the allocable gain
or loss for the taxable year of the Participant and the
allocable gain or loss for the period between the end of the
taxable year of the Participant and the date of distribution
("gap period"). The income or loss allocable to each such period
is calculated separately and is determined by multiplying the
income or loss allocable to the Participant's Deferred
Compensation for the respective period by a fraction. The
numerator of the fraction is the Participant's Excess Deferred
Compensation for the taxable year of the Participant. The
denominator is the balance, as of the last day of the respective
period, of the Participant's Elective Account that is
attributable to the Participant's Deferred Compensation reduced
by the gain allocable to such total amount for the respective
period and increased by the loss allocable to such total amount
for the respective period.
In lieu of the "fractional method" described above, a "safe harbor method" may
be used to calculate the allocable income or loss for the "gap period". Under
such "safe harbor method", allocable income or loss for the "gap period" shall
be deemed to equal ten percent (10%) of the income or loss allocable to a
Participants Excess Deferred Compensation for the taxable year of the
Participant multiplied by the number of calendar months in the "gap period". For
purposes of determining the number of calendar months in the "gap period", a
distribution occurring on or before the fifteenth day of the month shall be
treated as having been made on the last day of the preceding month and a
distribution occurring after such fifteenth day shall be treated as having been
made on the first day of the next subsequent month.
Income or loss allocable to any distribution of Excess Deferred Compensation on
or before the last day of the taxable year of the Participant shall be
calculated from the
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<PAGE> 16
first day of the taxable year of the Participant to the date on which the
distribution is made pursuant to either the "fractional method" or the "safe
harbor method".
Notwithstanding the above, for the 1987 calendar year. and for Plan Years
beginning on or after the date this Plan is adopted. Income during the "gap
period" shall not be taken into account.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by
any distribution and/or recharacterization of Excess
Contributions pursuant to Section 4.6(a) for the Plan Year
beginning with or within the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair
market value of the Participant's Elective Account shall be used
to provide benefits to the Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section
may be segregated into a separate account for each Participant
in a federally insured savings account certificate of deposit in
a bank or savings and loan association, money market
certificate, or other short-term debt security acceptable to the
Trustee until such time as the allocations pursuant to Section
4.4 have been made.
(j) The Employer and the Administrator or shall adopt a procedure
necessary to implement the salary reduction elections provided
for herein.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the Plan for
each Plan Year within the time prescribed by law, including extensions of time,
for the filing of the Employer's federal income tax return for the Fiscal Year.
However, Employer Elective Contributions accumulated through payroll deductions
shall be paid to the Trustee as of the earliest date on which such contributions
can reasonably be segregated from the Employer's general assets, but in any
event within ninety (90) days from the date on which such amounts would
otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit
as of each Anniversary Date, or other valuation date, all
amounts allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable period of time after the date of receipt by
the Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution
made pursuant to Section 4.1(a), to each Participant's
Elective Account in an amount equal to each such
Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Matching Contribution
made pursuant to Section 4.1(b), to each Participant's
Account, or Participant's Elective Account as selected
in E3 of the Adoption Agreement, in accordance with
Section 4.1(b).
Except, however, a Participant who is not credited with
a Year of Service during any Plan Year shall or shall
not share in the Employer's Matching Contribution for
that year as provided in E3 of the Adoption Agreement.
However, for Plan Years beginning after 1989, if this is
a standardized Plan, a Participant shall share in the
Employer's Matching Contribution regardless of Hours of
Service.
(3) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's
Account in accordance with the provisions of E4 of the
Adoption Agreement.
However, if an integrated allocation formula is selected
at E4 of the Adoption Agreement. then such contribution
shall be allocated to each Participant's Combined
Account in a dollar amount equal to 5.7% of the sum of
each Participant's total Compensation plus Excess
Compensation. If the Employer does not contribute such
amount for all Participants, each Participant will be
allocated a share of the contribution in the same
proportion that his total Compensation plus his total
Excess Compensation for the Plan Years bears to the
total Compensation plus the total Excess Compensation of
all Participants for that year. The balance of the
contribution, if any, will be allocated in the same
proportion that his total Compensation bears to the
total Compensation of all Participant's eligible to
share in the allocation.
Regardless of the preceding, 4.3% shall be substituted
for 5.7% above if Excess Compensation is based on more
than 20% and less than or equal to 80% of the Taxable
Wage Base. If Excess Compensation is based on less than
100% and more than 80% of the Taxable Wage Base, then
5.4% shall be substituted for 5.7% above.
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), to each
Participant's Qualified Non-Elective Contribution
Account in the same proportion that each such
Participant's Compensation for the year bears to the
total Compensation of all Participants for such year.
(5) Regardless of the preceding, a Participant who is not
credited with a Year of Service during a Plan Year shall
not share in the allocation of the Employer's
Non-Elective Contribution made pursuant to Section
4.1(c) and the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), unless
reduced pursuant to Section 4.4(h). However, for Plan
Years beginning after 1989, for a standardized plan, and
if elected in the non-standardized Adoption Agreement, a
Participant shall share in the allocation of such
contributions regardless of whether a Year of Service
was completed during the Plan Year
(c) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any
earnings or losses (net appreciation or net depreciation) of the
Trust Fund shall be allocated in the same proportion that each
Participant's and Former Participant's nonsegregated accounts
bear to the total of all Participants' and Former Participants'
nonsegregated accounts as of such date. If any nonsegregated
account of a Participant has been distributed prior to the
Anniversary Date or other valuation date subsequent to a
Participant's termination of employment, no earnings or losses
shall be credited to such account.
Notwithstanding the above, with respect to contributions made to
a 401(k) Plan after the previous Anniversary Date
12
<PAGE> 17
or allocation date, the method specified in the Adoption Agreement shall be
used.
(d) Participants' Accounts shall be debited for any insurance or annuity
premiums paid, if any, and credited with any dividends or interest received
on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures since the
last Anniversary date shall first be made available to reinstate previously
forfeited account balances of Former Participants, if any, in accordance
with Section 6.4(g)(2) or be used to satisfy any contribution that may be
required pursuant to Section 3.5 and/or 6.9. The remaining Forfeitures, if
any, shall be treated in accordance with the Adoption Agreement Provided,
however, that in the event the allocation of Forfeitures provided herein
shall cause the "annual addition" (as defined in Section 4.9) to any
Participant's Account to exceed the amount allowable by the Code, the excess
shall be reallocated in accordance with Section 4.10. Except, however, for
any Plan Year beginning prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year beginning on or after
January 1, 1990, a Participant who performs less than a Year of Service
during any Plan Year shall not share in the Plan Forfeitures for that year,
unless there is a Short Plan Year or a contribution required pursuant to
Section 4.4(h).
(f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the
foregoing, for any Top Heavy Plan Year, the sum of the Employer's
contributions and forfeitures allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to at least three percent
(3%) of such Non-Key Employee's "415 Compensation" (reduced by contributions
and forfeitures, if any, allocated to each Non-Key Employee in any defined
contribution plan included with this plan in a Required Aggregation Group).
However, if (i) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Combined Account of each Key Employee for
such Top Heavy Plan Year is less than three percent (3%) of each Key
Employee's "415 Compensation" and (ii) this Plan is not required to be
included in an Aggregation Group to enable a defined benefit plan to meet
the requirements of Code Section 401(a)(4) or 410, the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to the largest percentage
allocated to the Participant's Combined Account of any Key Employee.
However, for Plan Years beginning after December 31, 1998, in determining
whether a Non-Key Employee has received the required minimum allocation,
such Non-Key Employee's Deferred Compensation and matching contributions
used to satisfy the "Actual Deferral Percentage" test pursuant to Section
4.5(a) or the "Actual Contribution Percentage" test of Section 4.7(a) shall
not be taken into account.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's Compensation for
the Plan Year shall be allocated to each Participant's Account. If the
Employer does not contribute such amount for all Participants, the
amount shall be allocated to each participant's Account in the same
proportion that his total Compensation for the Plan Year bears to the
total Compensation of all Participants for such year.
(2) The balance of the Employer's contribution over the amount allocated
under subparagraph (1) hereof shall be allocated to each Participant's
Account in a dollar amount equal to 3% multiplied by a Participant's
Excess Compensation. If the Employer does not contribute such amount for
all Participants, each Participant will be allocated a share of the
contribution in the same proportion that his Excess Compensation bears
to the total Excess Compensation of all Participants for that year.
(3) The balance of the Employer's contribution over the Amount allocated
under subparagraph (2) hereof shall be allocated to each Participant's
Account in a dollar amount equal to 2.7% multiplied by the sum of each
Participant's total Compensation plus Excess Compensation. If the
Employer does not contribute such amount for all Participants, each
Participant will be allocated a share of the contribution in the same
proportion that his total Compensation plus his total Excess
Compensation for the Plan Year bears to the total Compensation plus the
total Excess Compensation of all Participants for that year.
Regardless of the proceeding, 1.3% shall be substituted for 2.7% above
if Excess Compensation is based on more than 20% and less than or equal
to 80% of the Taxable Wage Base. If Excess Compensation is based on less
than 100% and more than 80% of the Taxable Wage Base, then 2.4% shall be
substituted for 2.7% above.
(4) The balance of the Employer's contributions over the amount allocated
above, if any shall be allocated to each Participant's Account in the
same proportion that his total Compensation for the Plan Year bears to
the total Compensation of all Participants for such year.
For each Non-Key Employee who is a Participant in this Plan and another
non-paired defined contribution plan maintained by the Employer, the
minimum 3% allocation specified above shall be provided as specified in
F3 of the Adoption Agreement.
(g) For purposes of the minimum allocations set forth above, the percentage
allocated to the Participant's Combined Account of any Key Employee shall be
equal to the ratio of the sum of the Employer's contributions and
Forfeitures allocated on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee.
(h) For any Top Heavy Plan year, the minimum allocations set forth above shall
be allocated to the Participant's Combined Account of all Non-Key Employees
who are Participants and who are employed by the Employer on the last day of
the Plan Year, including Non-Key Employees who have (1) failed to complete a
year of Service; or (2) declined to make mandatory contributions (if
required) or salary reduction contributions to the Plan.
(i) Notwithstanding anything herein to the contrary , in any Plan year in which
the Employer maintains both this Plan and a defined benefit pension plan
included in a Required Aggregation group which is top heavy, the Employer
shall not be required to provide a Non-Key Employee with both the full
separate minimum defined benefit plan benefit and the full separate defined
contribution plan allocations. Therefore, if the Employer maintains both a
Defined Benefit and a Defined Contribution Plan that are a Top Heavy group,
the top heavy minimum benefits shall be provided as follows:
Applies if F1b of the Adoption Agreement is selected -
(1) The requirements of Section 2.1 shall apply except that each Non-Key
Employee who is a Participant in this Plan or a Money Purchase Plan and
who is also a Participant in the Defined Benefit Plan shall receive a
minimum allocation of five percent (5%) of such
13
<PAGE> 18
Participant's "415 Compensation" from the applicable Defined
Contribution Plan(s).
(2) For each Non-Key Employee who is a Participant only in the
Defined Benefit Plan, the Employer will provide a minimum
non-integrated benefit in the Defined Benefit Plan equal to 2% of
his highest five consecutive year average "415 Compensation" for
each Year of Service while a Participant in the Plan, in which
the Plan is top heavy, not to exceed ten.
(3) For each Non-Key Employee who is a Participant only in this
Defined Contribution Plan, the Employer will provide a
contribution equal to 3% of his "415 Compensation".
Applies if F1c of the Adoption Agreement is selected -
(4) The minimum allocation specified in Section 4.4(i)(1) shall be
7 1/2% for years in which the Plan is Top Heavy, but not Super
Top Heavy.
(5) The minimum benefit specified in Section 4.4(i)(2) shall be 3%
for years in which the Plan is Top heavy, but not Super Top
Heavy.
(6) The minimum allocation specified in Section 4.4(i)(3) shall be 4%
for years in which the Plan is Top Heavy, but not Super Top
Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be limited
to the same dollar limitations set forth in Section 1.9. However, for
Plan Years beginning prior to January 1, 1989, the $200,000 limit
shall apply only for Top Heavy Plan Years and shall not be adjusted.
(k) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of
termination without regard to the Hours of Service credited.
(l) Notwithstanding anything herein to the contrary (other than Sections
4.4(k) and 6.6(h)(1)), any Participant who terminated employment
during the Plan Year for reasons other than death, Total and
Permanent Disability, or retirement shall or shall not share in the
allocations of the Employer's Matching Contribution made pursuant to
Section 4.1(b), the Employer's Non-Elective Contributions made
pursuant to Section 4.1(c), the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), and Forfeitures as
provided in the Adoption Agreement. Notwithstanding the foregoing,
for Plan Years beginning after 1989, if this is a standardized Plan,
any such terminated Participant shall share in such allocations
provided the terminated Participant completed more than 500 Hours of
Service.
(m) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocation of the Employer's Matching
Contribution made pursuant to Section 4.1(b), the Employer's
Non-Elective Contributions made pursuant to Section 4.1(c), the
Employer's Qualified Non-Elective Contribution made pursuant to
Section 4.1(d), and Forfeitures as provided in this Section
regardless of whether they completed a Year of Service during the
Plan Year.
(n) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained
as follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing his status in the Plan attributable to
post-break service.
(o) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise
fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1),
or 410(b)(2)(A)(i) and the Regulations thereunder because Employer
matching Contributions made pursuant to Section 4.1(b). Employer
Non-Elective Contributions made pursuant to Section 4.1(c) or
Employer Qualified Non-Elective Contributions made pursuant to
Section 4.1(d) have not been allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules
shall apply:
(1) Allocations of the respective contribution and Forfeitures shall
first be made to all active Participants who are employed on the
last day of the Plan Year, regardless of the number of Hours of
Service completed; and
(2) If after application of paragraph (1) above, the applicable test
is still not satisfied, then the group of Participants eligible
to share in the Employer's contribution and Forfeitures for the
Plan Year shall be further expanded to include the minimum
number of Participants who are not actively employed on the last
day of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to
share shall be those Participants, when compared to similarly
situated Participants, who have completed the greatest number of
Hours of Service in the Plan Year before terminating employment.
Nothing in this Section shall permit the reduction of a Participant's accrued
benefit. Therefore any amounts that have previously been allocated to
Participants may not be reallocated to satisfy these requirements. In such
event, the Employer shall make an additional contribution equal to the amount
such affected Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be deductible under Code
Section 404. Any adjustment to the allocations pursuant to this paragraph shall
be considered a retroactive amendment adopted by the last day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer
Elective Contributions and Qualified Non-Elective Contributions to a
Participant's Elective Account and Qualified Non-Elective Account
shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group
multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two percentage points. Additionally, the
"Actual Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, to
prevent the multiple use of the alternative method described in
(2) above and Code Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals pursuant to
Section 4.2 and to make Employee contributions or to receive
matching contributions under this Plan or under any other plan
maintained by the Employer or an Affil-
14
<PAGE> 19
iated Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.41(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage" means,
with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group for a Plan Year, the average
of the ratios, calculated separately for each Participant in such
group, of the amount of Employer Elective Contributions and Qualified
Non-Elective Contributions allocated to each Participant's Elective
Account and Qualified Non-Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan Year. The actual
deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group, for Plan Years beginning after December
31, 1998, shall be calculated to the nearest one-hundredth of one
percent of the Participant's "414(s) Compensation". Employer Elective
Contributions allocated to each Non-Highly Compensated Participant's
Elective Account shall be reduced by Excess Deferred Compensation to
the extent such excess amounts are made under this Plan or any other
plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a Highly
Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant
is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation" for Plan
Years beginning after December 31, 1998. Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close of the
Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation" of
all Family Members shall be disregarded for purposes of
determining the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group except to the extent taken into
account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6. a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to make a deferral election pursuant to Section 4.2.
whether or not such deferral election was made or suspended pursuant
to Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 401(b)(2)(A)(ii) as in
effect for Plan Years beginning after December 31, 1998), the cash or
deferred arrangements included in such plans shall be treated as one
arrangement. In addition, two or more cash or deferred arrangements
may be considered as a single arrangement for purposes of determining
whether or not such arrangements satisfy Code Sections 401(a)(4),
410(b) and 401(k). In such cases the cash or deferred arrangements
included in such plans and the plans including such arrangements shall
be treated as one arrangement and as one plan for purposes of this
Section and Code Sections 401(a)(4), 410(b) and 401(k). For plan years
beginning after December 31, 1989, plans may be aggregated under this
paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
497(e)(7) may not be combined with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated Participant
is a Participant under two (2) or more cash or deferred arrangements
(other than a cash or deferred arrangement which is part of an
employee stock ownership plan as defined in Code Section 4975(e)(7)
for Plan Years beginning after December 31, 1988) of the Employer or
an Affiliated Employer, all such cash or deferred arrangements shall
be treated as one cash or deferred arrangement for the purpose of
determining the actual deferred ratio with respect to such Highly
Compensated Participant. However, for Plan Years beginning after
December 31, 1988, if the cash or deferred arrangements have different
Plan Years, this paragraph shall be applied by treating all cash or
deferred arrangements ending with or within the same calendar year as
a single arrangement.
4.6 ADJUSTMENTS TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions made pursuant to Section
4.4 do not satisfy one of the tests set forth in Section 4.5, for Plan Years
beginning after December 31, 1986, the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following the end of
each Plan Year, the Highly Compensated Participant having the highest
actual deferral ratio shall have his portion of Excess Contributions
distributed to him and/or at his election recharacterized as a
voluntary Employee contribution pursuant to Section 4.12 until one of
the tests set forth on Section 4.5 is satisfied, or until his actual
deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual deferral
ratio. This process shall continue until one of the tests set forth in
Section 4.5 is satisfied. For each Highly Compensated Participant, the
amount of Excess Contributions is equal to the Elective Contributions
and Qualified Non-Elective Contributions made on behalf of such Highly
Compensated Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s) Compensation". However,
in determining the amount of Excess Contributions to be distributed
and/or recharacterized with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be reduced by any
Excess Deferred Compensation previously distributed to such affected
Highly Compensated Participant for his taxable year ending with or
within such Plan Year. Any distribution and/or recharacterization of
Excess Contributions shall be made in accordance with the following:
(1) With respect to the distribution of Excess Contributions pursuant
to (a) above, such distribution:
15
<PAGE> 20
(i) may be postponed but not later than the close of the Plan Year
following the Plan Year to which they are allocable:
(ii) shall be made first from unmatched Deferred Compensation and,
thereafter, simultaneously from Deferred Compensation which is
matched and matching contributions which relate to such Deferred
Compensation. However, any such matching contributions which are not
Vested shall be forfeited in lieu of being distributed:
(iii) shall be made from Qualified Non-Elective Contributions only to the
extent that Excess Contributions exceed the balance in the
Participant's Elective Account attributable to Deferred Compensation
and Employer matching contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a distribution of Excess
Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions pursuant to
(a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which the last of
those Highly Compensated Participants with Excess Contributions to
be recharacterized is notified of the recharacterization and the tax
consequences of such recharacterization:
(ii) for Plan years ending on or before August 8, 1988, may be postponed
but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred Compensation on behalf of
any Highly Compensated Participant for any Plan Year;
(iv) Shall be treated as voluntary Employee contributions for purpose of
Code Section 401(a)(4) and Regulation 1.401(k)-1(b). However, for
purposes of Sections 2.2 and 4.4(f); recharacterized Excess
Contributions continue to be treated as Employer contributions that
are Deferred Compensation. For Plan Years beginning after December
31, 1988, Excess Contributions recharacterized as voluntary Employe
contributions shall continue to be nonforfeitable and subject to the
same distribution rules provided for in Section 4.9(f);
(v) which relate to Plan years ending on or before October 24, 1988, may
be treated as either Employer contributions or voluntary Employee
contributions and therefore shall not be subject to the restrictions
of Section 4.2(c);
(vi) are not permitted if the amount recharacterized plus voluntary
Employee contributions actually made by such Highly Compensated
Participant, exceed the maximum amount of voluntary Employee
contributions (determined prior to application of Section 4.7(a))
that such Highly Compensation Participant is permitted to make under
the Plan in the absence of recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the entire amount
of Excess Contributions shall be treated as a pro rata distribution and/or
recharacterization of Excess Contributions and Income.
(4) The determination and correction of Excess Contributions of a Highly
Compensated Participated whose actual deferral ratio is determined under
the family aggregation rules shall be accomplished by reducing the actual
deferral ratio as required herein and the Excess Contributions for the
family unit shall be allocated among the Family Members in proportion to
the Elective Contributions of each Family Member that were combined to
determine the group actual deferral ratio.
(b) Within twelve (12) months after the end of the Plan Year, the Employer
shall make a special Qualified Non-Elective Contribution on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy one
of the tests set forth in Section 4.5(a). Such contribution shall be
allocated to the Participant's Qualified Non-Elective Account of each
Non-Highly Compensated Participant in the same proportion that each
Non-Highly Compensated Participant's Compensation for the year bears to
the total Compensation of all Non-Highly Compensated Participants.
(c) For purposes of this Section, "Income" means the income or loss allocable
to Excess Contributions which shall equal the sum of the allocable gain or
loss for the Plan year and the allocable gain or loss for the period
between the end of the Plan Year and the date of distribution ("gap
period"). The income or loss allocable to Excess Contributions for the
Plan Year and the "gap period" is calculated separately and is determined
by multiplying the income or loss for the Plan year or the "gap period" by
a fraction. The numerator of the fraction is the Excess Contributions for
the Plan Year. The denominator of the fraction is the total of the
Participant's Elective Account attributable to Elective Contributions and
the Participant's Qualified Non-Elective Account as of the end of the Plan
Year or the "gap period", reduced by the gain allocable to such total
amount for the Plan Year or the "gap period" and increased by the loss
allocable to such total amount for the Plan Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor method"
may be used to calculate the allocable Income for the "gap period". Under
such "safe harbor method", allocable Income for the "gap period" shall be
deemed to equal ten percent (10%) of the Income allocable to Excess
Contributions for the Plan Year of the Participant multiplied by the
number of calendar months in the "gap period". For purposes of determining
the number of calendar months in the "gap period", a distribution
occurring on or before the fifteenth day of the month shall be treated as
having been made on the last day of the preceding month and a distribution
occurring after such fifteenth day shall be treated as having been made on
the first day of the next subsequent month.
Notwithstanding the above, for Plan years which began in 1987, and for
Plan years beginning on or after the date this Plan is adopted, Income
during the "gap period" shall not be taken into account.
(d) Any amounts not distributed or recharacterized within 2 1/2 months after
the end of the Plan Year shall be subject to the 10% Employer exercise tax
imposed by Code Section 4979.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage", for Plan Years beginning after the
later of the Effective Date of this Plan or December 31, 1986, for the
Highly Compensated Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participating group; or
16
<PAGE> 21
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant group, or such percentage for the
Non-Highly Compensated Participant group plus 2 percentage
points. However, for Plan Years beginning after December 31,
1988, to prevent the multiple use of the alternative method
described in this paragraph and Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 4.2 or any other cash or deferred
arrangement maintained by the Employer or an Affiliated Employer
and to make Employee contributions or to receive matching
contributions under any plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2. The provisions of
Code Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2
are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
(1) the sum of Employer matching contributions pursuant to Section
4.1(b) (to the extent such matching contributions are not used
to satisfy the tests set forth in Section 4.5), voluntary
Employee contributions made pursuant to Section 4.12 and Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) contributed under the
Plan on behalf of each such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage" and
the amount of Excess Aggregate Contributions pursuant to Section
4.8(e), only Employer matching contributions contributed to the Plan
prior to the end of the succeeding Plan Year shall be considered. In
addition, the Administrator may elect to take into account, with
respect to Employees eligible to have Employer matching contributions
made pursuant to Section 4.1(b) or voluntary Employee contributions
made pursuant to Section 4.12 allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified
non-elective contributions (as defined in Code Section 401(m)(4)(C))
contributed to any plan maintained by the Employer. Such elective
deferrals and qualified non-elective contributions shall be treated
as Employer matching contributions subject to Regulation
1.401(m)-1(b)(2) which is incorporated herein by reference. However,
for Plan Years beginning after December 31, 1988, the Plan Year must
be the same as the plan year of the plan to which the elective
deferrals and the qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of a
Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be the ratio determined by aggregating Employer matching
contributions made pursuant to Section 4.1(b) (to the extent such
matching contributions are not used to satisfy the tests set
forth in Section 4.5), voluntary Employee contributions made
pursuant to Section 4.12. Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and
"414(s) Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the
$200,000 limit to "414(s) Compensation" for Plan Years beginning
after December 31, 1988. Family Members shall include only the
affected Employee's spouse and any lineal descendants who have
not attained age 19 before the close of the Plan Year.
(2) The Employer matching contributions made pursuant to Section
4.1(b) (to the extent such matching contributions are not used to
satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and "414(s) Compensation" of all Family Members
shall be disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members
of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b) and
401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated
as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other
than the average benefits test under Code Section 410(b)(2)(A)(ii) as
in effect for Plan Years beginning after December 31, 1988), such
plans shall be treated as one plan. In addition, two or more plans of
the Employer to which matching contributions, Employee contributions,
or both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections
401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans
must satisfy this Section and Code Sections 401(a)(4), 410(b) and
401(m) as though such aggregated plans were a single plan. For plan
years beginning after December 31, 1989, plans may be aggregated
under this paragraph only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or
more plans (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7) for Plan Years beginning after December 31,
1988) which are maintained by the Employer or an Affiliated Employer
to which matching contributions, Employee contributions, or both, are
made, all such contributions on behalf of such Highly Compensated
Participant shall be aggregated for purposes of determining such
Highly Compensated Participant's actual contribution ratio. However,
for Plan Years beginning after December 31, 1988, if the plans have
different plan years, this paragraph shall be applied by treating all
plans ending with or within the same calendar year as a single plan.
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<PAGE> 22
(g) For purposes of Section 4.7(a) and 4.8, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include
any Employee eligible to have matching contributions made pursuant to
Section 4.1(b) (whether or not a deferred election was made or
suspended pursuant to Section 4.2(e)) allocated to his account for
the Plan Year or to make salary deferrals pursuant to Section 4.2 (if
the Employer uses salary deferrals to satisfy the provisions of this
Section) or voluntary Employee contributions pursuant to Section 4.12
(whether or not voluntary Employee contributions are made) allocated
to his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean an
Employer contribution made to the Plan, or to a contract described in
Code Section 403(b), on behalf of a Participant on account of an
Employee contribution made by such Participant, or on account of a
participant's deferred compensation, under a plan maintained by the
Employer.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31, 1986,
the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for
the Non-Highly Compensated Participant group pursuant to Section
4.7(a), the Administrator (on or before the fifteenth day of the
third month following the end of the Plan Year, but in no event later
than the close of the following Plan Year) shall direct the Trustee
to distribute to the Highly Compensated Participant having the
highest actual contribution ratio, his portion of Excess Aggregate
Contributions (and Income allocable to such contributions) or, if
forfeitable, forfeit such non-Vested Excess Aggregate Contributions
attributable to Employer matching contributions (and Income allocable
to such Forfeitures) until either one of the tests set forth in
Section 4.7(a) is satisfied, or until his actual contribution ratio
equals the actual contribution ratio of the Highly Compensated
Participant having the second highest actual contribution ratio. This
process shall continue until one of the tests set forth in Section
4.7(a) is satisfied. The distribution and/or Forfeiture of Excess
Aggregate Contributions shall be made in the following order.
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 4.6(a)(1);
(2) Voluntary Employee contributions including Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate Contributions (and Income) shall be treated as a pro
rata distribution of Excess Aggregate Contributions and Income.
Distribution of Excess Aggregate Contributions shall be designated by
the Employer as a distribution shall be designated by the Employer as
a distribution of Excess Aggregate Contributions (and Income).
Forfeitures of Excess Aggregate Contributions shall be treated in
accordance with Section 4.4. However, no such Forfeiture may be
allocated to a Highly Compensated Participant whose contributions are
reduced pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for
purposes of Code Sections 404 and 415 even if distributed from the
Plan.
(d) For the purposes of this Section and Section 4.7, "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of:
(1) the aggregate amount of Employer matching contributions made
pursuant to Section 4.1(b) (to the extent such contributions are
taken into account pursuant to Section 4.7(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c)
actually made on behalf of the Highly Compensated Participant
group for such Plan Year, over
(2) the maximum amount of such contributions permitted under the
limitations of Section 4.7(a).
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contribution is equal to the total Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken
into account pursuant to Section 4.1(b) (to the extent taken into
account pursuant to Section 4.7(b)), voluntary Employee contributions
made pursuant to Section 4.12, Excess Contributions recharacterized
as voluntary Employee contributions pursuant to Section 4.6(a) and
any Qualified Non-Elective Contributions or elective deferrals taken
into account pursuant to Section 4.7(c) on behalf of the Highly
Compensated Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio (determined after
application of this paragraph) by his "414(s) Compensation". The
actual contribution ratio must be rounded to the nearest one-
hundredth of one percent for Plan Years beginning after December 31,
1988. In no case shall the amount of Excess Aggregate Contribution
with respect to any Highly Compensated Participant exceed the amount
of Employer matching contributions made pursuant to Section 4.1(b)
(to the extent taken into account pursuant to Section 4.7(b)),
voluntary Employee contributions made pursuant to Section 4.12,
Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-
Elective Contributions or elective deferrals taken into account
pursuant to Section 4.7(c) on behalf of such Highly Compensated
Participant for such Plan Year.
(f) The determination of the amount of Excess Aggregate Contributions
with respect to any Plan Year shall be made after first determining
the Excess Contributions, if any, to be treated as voluntary Employee
contributions due to recharacterization for the plan year of any
other qualified cash or deferred arrangement (as defined in Code
Section 401(k)) maintained by the Employer that ends with or within
the Plan Year or which are treated as voluntary Employee
contributions due to recharacterization pursuant to Section 4.6(a).
(g) The determination and correction of Excess Aggregate Contributions of
a Highly Compensated Participant whose actual contribution ratio is
determined under the family aggregation rules shall be accomplished
by reducing the actual contribution percentage ratio as required
herein and the Excess Aggregate Contributions for the family unit
shall be allocated among the Family Members in proportion to the sum
of Employer matching contributions made pursuant to Section 4.1(b)
(to the extent taken into account pursuant to Section), voluntary
Employee contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section and any Qualified Non-elective Contributions or
elective deferrals taken into account pursuant to Section 5.1 of each
Family Member that were combined to determine the group actual
contribution ratio.
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<PAGE> 23
(h) Notwithstanding the above, within twelve (12) months after the end of
the Plan Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in an
amount sufficient to satisfy one of the tests set forth in Section
4.7(a). Such contribution shall be allocated to the Participant's
Qualified Non-Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate
accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant to
Code Section 4.5(a).
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum
of the allocable gain or loss for the Plan Year and the allocable gain
or loss for the period between the end of the Plan Year and the date
of distribution ("gap period"). The income or loss allocable to Excess
Aggregate Contributions for the Plan Year and the "gap period" is
calculated separately and is determined by multiplying the income or
loss for the Plan Year or the "gap period" by a fraction. The
numerator of the fraction is the Excess Aggregate Contributions for
the Plan Year. The denominator of the fraction is the total
Participant's Account and Voluntary Contribution Account attributable
to Employer matching contributions subject to Section 4.7, voluntary
Employee contributions made pursuant to Section 4.12, and any
Qualified Non-Elective Contributions and elective deferrals taken into
account pursuant to Section 4.7(c) as of the end of the Plan Year or
the "gap period" reduced by the gain allocable to such total amount
for the Plan Year or the "gap period" and increased by the loss
allocable to such total amount for the Plan Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period". Under such "safe harbor method", allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the Income
allocable to Excess Aggregate Contributions for the Plan Year of the
Participant multiplied by the number of calendar months in the "gap
period". For purposes of determining the number of calendar months in
the "gap period", a distribution occurring on or before the fifteenth
day of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first day
of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting from
recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
Notwithstanding the above, for Plan Years which began in 1987, and for
Plan Years beginning on or after the date this Plan is adopted, Income
during the "gap period" shall not be taken into account.
4.9 MAXIMUM ANNUAL ADDITIONS
(a) (1) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer, or a welfare benefit fund (as defined in Code Section
419(e)), maintained by the Employer, or an individual medical
account (as defined in Code Section 415(1)(2)) maintained by the
Employer, which provides Annual Additions, the amount of Annual
Additions which may be credited to Participant's accounts for any
Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this
Plan. If the Employer contribution that would otherwise be
contributed or allocated to the Participant's accounts would
cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the amount contributed or allocated
will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation
Year, uniformly determined for all Participants similarly
situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such
Limitation Year shall be determined on the basis of the
Participant's annual compensation for such Limitation Year.
(4) If pursuant to Section 4.9(a)(2) or Section 4.5, there is an
Excess Amount, the excess will be disposed of in one of the
following manners, as uniformly determined by the Administrator
for all Participants similarly situated.
(i) Any Deferred Compensation or nondeductible Voluntary
Employee Contributions, to the extent they would reduce
the Excess Amount, will be distributed to the Participant;
(ii) If, after the application of subparagraph (i), an Excess
Amount still exists, and the Participant is covered by the
Plan at the end of the Limitation Year, the Excess Amount
in the Participant's account will be used to reduce
Employer contributions (including any allocation of
Forfeitures) for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(iii) If, after the application subparagraph (i), an Excess
Amount still exists, and the Participant is not covered by
the Plan at the end of a Limitation Year, the Excess
Amount will be held unallocated in a suspense account. The
suspense account will be applied to reduce future Employer
contributions (including allocation of any Forfeitures)
for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, it will not
participate in the allocation of investment gains and
losses. If a suspense account is in existence at any time
during a particular limitation year, all amounts in the
suspense account must be allocated and reallocated to
participants' accounts before any employer contributions
or any employee contributions may be made to the plan for
that limitation year. Excess amounts may not be
distributed to participants or former participants.
(b) (1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified Prototype defined
contribution plan maintained by the Employer, or a welfare
benefit fund (as defined in Code Section 419(e)) maintained by
the Employer, or
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<PAGE> 24
an individual medical account (as defined in Code Section
415(1)(2)) maintained by the Employer, which provides Annual
Additions, during any Limitation Year. The Annual Additions
which may be credited to a Participant's accounts under this
Plan for any such Limitation Year shall not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to a
Participant's accounts under the other plans and welfare benefit
funds for the same Limitation Year. If the Annual Additions with
respect to the Participant under other defined contribution
plans and welfare benefit funds maintained by the Employer are
less than the Maximum Permissible Amount and the Employer
contribution that would otherwise be contributed or allocated to
the Participant's accounts under this Plan would cause the
Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated will be reduced
so that the Annual Additions under all such plans and welfare
benefit funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the
Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater
than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's account under this
Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the maximum
Permissible Amount for a Participant in the manner described in
Section 4.9(a)(2).
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(4) If, pursuant to Section 4.9(b)(2) or Section 4.5, a
Participant's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year,
the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless
of the actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan
will be the product of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under
this Plan to (2) the total Annual Additions allocated to
the Participant for the Limitation Year as of such date
under this and all the other qualified defined contribution
plans.
(6) Any Excess Amount attributed to this Plan will be disposed in
the manner described in Section 4.9(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Prototype
Plan, Annual Additions, which may be credited to the Participant's
account under this Plan for any Limitation Year will be limited in
accordance with Section 4.9(b), unless the Employer provides other
limitations in the Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan the sum of
the Participant's Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction will not exceed 1.0 in any Limitation
Year. The Annual Additions which may be credited to the Participant's
account under this Plan for any Limitation Year will be limited in
accordance with the Limitation on Allocations Section of the
Adoption Agreement.
(e) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an
"annual addition". In addition, the following are not Employee
contributions for the purposes of Section 4.9(f)(1)(2); (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions received
by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
repayments of distributions received by an Employee pursuant to Code
Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross
income under Code Section 408(k)(6).
(f) For purposes of this Section, the following terms shall be defined as
follows:
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer contributions,
(2) effective with respect to "limitation years" beginning after
December 31, 1986, Employee contributions, (3) forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(1)(2), which is
part of a pension or annuity plan maintained by the Employer and
(5) amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date,
which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined
in Code Section 419A(d)(3)) under a welfare benefit fund (as
defined in Code Section 419(e)) maintained by the Employer.
Except, however, the "415 Compensation" percentage limitation
referred to in paragraph (a)(2) above shall not apply to: (1)
any contribution for medical benefits (within the meaning of
Code Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition", or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1). Notwithstanding the foregoing, for "limitation years"
beginning prior to January 1, 1987, only that portion of
Employee contributions equal to the lesser of Employee
contributions in excess of six percent (6%) of "415
Compensation" or one-half of Employee contributions shall be
considered an "annual addition".
For this purpose, any Excess Amount applied under Sections
4.9(a)(4) and 4.9(b)(6) in the Limitation Year to reduce
Employer contributions shall be considered Annual Additions for
such Limitation Year.
(2) Compensation means a Participant's Compensation as defined in
Section E1 of the Adoption Agreement.
For purposes of applying the limitations of this Section 4.9,
Compensation for any Limitation Year is the Compensation
actually paid or includible in gross income during such year.
Notwithstanding the preceding sentence, Compensation for a
Participant in a profit-sharing plan who is permanently and
totally disabled (as defined in Code Section 22(e)(3)) is the
Compen-
20
<PAGE> 25
sation such Participant would have received for the Limitation
Year if the Participant had been paid at the rate of
Compensation paid immediately before becoming permanently and
totally disabled; such imputed Compensation for the disabled
Participant may be taken into account only if the Participant is
not a Highly Compensated Employee and contributions made on
behalf of such Participant are nonforfeitable when made.
(3) Defined Benefit Fractions means a fraction, the numerator of
which is the sum of the Participant's Projected Annual Benefits
under all the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is the
lesser of 125 percent of the dollar limitation determined for
the Limitation Year under Code Sections 415(b) and (d) or 140
percent of his highest Average Compensation including any
adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant
as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans
maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which
the Participant had accrued as of the end of the close of the
last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the plan
after May 5, 1986. The preceding sentence applies only if the
defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for all
Limitation Years beginning before January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100
shall be substituted for 125 unless the extra minimum allocation
is being made pursuant to the Employer's election in F1 of the
Adoption Agreement. However, for any Plan Year in which this
Plan is a Super Top Heavy Plan, 100 shall be substituted for 125
in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if
greater, one-fourth of the defined benefit dollar limitation set
forth in Code Section 415(b)(1) as in effect for the Limitation
Year.
(5) Defined Contribution Fraction means a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's
account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all
prior Limitation Years, (including the Annual Additions
attributable to the Participant's nondeductible voluntary
employee contributions to any defined benefit plans, whether or
not terminated, maintained by the Employer and the annual
additions attributable to all welfare benefit funds, as defined
in Code Section 419(e), and individual medical accounts, as
defined in Code Section 415(1)(2), maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of
Service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year is the lesser of 125
percent of the Defined Contribution Dollar Limitation or 35
percent of the Participant's Compensation for such year. For
Limitation Years beginning prior to January 1, 1987, the "annual
addition" shall not be recomputed to treat all Employees
contributions as an Annual Addition.
If the Employee was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the
Employer which were in existence on May 5, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction
and the Defined Benefit Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, an amount
equal to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this fraction,
will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year
beginning before January 1, 1987, and disregarding any changes
in the terms and conditions of the plan made after May 5, 1986,
but using the Code Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100
shall be substituted for 125 unless the extra minimum allocation
is being made pursuant to the Employer's election in F1 of the
Adoption Agreement. However, for any Plan Year in which this
Plan is a Super Top Heavy Plan, 100 shall be substituted for 125
in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this Section,
Affiliated Employers shall be determined pursuant to the
modification made by Code Section 415(h).
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) Highest Average Compensation means the average Compensation for
the three consecutive Years of Service with the Employer that
produces the highest average. A Year of Service with the
Employer is the 12 consecutive month period defined in Section E1
of the Adoption Agreement which is used to determine
Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12 consecutive
month period) as elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must
use the same Limitation Year. If the Limitation Year is amended
to a different 12 consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which
the amendment is made.
(10) Master or Prototype Plan means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue
Service.
(11) Maximum Permissible Amount means the maximum Annual Addition
that may be contributed or allocated to a Participant's account
under the plan for any Limitation Year, which shall not exceed
the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation Limitation referred to in (ii) shall not apply
to any contribution for medical benefits (within the meaning of
Code Sections 401(h) or 419A(f)(2)) which is otherwise treated
as an annual addition under Code Sections 415(l)(1) or
419A(d)(2).
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<PAGE> 26
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive month
period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Contribution multiplied by the
following fraction:
number of months in the short Limitation Year 12
(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if
such benefit is expressed in a form other than a straight life
annuity or qualified Joint and Survivor Annuity) to which the
Participant would be entitled under the terms of the plan
assuming:
(i) the Participant will continue employment until Normal
Retirement Age (or current age, if later), and
(ii) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the Plan will remain constant for all future
Limitation Years.
(g) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in
this Section shall at all times comply with the provisions of Code
Section 415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable error
in estimating a Participant's annual Compensation, a reasonable error
in determining the amount of elective deferrals (within the meaning
of Code Section 402(g)(3), that may be made with respect to a
Participant, or other facts and circumstances to which Regulation
1.415-6(b)(6) shall be applicable, the "annual additions" under this
Plan would cause the maximum provided in Section 4.9 to be exceeded,
the Administrator shall treat the excess in accordance with Section
4.9(a)(4).
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of the
Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits
the transfer to be made and the transfer will not jeopardize the tax
exempt status of the Plan or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a separate
account herein referred to as a "Participant's Rollover Account".
Such account shall be fully Vested at all times and shall not be
subject to forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair
market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
Any distributions of amounts held in a Participant's Rollover Account
shall be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Sections 411(a)(11) and 417 and the
Regulations thereunder. Furthermore, such amounts shall be considered
as part of a Participant's benefit in determining whether an
involuntary cash-out of benefits without Participant consent may be
made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each
Participant until such time as the allocations pursuant to this Plan
have been made, at which time they may remain segregated or be
invested as part of the general Trust Fund, to be determined by the
Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean
any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
lump-sum distributions received by an Employee from another qualified
plan which are eligible for tax free rollover to a qualified plan and
which are transferred by the Employee to this Plan within sixty (60)
days following his receipt thereof; (iii) amounts transferred to this
Plan from a conduit individual retirement account provided that the
conduit individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for
tax-free rollover to a qualified plan and (C) were deposited in such
conduit individual retirement account within sixty (60) days of
receipt thereof and other than earnings on said assets; and (iv)
amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above,
and transferred by the Employee to this Plan within sixty (60) days
of his receipt thereof from such conduit individual retirement
account.
(g) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts
to be transferred to this Plan meet the requirements of this Section
and may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet
the requirements of this Section.
(h) Notwithstanding anything herein to the contrary, a transfer directly
to this Plan from another qualified plan (or a transaction having the
effect of such a transfer) shall only be permitted if it will not
result in the elimination or reduction of any "Section 411(d)(6)
protected benefit" as described in Section 8.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) If elected in the Adoption Agreement, each Participant may, at the
discretion of the Administrator in a nondiscriminatory manner, elect
to voluntarily contribute a portion of his compensation earned while
a Participant under this Plan. Such contributions shall be paid to
the Trustee within a reasonable period of time but in no event later
than 90 days after the receipt of the contribution.
(b) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(c) A Participant may elect to withdraw his voluntary contributions from
his Voluntary Contribution Account and the actual earnings thereon in
a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder. If the Administrator maintains sub-accounts with respect
to voluntary contributions (and earnings
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<PAGE> 27
thereon) which were made on or before a specified date, a Participant
shall be permitted to designate which subaccount shall be the source
for his withdrawal. No Forfeitures shall occur solely as a result of
an Employee's withdrawal of Employee contributions.
In the event such a withdrawal is made, or in the event a Participant
has received a hardship distribution pursuant to Regulation
1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by the
Employer or from his Participant's Elective Account pursuant to
Section 6.11, then such Participant shall be barred from making any
voluntary contributions to the Trust Fund for a period of twelve (12)
months after receipt of the withdrawal or distribution.
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair
market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(e) The Administrator may direct that voluntary contributions made after
a valuation date be segregated into a separate account until such
time as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part of the
general Trust Fund, to be determined by the Administrator.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants may direct the
Trustee as to the investment of all or a portion of any one or more
of their individual account balances. Participants may direct the
Trustee in writing to invest their account to specific assets as
permitted by the Administrator provided such investments are in
accordance with the Department of Labor regulations and are permitted
by the Plan. That portion of the account of any Participant so
directing will thereupon be considered a Directed Investment Account.
(b) A separate Directed Investment Account shall be established for each
Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account
shall be charged and credited as the case may be to each account. The
Directed Investment Account shall not share in Trust Fund Earnings,
but it shall be charged or credited as appropriate with the net
earnings, gains, losses and expenses as well as any appreciation or
depreciation in market value during each Plan Year attributable to
such account.
(c) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the
Administrator shall impose on a Participant's right to direct
investments.
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions, then each Participant who made a
"Qualified Voluntary Employee Contribution" within the meaning of
Code Section 219(e)(2) as it existed prior to the enactment of the
Tax Reform Act of 1986, and shall have his contribution held in a
separate Qualified Voluntary Employee Contribution Account which
shall be fully Vested at all times. Such contributions, however,
shall not be permitted if they are attributable to taxable years
beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner
which is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair
market value of the Qualified Voluntary Employee Contribution Account
shall be used to provide additional benefits to the Participant or
his Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a
separate account for each Participant, they shall be invested as part
of the general Trust Fund and share in earnings and losses.
4.15 INTEGRATION OF MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified retirement
plans integrated with Social Security such that any Participant in this Plan is
covered under more than one of such plans, then such plans will be considered
to be one plan and will be considered to be integrated if the extent of the
integration of all such plans does not exceed 100%. For purposes of the
preceding sentence, the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable, under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date, and at
such other date or dates deemed necessary by the Administrator, herein called
"valuation date", to determine the net worth of the assets comprising the Trust
Fund as it exists on the "valuation date". In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
value as of the "valuation date" and shall deduct all expenses for which the
Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund which
are listed on a registered stock exchange, the Administrator shall direct the
Trustee to value the same at the prices they were last traded on such exchange
preceding the close of business on the "valuation date". If such securities were
not traded on the "valuation date", or if the exchange on which they are traded
was not open for business on the "valuation date", then the securities shall be
valued at the prices at which they were last traded prior to the "valuation
date". Any unlisted security held in the Trust Fund shall be valued at its bid
price next preceding the close of business on the "valuation date", which bid
price shall be obtained from a registered broker or an investment banker. In
determining the fair market value of assets other than securities for which
trading or bid prices can be obtained, the Trustee may appraise such assets
itself, or in its discretion, employ one or more appraisers for that purpose
and rely on the values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire for
the purposes hereof on or after his Normal Retirement
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<PAGE> 28
Date or Early Retirement Date. Upon such Normal Retirement Date or Early
Retirement Date, all amounts credited to such Participant's Combined Account
shall become distributable. However, a Participant may postpone the termination
of his employment with the Employer to a later date, in which event the
participation of such Participant in the Plan, including the right to receive
allocations pursuant to Section 4.4, shall continue until his Late Retirement
Date. Upon a Participant's Retirement Date, or as soon thereafter as is
practicable, the Administrator shall direct the distribution of all amount
credited to such Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of
Sections 6.6 and 6.7, the distribution of the deceased Participant's
accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7,
the distribution of any remaining amounts credited to the accounts
of such deceased Former Participant to such Former Participant's
Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value
of the account of a deceased Participant or Former Participant as
the Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6,
the Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate
a Beneficiary other than his spouse for the Pre-Retirement Survivor
Annuity if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be
the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and there is no "qualified domestic
relations order" as defined in Code Section 414(p) which
provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a
form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change
with the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily
elected to relinquish such right. The Participant may, at any time,
designate a Beneficiary for death benefits payable under the Plan
that are in excess of the Pre-Retirement Survivor Annuity. In the
event no valid designation of Beneficiary exist at the time of the
Participant's death, the death benefit shall be payable to his
estate.
(e) If the Plan provides an insured death benefit and a Participant dies
before any insurance coverage to which he is entitled under the Plan
is effected, his death benefit from such insurance coverage shall be
limited to the standard rated premium which was or should have been
used for such purpose.
(f) In the event of any conflict between the terms of this Plan and the
terms of any Contract issued hereunder, the Plan provisions shall
control.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Administrator, in
accordance with the provisions of Sections 6.5 and 6.7, shall direct the
distribution to such Participant of all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent to
the termination of a Participant's employment for any reason other
than retirement, death, or Total and Permanent Disability, the
Administrator may direct the Trustee to segregate the amount of the
Vested portion of such Terminated Participant's Combined Account and
invest the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit, common or collective trust
fund of a bank or a deferred annuity. In the event the Vested
portion of a Participant's Combined Account is not segregated, the
amount shall remain in a separate account for the Terminated
Participant and share in allocations pursuant to Section 4.4 until
such time as a distribution is made to the Terminated Participant.
The amount of the portion of the Participant's Combined Account
which is not Vested may be credited to a separate account (which
will always share in gains and losses of the Trust) and at such time
as the amount becomes a Forfeiture shall be treated in accordance
with the provisions of the Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in the
event that the amount of the Vested portion of the Terminated
Participant's Combined Account equals or exceeds the fair market
value of any insurance contracts, the Trustee, when so directed by
the Administrator and agreed to by the Terminated Participant, shall
assign, transfer, and set over to such Terminated Participant all
Contracts on his life in such form or which such endorsements, so
that the settlement options and forms of payment are consistent with
the provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay
over to the Trustee the sum needed to make the distribution equal to
the value of the Contracts being assigned or transferred, or the
Trustee, pursuant to the Participant's election, may borrow the
cash value of the Contract from the Insurer so that the value of the
Contracts from the Insurer so that the value of the Contracts is
equal to the Vested portion of the Terminated Participant's Combined
Account and then assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be
made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ
of the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct that the entire
Vested portion of the Terminated Participant's Combined Account to
be payable to such Terminated Participant pro-
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<PAGE> 29
vided the conditions, if any, set forth in the Adoption Agreement have been
satisfied. Any distribution under this paragraph shall be made in a manner
which is consistent with and satisfies the provisions of Section 6.5,
including but not limited to, all notice and consent requirements of Code
Sections 411(a)(11) and 417 and the Regulations thereunder.
Notwithstanding the above, if the value of a Terminated Participant's
Vested benefit derived from Employer and Employee contributions does not
exceed, and at the time of any prior distribution, has never exceeded
$3,500, the Administrator shall direct that the entire Vested benefit be
paid to such Participant in a single lump-sum without regard to the consent
of the Participant or the Participant's spouse. A Participant's Vested
benefit shall not include Qualified Voluntary Employee Contributions within
the meaning of Code Section 72(o)(5)(B) for Plan Years beginning prior to
January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a percentage of
such Participant's Account determined on the basis of the Participant's
number of Years of Service according to the vesting schedule specified in
the Adoption Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting schedules
as elected by the Employer in the Adoption Agreement will automatically
apply to the Plan. The minimum top heavy vesting schedule applies to all
benefits within the meaning of Code Section 411(a)(7) except those
attributable to Employee contributions, including benefits accrued before
the effective date of Code Section 416 and benefits accrued before the Plan
became top heavy. Further, no decrease in a Participant's Vested percentage
may occur in the event the Plan's status as top heavy changes for any Plan
Year. However, this Section does not apply to the account balances of any
Employee who does not have an Hour of Service after the Plan has initially
become top heavy and the Vested percentage of such Employee's Participant's
Account shall be determined without regard to this Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the
Administrator shall continue to use the vesting schedule in effect while
the Plan was a Top Heavy Plan for each Employee who had an House of Service
during a Plan Year when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any full
or partial termination of the Plan, all amounts credited to the account of
any affected Participant shall become 100% Vested and shall not thereafter
be subject to Forfeiture.
(e) If this is an amended or restated Plan, then notwithstanding the vesting
schedule specified in the Adoption Agreement, the Vested percentage of a
Participant's Account shall not be less than the Vested percentage attained
as of the later of the effective date or adoption date of this amendment
and restatement. The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the result
of any direct or indirect amendment to this Article, or due to changes in
the Plan's status as a Top Heavy Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is amended in any
way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed amended by
an automatic change to a top heavy vesting schedule, then each Participant
with at least 3 Years of Service as of the expiration date of the election
period may elect to have his nonforfeitable percentage computed under the
Plan without regard to such amendment or change. Notwithstanding the
foregoing, for Plan Years beginning before January 1, 1989, or with respect
to Employees who fail to complete at least one (1) Hour of Service in a
Plan Year beginning after December 31, 1988, five (5) shall be substituted
for three (3) in the preceding sentence. If a Participant fails to make
such election, then such Participant shall be subject to the new vesting
schedule. the Participant's election period shall commence on the adoption
date of the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) The date the Participant receives written notice of the amendment from
the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the Employer before a
1-Year Break in Service occurs, he shall continue to participate in the
Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before
five (5) consecutive 1-Year Breaks in Service, and such Former
Participant had received a Service, and such Former Participant had
received a distribution of his entire Vested interest prior to his
reemployment, his forfeiture account shall be reinstated only if he
repays the full amount distributed to him before the earlier of five
(5) years after the first date on which the Participant is subsequently
reemployed by the Employer or the close of the first period of 5
consecutive 1-Year Breaks in Service commencing after the distribution.
If a distribution occurs for any reason other than a separation from
service, the time for repayment may not end earlier than five (5) years
after the date of separation. In the event the Former Participant does
repay the full amount distributed to him, the undistributed portion of
the Participant's Account must be restored in full, unadjusted by any
gains or losses occurring subsequent to the Anniversary Date or other
valuation date preceding his termination. If an employee receives a
distribution pursuant to this section and the employee resumes
employment covered under this plan, the employee's employer-derived
account balance will be restored to the amount on the date of
distribution if the employee repays to the plan the full amount of the
distribution attributable to employer contributions before the earlier
of 5 years after the first date on which the participant is
subsequently re-employed by the employer, or the date the participant
incurs 5 consecutive 1-year breaks in service following the date of the
distribution. If a non-Vested Former Participant was deemed to have
received a distribution and such Former Participant is reemployed by
the Employer before five (5) consecutive 1-Year Breaks in Service, then
such Participant will be deemed to have repaid the deemed distribution
as of the date of reemployment.
(3) If any Former Participant is reemployed after a 1-Year Break in Service
has occurred, Years of Service shall include Years of Service prior to
his 1-Year Break in Service subject to the following rules:
(i) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from
Employer contributions shall lose credits if his consecutive 1-Year
Breaks in Service equal or exceed the greater of (A) five (5) or
(B) the aggregate number of his pre-break Years of Service;
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<PAGE> 30
(ii) After five (5) consecutive 1-Year Breaks in Service, a Former
Participant's Vested Account balance attributable to pre-break
service shall not be increased as a result of post-break
service:
(iii) A Former Participant who is reemployed and who has not had his
Years of Service before a 1-Year Break in Service disregarded
pursuant to (i) above, shall participate in the Plan as of his
date of reemployment:
(iv) If a Former Participant completes a Year of Service (a 1-Year
Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively from
the first day of the Plan Year during which he completes one (1)
Year of Service.
(h) In determining Years of Service for purposes of vesting under the Plan,
Years of Service shall be excluded as specified in the Adoption
Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a Participant who is
married on the "annuity starting date" and who does not die before
the "annuity starting date" shall receive the value of all of his
benefits in the form of a Joint and Survivor Annuity. The Joint and
Survivor Annuity is an annuity that commences immediately and shall
be equal in value to a single life annuity. Such joint and survivor
benefits following the Participant's death shall continue to the
spouse during the spouse's lifetime at a rate equal to 50% of the
rate at which such benefits were payable to the Participant. This
Joint and Survivor Annuity shall be considered the designated
qualified Joint and Survivor Annuity and automatic form of payment
for the purposes of this Plan. However, the Participant may elect
to receive a smaller annuity benefit with continuation of payments
to the spouse at a rate of seventy-five percent (75%) or one
hundred percent (100%) of the rate payable to a Participant during
his lifetime which alternative Joint and Survivor Annuity shall be
equal in value to the automatic Joint and 50% Survivor Annuity. An
unmarried Participant shall receive the value of his benefit in the
form of a life annuity. Such unmarried Participant, however, may
elect in writing to waive the life annuity. The election must
comply with the provisions of this Section as if it were an
election to waive the Joint and Survivor Annuity by a married
Participant, but without the spousal consent requirement. The
Participant may elect to have any annuity provided for in this
Section distributed upon the attainment of the "earliest retirement
age" under the Plan. The "earliest retirement age" is the earliest
date on which, under the Plan, the Participant could elect to
receive retirement benefits.
(2) Any election to waive the Joint and Survivor Annuity must be made
by the Participant in writing during the election period and be
consented to by the Participant's spouse. If the spouse is legally
incompetent to give consent, the spouse's legal guardian, even if
such guardian is the Participant, may give consent. Such election
shall designate a Beneficiary (or a form of benefits) that may not
be changed without spousal consent (unless the consent of the
spouse expressly permits designations by the Participant without
the requirement of further consent by the spouse). Such spouse's
consent shall be irrevocable and must acknowledge the effect of
such election and be witnessed by a Plan representative or a notary
public. Such consent shall not be required if it is established to
the satisfaction of the Administrator that the required consent
cannot be obtained because there is no spouse, the spouse cannot be
located, or other circumstances that may be prescribed by
Regulations. The election made by the Participant and consented to
by his spouse may be revoked by the Participant in writing without
the consent of the spouse at any time during the election period.
The number of revocations shall not be limited. Any new election
must comply with the requirements of this paragraph. A former
spouse's waiver shall not be binding on a new spouse.
(3) The election period to waive the Joint and Survivor Annuity shall
be the 90 day period ending on the "annuity starting date."
(4) For purposes of this Section and Section 6.6, the "annuity
starting date" means the first day of the first period for which
an amount is paid as an annuity, or, in the case of a benefit not
payable in the form of an annuity, the first day on which all event
have occurred which entitles the Participant to such benefit.
(5) With regard to the election, the Administrator shall provide to
the Participant no less than 30 days and no more than 90 days
before the "annuity starting date" a written explanation of:
(i) the terms and conditions of the Joint and Survivor Annuity,
and
(ii) the Participant's right to make and the effect of an election
to waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to any
election to waive the Joint and Survivor Annuity, and
(iv) the right of the Participant to revoke such election, and the
effect of such revocation.
(b) In the event a married Participant duly elects pursuant to paragraph
(a)(2) above not to receive his benefit in the form of a Joint and
Survivor Annuity, or if such Participant is not married, in the form of
a life annuity, the Administrator, pursuant to the election of the
Participant, shall direct the distribution to a Participant or his
Beneficiary any amount to which he is entitled under the Plan in one or
more of the following methods which are permitted pursuant to the
Adoption Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly, semiannual,
or annual cash installments. In order to provide such installment
payments, the Administrator may direct that the Participant's
interest in the Plan be segregated and invested separately, and
that the funds in the segregated account be used for the payment of
the installments. The period over which such payment is to be made
shall not extend beyond the Participant's life expectancy (or the
life expectancy of the Participant and his designated Beneficiary);
(3) Purchase of or providing an annuity. However, such annuity may not
be in any form that will provide for payments over a period
extending beyond either the life of the Participant (or the lives
of the Participant and his designated Beneficiary) or the life
expectancy of the Participant (or the life expectancy of the
Participant and his designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity
derived from Employer and Employee contributions may not be paid
without his written consent if the value exceeds, or has ever exceeded
at the time of any prior distribution, $3,500. Further, the spouse of a
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<PAGE> 31
Participant must consent in writing to any immediate distribution. If
the value of the Participant's benefit derived from Employer and
Employee contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the Administrator may
immediately distribute such benefit without such Participant's
consent. No distribution may be made under the preceding sentence
after the "annuity starting date" unless the Participant and his
spouse consent in writing to such distribution. Any written consent
required under this paragraph must be obtained not more than 90 days
before commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds, or
has ever exceeded at the time of any prior distribution, $3,500 shall
require such Participant's consent if such distribution commences
prior to the later of his Normal Retirement Age or age 62. With regard
to this required consent:
(1) No consent shall be valid unless the Participant has received a
general description of the material features and an explanation
of the relative values of the optional forms of benefit available
under the Plan that would satisfy the notice requirements of Code
Section 417.
(2) The Participant must be informed of his right to defer receipt of
the distribution. If a Participant fails to consent, it shall be
deemed an election to defer the commencement of payment of any
benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required
under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
"annuity starting date".
(4) Written consent of the Participant to the distribution must not
be made before the Participant receives the notice and must not
be made more than 90 days before the "annuity starting date".
(5) No consent shall be valid if a significant detriment is imposed
under the Plan on any Participant who does not consent to the
distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made one or after January 1,
1985, whether under the Plan or through the purchase of an annuity
Contract, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation Section 1.40(a)(9)-2),
the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not later
than April 1st of the calendar year following the later of (i)
the calendar year in which the Participant attains age 70 1/2 or
(ii) the calendar year in which the Participant retires,
provided, however, that this clause (ii) shall not apply in the
case of a Participant who is a "five (5) percent owner" at any
time during the five (5) Plan Year period ending in the calendar
year in which he attains age 70 1/2 or, in the case of a
Participant who becomes a "five (5) percent owner" during any
subsequent Plan Year, clause (ii) shall no longer apply and the
required beginning date shall be the April 1st of the calendar
year following the calendar year in which such subsequent Plan
Year ends. Alternatively, distributions to a Participant must
begin no later than the applicable April 1st as determined under
the preceding sentence and must be made over the life of the
Participant (or the lives of the Participant and the
Participant's designated Beneficiary) or, if benefits are paid in
the form of a Joint and Survivor Annuity, the life expectancy of
the Participant (or the life expectancies of the Participant and
his designated Beneficiary) in accordance with Regulations. For
Plan Years beginning after December 31, 1988, clause (ii) above
shall not apply to any Participant unless the Participant had
attained age 70 1/2 before January 1, 1988 and was not a "five
(5) percent owner" at any time during the Plan Year ending with
or within the calendar year in which the Participant attained age
66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall only
be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method which
provides that the ten present value of the payments to be made
over the period of the Participant's life expectancy exceeds
fifty percent (50%) of the then present value of the total
payments to be made to the Participant and his Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity)
shall be redetermined annually in accordance with Regulations if
permitted pursuant to the Adoption Agreement. If the Participant or
the Participant's spouse may elect whether recalculations will be
made, the election, once made, shall be irrevocable. If no election is
made by the time distributions must commence, then the life expectancy
of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V
and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable when
distributed. Furthermore, the terms of any annuity Contract purchased
and distributed to a Participant or spouse shall comply with all of he
requirements of this Plan.
(h) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who has not
terminated employment is not fully Vested in his Participant's Account
and the Participant may increase the Vested percentage in such
account:
(1) A separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution, and
(2) At any relevant time the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by
the formula:
X equals P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested percentage
at the relevant time. AB is the account balance at the relevant
time. D is the amount of distribution, and R is the ratio of the
account balance at the relevant time to the account balance after
distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested
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Participant who dies before the annuity starting date and who has a
surviving spouse shall have the Pre-Retirement Survivor Annuity paid to his
surviving spouse. The Participant's spouse may direct that payment of the
Pre-Retirement Survivor Annuity commence within a reasonable period after
the Participant's death. If the spouse does not so direct, payment of such
benefit will commence at the time the Participant would have attained the
later of his Normal Retirement Age or age 62. However, the spouse may elect
a later commencement date. Any distribution to the Participant's spouse
shall be subject to the rules specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before the
Participant's death must be made by the Participant in writing during the
election period and shall require the spouse's irrevocable consent in the
same manner provided for in Section 6.5(a)(2). Further, the spouse's
consent must acknowledge the foregoing, the nonspouse Beneficiary need not
be acknowledged, provided the consent of the spouse acknowledges that the
spouse has the right to limit consent only to a specific Beneficiary and
that the spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity shall
begin on the first day of the Plan Year in which the Participant attains
age 35 and end on the date of the Participant's death. An earlier waiver
(with spousal consent) may be made provided a written explanation of the
Pre-Retirement Survivor Annuity is given to the Participant and such waiver
becomes invalid at the beginning of the Plan Year in which the Participant
turns age 35. In the event a Vested Participant separates from service
prior to the beginning of the election period, the election period shall
begin on the date of such separation from service.
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such Participant
(and consistent with Regulations), a written explanation of the
Pre-Retirement Survivor Annuity containing comparable information to that
required pursuant to Section 6.5(a)(5). For the purposes of this paragraph,
the term "applicable period" means, with respect to a Participant,
whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(2) A reasonable period after the individual becomes a Participant. For
this purpose, in the case of an individual who becomes a Participant
after age 32, the explanation must be provided by the end of the
three-year period beginning with the first day of the first Plan Year
for which the individual is a Participant;
(3) A reasonable period ending after the Plan no longer fully subsidizes
the cost of the Pre-Retirement Survivor Annuity with respect to the
Participant;
(4) A reasonable period ending after Code Section 401(a)(11) applies to the
Participant; or
(5) A reasonable period after separation from service in the case of a
Participant who separates before attaining age 35. For this purpose,
the Administrator must provide the explanation beginning one year
before the separation from service and ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section shall
apply only to Participants who are credited with an Hour of Service on or
after August 23, 1984. Former Participants who are not credited with an Hour
of Service on or after August 23, 1984 shall be provided with rights to the
Pre-Retirement Survivor Annuity in accordance with Section 303(e)(2) of the
Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity derived from Employer
and Employee contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the Administrator shall
direct the immediate distribution of such amount to the Participant's
spouse. No distribution may be made under the preceding sentence after the
annuity starting date unless the spouse consents in writing. If the value
exceeds, or has ever exceeded at the time of any prior distribution,
$3,500, an immediate distribution of the entire amount may be made to the
surviving spouse, provided such surviving spouse consents in writing to
such distribution. Any written consent required under this paragraph must
be obtained not more than 90 days before commencement of the distribution
and shall be made in a manner consistent with Section 6.5(a)(2).
(g) (1) In the event there is an election to waive the Pre-Retirement Survivor
Annuity, and for death benefits in excess of the Pre-Retirement
Survivor Annuity, such death benefits shall be paid to the
Participant's Beneficiary by either of the following methods, as
elected by the Participant (or if no election has been made prior to
the Participant's death, by his Beneficiary) subject to the rules
specified in Section 6.6(h) and the selections made in the Adoption
Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or annual cash
installments over a period to be determined by the Participant or
his Beneficiary. After periodic installments commence, the
Beneficiary shall have the right to reduce the period over which
such periodic installments shall be made, and the cash amount of
such periodic installments shall be adjusted accordingly.
(iii) If death benefits in excess of the Pre-Retirement Survivor
Annuity are to be paid to the surviving spouse, such benefits may
be paid pursuant to (i) or (ii) above, or used to purchase an
annuity so as to increase the payments made pursuant to the
Pre-Retirement Survivor Annuity;
(2) In the event the death benefit payable pursuant to Section 6.2 is
payable in installments, then, upon the death of the Participant, the
Administrator may direct that the death benefit be segregated and
invested separately, an that the funds accumulated in the segregated
account be used for the payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary, distributions
upon the death of a Participant made on or after January 1, 1985, shall be
made in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the distribution of a
Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of
such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as of his date
of death.
(2) If a Participant dies before he has begun to receive any distributions
of his interest in the Plan or before distri
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<PAGE> 33
butions are deemed to have begun pursuant to Regulations, then
his death benefit shall be distributed to his Beneficiaries in
accordance with the following rules subject to the selections
made in the Adoption Agreement and Subsections 6.6(h)(3) and
6.6(i) below:
(i) The entire death benefit shall be distributed to the
Participant's Beneficiaries by December 31st of the calendar
year in which the fifth anniversary of the Participant's
death occurs;
(ii) The 5-year distribution requirement of (i) above shall not
apply to any portion of the deceased Participant's interest
which is payable to or for the benefit of a designated
Beneficiary. In such event, such portion shall be
distributed over the life of such designated Beneficiary (or
over a period not extending beyond the life expectancy of
such designated Beneficiary) provided such distribution
begins not later than December 31st of the calendar year
immediately following the calendar year in which the
Participant died;
(iii) However, in the event the Participant's spouse (determined
as of the date of the Participant's death) is his designated
Beneficiary, the provisions of (ii) above shall apply except
that the requirement that distributions commence within one
year of the Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later
of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died;
or (2) December 31st of the calendar year in which the
Participant would have attained age 70 1/2. If the surviving
spouse dies before distributions to such spouse begin, then
the 5-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections made in
the Adoption Agreement, if a Participant's death benefits are to
be paid in the form of a Pre-Retirement Survivor Annuity, then
distributions to the Participant's surviving spouse must commence
on or before the later of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant
died; or (2) December 31st of the calendar year in which the
Participant would have attained age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement
(if permitted in the Adoption Agreement) must be made no later than
December 31st of the calendar year following the calendar year of the
Participant's death. Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse, the election
must be made by the earlier of: (1) December 31st of the calendar
year immediately following the calendar year in which the Participant
died or, if later, the calendar year in which the Participant would
have attained age 70 1/2; or (2) December 31st of the calendar year
which contains the fifth anniversary of the date of the Participant's
death. An election by a designated Beneficiary must be in writing and
shall be irrevocable as of the last day of the election period stated
herein. In the absence of an election by the Participant or a
designated Beneficiary, the 5-year distribution requirement shall
apply.
(j) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity)
shall or shall not be redetermined annually as provided in the
Adoption Agreement and in accordance with Regulations. If the
Participant or the Participant's spouse may elect, pursuant to the
Adoption Agreement, to have life expectancies recalculated, then the
election, once made shall be irrevocable. If no election is made by
the time distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy
shall be computed using the return multiples in Tables V and VI of
Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in the
Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary Contribution
Account shall be in the same proportion that the Participant's
Voluntary Contribution Account bears to the Participant's total
interest in the Plan.
(l) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Section 6.5 and 6.6 whenever a distribution is to be made,
or a series of payments are to commence, on or as of an Anniversary Date, the
distribution or series of payments may be made or begun on such date or as soon
thereafter as is practicable, but in no event later than 180 days after the
Anniversary Date. However, unless a Former Participant elects in writing to
defer the receipt of benefits (such election may not result in a death benefit
that is more than incidental), the payment of benefits shall begin not later
than the 60th day after the close of the Plan Year in which the latest of the
following events occurs: (a) the date on which the Participant attains the
earlier age of 65 or the Normal Retirement Age specified herein; (b) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan; or (c) the date the Participant terminates his service with the Employer.
Notwithstanding the foregoing, the failure of a Participant and, if applicable,
the Participant's spouse, to consent to a distribution pursuant to Section
6.5(d), shall be deemed to be an election to defer the commencement of payment
of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the Administrator
may direct that such distribution be paid to the legal guardian, or if none, to
a parent of such Beneficiary or a responsible adult with whom the Beneficiary
maintains his residence, or to the custodian for such Beneficiary under the
Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the
laws of the state in which said Beneficiary resides. Such a payment to the
legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a
Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such benefit shall be
restored, first from
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Forfeitures, if any, and then from an additional Employer contribution if
necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
If elected in the Adoption Agreement, at such time as a Participant shall have
attained the age specified in the Adoption Agreement, the Administrator, at the
election of the Participant, shall direct the Trustee to distribute up to the
entire amount then credited to the accounts maintained on behalf of the
Participant. However, no such distribution may be made to any Participant unless
his Participant's Account has become fully Vested. In the event that the
Administrator makes such a distribution, the Participant shall continue to be
eligible to participate in the Plan on the same basis as any other Employee. Any
distribution made pursuant to this Section shall be made in a manner consistent
with Section 6.5, including but not limited to, all notice and consent
requirements required by Code Sections 411(a)(11) and 417 and the Regulations
thereunder.
Notwithstanding the above, pre-retirement distributions from a Participant's
Elective Account and Qualified Non-Elective Account shall not be permitted
prior to the Participants attaining 59 1/2 except as otherwise permitted under
the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall direct
the Trustee to distribute to any Participant in any one Plan Year up
to the lessor of (1) 100% of his accounts as specified in the Adoption
Agreement valued as of the last Anniversary Date or other valuation
date or (2) the amount necessary to satisfy the immediate and heavy
financial need of the Participant. Any distribution made pursuant to
this Section shall be deemed to be made as of the first day of the
Plan Year or, if later, the valuation date immediately preceding the
date of distribution, and the account from which the distribution is
mad shall be reduced accordingly. Withdrawal under this Section shall
be authorized only if the distribution is on account of one of the
following or any other items permitted by the Internal Revenue
Service:
(1) Medical expenses described in Code Section 213(d) incurred by the
Participant, his spouse, or any of his dependents (as defined in
Code Section 152);
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(4) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such
other facts as are known to the Administrator, determines that all of
the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the immediate
and heavy financial need of the Participant (including any amounts
necessary to pay any federal, state, or local taxes or penalties
reasonably anticipated to result from the distribution);
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer, provide
that the Participant's elective deferrals and voluntary Employee
contributions will be suspended for at least twelve (12) months
after receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by the Employer, provide
that the Participant may not make elective deferrals for the
Participant's taxable year immediately following the taxable year
of the hardship distribution in excess of the applicable limit
under Code Section 402(g) for such next taxable year less the
amount of such Participant's elective deferrals for the taxable
year of the hardship distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this
Section shall be limited solely to the Participant's Deferred
Compensation and any income attributable thereto credited to the
Participant's Elective Account as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in this
Plan shall be subject to the rights afforded to any "alternate payee" under a
"qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a Participant
in a Profit Sharing Plan and to any distribution, made on or after the first day
of the first plan year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible employee
contributions, as defined in Code Section 72(o)(5)(B), and maintained on behalf
of a participant in a money purchase pension plan, (including a target benefit
plan):
(a) The Participant shall be prohibited from electing benefits in the form
of a life annuity;
(b) Upon the death of the Participant, the Participant's entire Vested
account balances will be paid to his or her surviving spouse, or, if
there is no surviving spouse or the surviving spouse has already
consented to waive his or her benefit, in accordance with Section 6.6,
to his designated Beneficiary; and
(c) Except to the extent otherwise provided in this Section and Section
6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding
spousal consent and the forms of distributions shall be inoperative
with respect to this Plan.
This Section shall not apply to any Participant if it is determined that this
Plan is a direct or indirect transferee of a defined benefit plan or money
purchase plan, or a target benefit plan, stock bonus or profit sharing plan
which would otherwise provide for a life annuity form of payment to the
Participant.
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer to invest, manage, and control the
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<PAGE> 35
Plan assets subject, however, to the direction of an Investment Manager
if the Employer should appoint such manager as to all or a portion of
the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits required under
the Plan to be paid to Participants, or, in the event of their death,
to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to the
Employer and/or Administrator for each Plan Year a written annual
report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall act by a majority
of their number, but may authorize one or more of them to sign papers
on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall, except as provided in the Adoption Agreement, invest
and reinvest the Trust Fund to keep the Trust Fund invested without
distinction between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee shall
deem advisable, including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or ownership, and
real estate or any interest therein. The Trustee shall at all times in
making investments of the Trust Fund consider, among other factors, the
short and long-term financial needs of the Plan on the basis of
information furnished by the Employer. In making such investments, the
Trustee shall not be restricted to securities or other property of the
character expressly authorized by the applicable law for trust
investments; however, the Trustee shall give due regard to any
limitations imposed by the Code or the Act so that at all times this
Plan may qualify as a qualified Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the terms of
its usual and customary bank agency agreement, under which the duties
of such bank or trust company shall be of a custodial, clerical and
record-keeping nature.
(c) The Trustee may from time to time transfer to a common, collective, or
pooled trust fund maintained by any corporate Trustee hereunder
pursuant to Revenue Ruling 81-100, all or such part of the Trust Fund
as the Trustee may deem advisable, and such part or all of the Trust
Fund so transferred shall be subject to all the terms and provisions of
the common, collective, or pooled trust fund which contemplate the
commingling for investment purposes of such trust assets with trust
assets of other trusts. The Trustee may withdraw from such common,
collective, or pooled trust fund all or such part of the Trust Fund as
the Trustee may deem advisable.
(d) The Trustee, at the direction of the Administrator and pursuant to
instructions from the individual designated in the Adoption Agreement
for such purpose and subject to the conditions set forth in the Adoption
Agreement, shall ratably apply for, own, and pay all premiums on
Contracts on the lives of the Participants. Any initial or additional
Contract purchased on behalf of a Participant shall have a face amount
of not less than $1,000, the amount set forth in the Adoption Agreement,
or the limitation of the Insurer, whichever is greater. If a life
insurance Contract is to be purchased for a Participant, the aggregate
premium for ordinary life insurance for each Participant must be less
than 50% of the aggregate contributions and Forfeitures allocated to a
Participant's Combined Account. For purposes of this limitation,
ordinary life insurance Contracts are Contracts with both non-decreasing
death benefits and non-increasing premiums. If term insurance or
universal life insurance is purchased with such contributions, the
aggregate premium must be 25% or less of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. If both term
insurance and ordinary life insurance are purchased with such
contributions, the amount expended for term insurance plus one-half of
the premium for ordinary life insurance may not in the aggregate exceed
25% of the aggregate Employer contributions and Forfeitures allocated
to a Participant's Combined Account. The Trustee must distribute the
Contracts to the Participant or convert the entire value of the
Contracts at or before retirement into cash or provide for a periodic
income so that no portion of such value may be used to continue life
insurance protection beyond retirement. Notwithstanding the above, the
limitations imposed herein with respect to the purchase of life
insurance shall not apply, in the case of a Profit Sharing Plan, to the
portion of a Participant's Account that has accumulated for at least
two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts credited
to a Participant's Qualified Voluntary Employee Contribution Account
pursuant to Section 4.14, shall not be applied to the purchase of life
insurance contracts.
(e) The Trustee will be the owner of any life insurance Contract purchased
under the terms of this Plan. The Contract must provide that the
proceeds will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the Contract to the Participant's
designated Beneficiary in accordance with the distribution provisions
of Article VI. A Participant's spouse will be the designated
Beneficiary pursuant to Section 6.2, unless a qualified election has
been made in accordance with Sections 6.5 and 6.6 of the Plan, if
applicable. Under no circumstances shall the Trust retain any part of
the proceeds. However, the Trustee shall not pay the proceeds in a
method that would violate the requirements of the Retirement Equity
Act, as stated in Article VI of the Plan, or Code Section 401(a)(9) and
the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of this Plan,
shall have the following powers and authorities, except as provided in the
Adoption Agreement, to be exercised in the Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the
Trustee, by private contract or at public auction. No person dealing
with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general or
special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription
rights or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and to
delegate discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an
owner with respect to stocks, bonds, securities, or other property;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more
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of the Trustee's nominees and to hold any investments in bearer
from, but the books and records of the Trustee shall at all times
show that all such investments are part of the Trust Fund:
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall
deem advisable; and for any sum so borrowed, to issue a promissory
note as Trustee, and to secure the repayment thereof by pledging
all, or any art, of the Trust Fund; and no person lending money to
the Trustee shall be bound to see to the application of the money
lent or to inquire into the validity, expediency, or propriety of
any borrowing:
(f) To keep such portion of the Trust Fund in cash or cash balances
as the Trustee may, from time to time, deem to be in the best
interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted;
(i) To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence or
defend suits or legal or administrative proceedings, and to
represent the Plan in all suits and legal and administrative
proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may
or may not be agent or counsel for the Employer;
(k) To apply for and procure from the Insurer as an investment of
the Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise,
at any time or from time to time, whatever rights and privileges
may be granted under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such annuity, or other
Contracts as and when entitled to do so under the provisions
thereof;
(l) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's
bank:
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase and acquire put or call options if the options
are traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended,
or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange:
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with
assets belonging to any other qualified employee pension benefit
trust created by the Employer or any Affiliated Employer, and to
commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or
trusts, allocating undivided shares or interests in such
investments or accounts or any pooled assets of the two or more
trusts in accordance with their respective interests;
(q) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
(r) Directed Investment Account. The powers granted to the Trustee
shall be exercised in the sole fiduciary discretion of the Trustee.
However, if elected in the Adoption Agreement, each Participant may
direct the Trustee to separate and keep separate all or a portion
of his interest in the Plan; and further each Participant is
authorized and empowered, in his sole and absolute discretion to
give directions to the Trustee in such form as the Trustee may
require concerning the investment of the Participant's Directed
Investment Account, which directions must be followed by the
Trustee subject, however, to restrictions on payment of life
insurance premiums. Neither the Trustee nor any other persons
including the Administrator or otherwise shall be under any duty to
question any such direction of the Participant or to review any
securities or other property real or personal, or to make any
suggestions to the Participant in connection therewith, and the
Trustee shall comply as promptly as practicable with directions
given by the Participant hereunder. Any such direction may be of a
continuing nature or otherwise and may be revoked by the
Participant at any time in such form as the Trustee may require.
The Trustee may refuse to comply with any direction from the
Participant in the event the Trustee, in its sole and absolute
discretion, deems such directions improper by virtue of applicable
law, and in such event, the Trustee shall not be responsible or
liable for any loss or expense which may result. Any costs and
expenses related to compliance with the Participant's directions
shall be borne by the Participant's Directed Investment Account.
Notwithstanding anything hereinabove to the contrary, the Trustee
shall not, at any time after December 31, 1981, invest any portion
of a Directed Investment Account in "collectibles" within the
meaning of that term as employed in Code Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee may, in the
Trustee's sole discretion, make loans to Participants or
Beneficiaries under the following circumstances: (1) loans shall
be made available to all Participants and Beneficiaries on a
reasonably equivalent basis;(2) loans shall not be made available
to Highly Compensated Employees in an amount greater than the
amount made available to other Participants; (3) loans shall bear
a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for periodic repayment over a
reasonable period of time.
(b) Loans shall not be made to any Shareholder-Employee or
Owner-Employee unless an exemption for such loan is obtained
pursuant to Act Section 408 and further provided that such loan
would not be subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal
Retirement Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant)
shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date
on which such loan is made, over the outstanding balance of
loans from the Plan to the
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Participant on the date on which such loan was made, or
(2) the greater of (A) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Employee under the Plan,
or (B), if permitted pursuant to the Adoption Agreement, $10,000.
For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan made
prior to January 1, 1987, the $50,000 limit specified in (1)
above shall be unreduced.
(e) No Participant loan shall take into account the present value of such
Participant's Qualified Voluntary Employee Contribution Account.
(f) Loans shall provide for level amortization with payments to be made
not less frequently than quarterly over a period not to exceed five
(5) years. However, loans used to acquire any dwelling unit which,
within a reasonable time, is to be used (determined at the time the
loan is made) as a principal residence of the Participant shall
provide for periodic repayment over a reasonable period of time that
may exceed five (5) years. Notwithstanding the foregoing, loans made
prior to January 1, 1987 which are used to acquire, construct,
reconstruct or substantially rehabilitate any dwelling unit which,
within a reasonable period of time is to be used (determined at the
time the loan is made) as a principal residence of the Participant or
a member of his family (within the meaning of Code Section 267(c)(4))
may provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
(g) An assignment or pledge of any portion of a Participant's interest in
the Plan and a loan, pledge, or assignment with respect to any
insurance Contract purchased under the Plan, shall be treated as a
loan under this Section.
(h) Any loan made pursuant to this Section after August 18, 1985 where the
Vested interest of the Participant is used to secure such loan shall
require the written consent of the Participant's spouse in a manner
consistent with Section 6.5(a) provided the spousal consent
requirements of such Section apply to the Plan. Such written consent
must be obtained within the 90-day period prior to the date the loan
is made. Any security interest held by the Plan by reason of an
outstanding loan to the Participant shall be taken into account in
determining the amount of the death benefit or Pre-Retirement Survivor
Annuity. However, no spousal consent shall be required under this
paragraph if the total accrued benefit subject to the security is not
in excess of $3,500.
(i) With regard to any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988, a
Participant loan program shall be established which must include, but
need not be limited to, the following:
(1) the identity of the person or positions authorized to administer
the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered,
including what constitutes a hardship or financial need if
selected in the Adoption Agreement;
(5) the procedure under the program for determining a reasonable
rate of interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken
to preserve plan assets.
Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by
reference and made a part of this plan. Furthermore, such Participant
loan program may be modified or amended in writing from time to time
without the necessity of amending this Section of the Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to time, in
accordance with the terms of the Plan, make payments out of the Trust Fund. The
Trustee shall not be responsible in any way for the application of such
payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in the
Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon
in writing by the Employer and the Trustee. An individual serving as Trustee
who already receives full-time pay from the Employer shall not receive
compensation from this Plan. In addition, the Trustee shall be reimbursed for
any reasonable expenses, including reasonable counsel fees incurred by it as
Trustee. Such compensation and expenses shall be paid from the Trust Fund
unless paid or advanced by the Employer. All taxes of any kind and all kinds
whatsoever that may be levied or assessed under existing or future laws upon,
or in respect of, the Trust Fund or the income thereof, shall be paid from the
Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date or
receipt of the Employer's contribution for each Plan Year, the Trustee, or its
agent, shall furnish to the Employer and Administrator a written statement of
account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or other
disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems
appropriate. The Employer, forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof. Failure by the
Employer to disapprove any such statement of account within thirty (30) days
after its receipt thereof shall be deemed an approval thereof. The approval by
the Employer of any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the same extent as
if the account of the Trustee had been settled by judgment or decree in an
action for a judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all persons having or
claiming an interest in the Plan were parties; provided, however, that nothing
herein contained shall deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and
the regulations thereunder for any Plan Year, the Administrator shall direct
the Trustee to engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall, after an audit
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of the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the
close of the Plan Year, furnish to the Administrator and the Trustee a
report of his audit setting forth his opinion as to whether any
statements, schedules or lists, that are required by Act Section 103
or the Secretary of Labor to be filed with the Plan's annual report,
are presented fairly in conformity with generally accepted accounting
principles applied consistently.
(b) All auditing and accounting fees shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund.
(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised
and subject to periodic examination by a state or federal agency, it
shall transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one hundred
twenty (120) days after the end of the Plan Year or such other date as
may be prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer, at
least thirty (30) days before its effective date, a written notice of
his resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address,
at least thirty (30) days before its effective date, a written notice
of his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a
successor may be appointed by the Employer, and such successor, upon
accepting such appointment in writing and delivering same to the
Employer, shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor
with like respect as if he were originally named as a Trustee herein.
Until such a successor is appointed, the remaining Trustee or Trustees
shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested
with all the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally named as
Trustee herein immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as part
of the annual statement of account for the Plan Year required under
Section 7.7 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no later than
the due date of the annual statement of account for the Plan Year. The
procedures set forth in Section 7.7 for the approval by the Employer
of annual statements of account shall apply to any special statement
of account rendered hereunder and approval by the Employer of any such
special statement in the manner provided in Section 7.7 shall have the
same effect upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have any duty
or responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by
Section 7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at the
direction of the Administrator shall transfer the Vested interest, if any, of
such Participant in his account to another trust forming part of a pension,
profit sharing, or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the
requirements of Code Section 401(a), provided that the trust to which such
transfers are made permits the transfer to be made.
7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee against any and
all claims, losses, damages, expenses and liabilities the Trustee may incur in
the exercise and performance of the Trustee's powers and duties hereunder,
unless the same are determined to be due to gross negligence or willful
misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100% of the fair market value of all the
assets in the Trust Fund may be invested in "qualifying Employer securities"
and "qualifying Employer real property".
7.13 PASSIVE TRUSTEE
Notwithstanding any other provisions of this Plan to the contrary and to the
extent permitted under applicable law, in the event The First National Bank of
Boston is Trustee (or any successor Trustee is appointed by the prototype
sponsoring organization), such Trustee shall exercise powers of the Trustee
under the Plan only at the direction and upon the instructions of the Plan
Administrator and the duties and obligations of The First National Bank of
Boston (or any successor Trustee appointed by the prototype sponsoring
organization) as Trustee shall be limited to holding title to the Plan assets
and all other duties of the Trustee set forth in the Plan shall be the
obligation of the Plan Administrator. The provisions of the Plan applicable to
The First National Bank of Boston shall apply to any successor appointed by the
prototype sponsoring organization.
7.14 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by the
Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by
the distributee in a direct rollover.
(b) An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; and distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(c) An eligible retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan
described in section 403(a) of
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the Code, or the qualified trust described in section 401(a) of the
Code, that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or an individual retirement annuity.
(d) A distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternative payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are distributees with regard to
the interest of the spouse or former spouse.
(e) A direct rollover is a payment by the Plan to the eligible retirement
plan specified by the distributee.
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any amendment
which affects the rights, duties or responsibilities of the Trustee
and Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee shall
not be required to execute any such amendment unless the amendment
affects the duties of the Trustee hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Code Sections 415 or 416 because
of the required aggregation of multiple plans, and (3) add certain
model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as an individually designed plan. An Employer that amends the
Plan for any other reason, including a waiver of the minimum funding
requirement under Code Section 412(d), will no longer participate in
this Prototype Plan and will be considered to have an individually
designed plan.
Furthermore, an Employer may not use this Plan and will be deemed to
have an individually designed plan if the Employer does not maintain a
product of the sponsor of the Plan or any of its affiliates or
subsidiaries.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by submitting
a copy of the amendment to each Employer who has adopted this Plan
after first having received a ruling or favorable determination from
the Internal Revenue Service that the Plan as amended qualifies under
Code Section 401(a) and the Act. For purposes of this Section, the
mass submitter shall be recognized as the agent of the sponsoring
organization. If the sponsoring organization does not adopt the
amendments made by the mass submitter, it will no longer be identical
to or a minor modifier of the mass submitter plan.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for or
diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any
reduction in the amount credited to the account of any Participant; or
causes or permits any portion of the Trust Fund to revert to or become
property of the Employer.
(e) Except as permitted by Regulations (including Regulation 1.411(d)-4),
no Plan amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall be
effective if it eliminates or reduces any "Section 411(d)(6) protected
benefit" or adds or modifies conditions relating to "Section 411(d)(6)
protected benefits" the result of which is a further restriction on
such benefit unless such protected benefits are preserved with respect
to benefits accrued as of the later of the adoption date or effective
date of the amendment. "Section 411(d)(6) protected benefits" are
benefits described in Code Section 411(d)(6)(A), early retirement
benefits and retirement-type subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination all amounts credited
to the affected Participants' Combined Accounts shall become 100%
Vested and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all
Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets to Participants in a manner which is
consistent with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash (or in property
if permitted in the Adoption Agreement) or through the purchase of
irrevocable non-transferable deferred commitments from the Insurer.
Except as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected benefits"
as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or liabilities
may be transferred to any other plan only if the benefits which would be
received by a Participant of this Plan, in the event of a termination of the
plan immediately after such transfer, merger or consolidation, are at least
equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" as described in Section
8.1(e).
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing the
Adoption Agreement in form satisfactory to the Trustee, and it shall
provide such additional information as the Trustee may require. The
consent of the Trustee to act as such shall be signified by its
execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate
and apart from that of any other employer and its participants
hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer and
any Participant or to be a consideration or an inducement for the employment of
any Participant or Employee. Nothing contained in this Plan shall be deemed to
give any Participant or
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Employee the right to be retained in the service of the Employer or to interfere
with the right of the Employer to discharge any Participant or Employee at any
time regardless of the effect which such discharge shall have upon him as a
Participant of this Plan.
9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable to any person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void; and no
such benefit shall in any manner be liable for, or subject to, the debts,
contracts, liabilities, engagements, or torts of any such person, nor shall it
be subject to attachment or legal process for or against such person, and the
same shall not be recognized except to such extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any provision of this
Plan. At the time a distribution is to be made to or for a Participant's or
Beneficiary's benefit, such proportion of the amount to be distributed as shall
equal such indebtedness shall be paid to the Plan, to apply against or discharge
such indebtedness. Prior to making a payment, however, the Participant or
Beneficiary must be given written notice by the Administrator that such
indebtedness is to be so paid in whole or part from his Participant's Combined
Account. If the Participant or Beneficiary does not agree that the indebtedness
is a valid claim against his Vested Participant's Combined Account, he shall be
entitled to a review of the validity of the claim in accordance with procedures
in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic relations orders
permitted to be so treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the extent
provided under a "qualified domestic relations order", a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act and the
laws of the State or Commonwealth in which the Employer's principal office is
located, other than its laws respecting choice of law, to the extent not
pre-empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter gender,
they shall be construed as though they were also used in another gender in all
cases where they would so apply, and whenever any words are used herein in the
singular or plural form, they shall be construed as though they were also used
in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law,
it shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any
other means, for any part of the corpus or income of any Trust Fund
maintained pursuant to the Plan or any funds contributed thereto to be
used for, or diverted to, purposes other than the exclusive benefit of
Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a mistake of
fact pursuant to Section 403(c)(2)(A) of the Act, the Employer may
demand repayment of such contribution at any time within one (1) year
following the time of payment and the Trustees shall return such
amount to the Employer within the one (1) year period. Earnings of the
Plan attributable to the contributions may not be returned to the
Employer but any losses attributable thereto must reduce the amount so
returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by the
Act and regulations thereunder, shall be bonded in an amount not less than 10%
of the amount of the funds such Fiduciary handles; provided, however, that the
minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds
handled shall be determined at the beginning of each Plan Year by the amount of
funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
9.9 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issued hereunder, or the rules of the Insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or to any
guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required to do
or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) and Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan.
In general, the Employer shall have the sole responsibility for making the
contributions provided
36
<PAGE> 41
for under Section 4.1; and shall have the sole authority to appoint and remove
the Trustee and the Administrator, to formulate the Plan's "funding policy and
method"; and to amend the elective provisions of the Adoption Agreement or
terminate, in whole or in part, the Plan. The Administrator shall have the sole
responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary shall
be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or deprecation in
asset value. Any person or group may serve in more than one Fiduciary capacity.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience of
reference and are to be ignored in any construction of the provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to a
timely application filed by or in behalf of the Plan, the Commissioner
of Internal Revenue Service or his delegate should determine that the
Plan does not initially qualify as a tax-exempt plan under Code
Sections 401 and 501, and such determination is not contested, or if
contested, is finally upheld, then if the Plan is a new plan, it shall
be void ab initio and all amounts contributed to the Plan, by the
Employer, less expenses paid, shall be returned within one year and
the Plan shall terminate, and the Trustee shall be discharged from all
further obligations. If the disqualification relates to an amended
plan, then the Plan shall operate as if it had not been amended and
restated.
(b) Notwithstanding any provisions to the contrary, except Sections 3.5,
3.6, and 4.1(f), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer
to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may within one (1) year
following the disallowance of the deduction, demand repayment of such
disallowed contribution and the Trustee shall return such contribution
within one (1) year following the disallowance. Earnings of the Plan
attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount
so returned.
(c) If an Employer's Plan fails to attain or retain qualification, then
such Plan will no longer participate in this Prototype Plan and will
be considered an individually designed plan.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
9.16 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and Section 6.11
only upon death, Total and Permanent Disability, normal or early retirement,
termination of employment, or upon Plan Termination.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any Affiliated Employer may adopt this Plan and all of the
provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those selected by the Employer other
than the Plan Year, the Fiscal Year, and such other items that must,
by necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a
Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's
Combined Account as well as his accumulated service time with the
transferor or predecessor, and his length of participation in the
Plan, shall continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer or borne
by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to
the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan; provided,
however, that with respect to all of its relations with the Trustee and
Administrator for the purpose of this Plan, each Participating Employer shall be
deemed to have designated irrevocably the Employer as its agent. Unless the
context of the Plan clearly indicates the contrary, the word "Employer" shall be
deemed to include each Participating Employer as related to its adoption of the
Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating
Employers, and in the event of any such transfer, the Employee involved shall
carry with him his accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the Participating Employer to
which the Employee is transferred shall thereupon become obligated hereunder
with respect to such Employee in the same manner as was the Participating
Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan Year shall
be allocated among all Participants of all Participating Employers in accordance
with the provisions of this Plan. On the basis of the information furnished by
the Administrator, the Trustee shall keep separate books and records concerning
the affairs of each Participating Employer hereunder and as to the accounts and
credits of the Employees of each Participating Employer. The Trustee may, but
need not, register Contracts so as to evidence that a particular Participating
Employer is the interested Employer hereunder, but in the event of an Employee
transfer from one Participating Employer to another, the employing Employer
shall immediately notify the Trustee thereof.
37
<PAGE> 42
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer shall be
permitted to discontinue or revoke its participation in the Plan at any time.
At the time of any such discontinuance of revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be delivered to the
Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts
and other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such
participating Employer, in the event that it has established a separate pension
plan for its Employees provided, however, that no such transfer shall be made
if the result is the elimination or reduction of any "Section 411(d)(6)
protected benefits" in accordance with Section 8.1(e). If no successor is
designated, the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of Article VII hereof. In no
such event shall any part of the corpus or income of the Trust Fund as it
relates to such Participating Employer be used for or diverted for purposes
other than for the exclusive benefit of the Employees of such Participating
Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules or
regulations, binding upon all Participating Employers and all Participants, to
effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from making a
contribution which it would otherwise have made under the Plan by reason of
having no current or accumulated earnings or profits, or because such earnings
or profits are less than the contribution which it would otherwise have made,
then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which
such Participating Employer was so prevented from making may be made, for the
benefit of the participating employees of such Participating Employer, by other
Participating Employers who are members of the same affiliated group within the
meaning of Code Section 1504 to the extent of their current or accumulated
earnings or profits, except that such contribution by each such other
Participating Employer shall be limited to the proportion of its total current
and accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this paragraph which the total
prevented contribution bears to the total current and accumulated earnings or
profits of all the participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is made
under this paragraph shall not be required to reimburse the contributing
Participating Employers.
38
<PAGE> 1
EXHIBIT 10.9
SIGNAL PHARMACEUTICALS, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SEPTEMBER 9, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. REGISTRATION RIGHTS.................................................................2
1.1 Definitions..................................................................2
1.2 Request for Registration.....................................................3
1.3 Company Registration.........................................................4
1.4 Obligations of the Company...................................................5
1.5 Furnish Information..........................................................6
1.6 Expenses of Demand Registration..............................................6
1.7 Expenses of Company Registration.............................................7
1.8 Underwriting Requirements....................................................7
1.9 Delay of Registration........................................................8
1.10 Indemnification..............................................................8
1.11 Reports Under Securities Exchange Act of 1934...............................11
1.12 Form S-3 Registration.......................................................11
1.13 Assignment of Registration Rights...........................................13
1.14 Limitations on Subsequent Registration Rights...............................13
1.15 "Market Stand-Off" Agreement................................................13
1.16 Termination of Registration Rights..........................................14
2. COVENANTS OF THE COMPANY...........................................................15
2.1 Delivery of Financial Statements............................................15
2.2 Inspection..................................................................15
2.3 Right of First Offer........................................................15
3. MISCELLANEOUS......................................................................17
3.1 Successors and Assigns......................................................17
3.2 Governing Law...............................................................17
3.3 Counterparts................................................................17
3.4 Titles and Subtitles........................................................17
3.5 Notices.....................................................................17
3.6 Expenses....................................................................18
3.7 Amendments and Waivers......................................................18
3.8 Severability................................................................18
3.9 Aggregation of Stock........................................................18
3.10 Termination of Prior Agreement..............................................18
3.11 Regulated Financial Institutions Compliance Obligations.....................18
</TABLE>
SCHEDULE A - Schedule of New Investors
SCHEDULE B - Schedule of Existing Investors
i.
<PAGE> 3
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made as of the 9th day of September, 1997, by and between Signal
Pharmaceuticals, Inc., a California corporation (the "Company"), the investors
listed on Schedule A hereto, each of which is herein referred to as a "New
Investor;" a majority of the holders of Series A, Series B and Series C
Preferred Stock listed on Schedule B hereto (the "Existing Investors"); and
Tanabe Seiyaku Co., Ltd. ("Tanabe").
RECITALS
WHEREAS, the Existing Investors hold shares of the Company's Series A,
Series B and/or Series C Preferred Stock, respectively, and Tanabe holds shares
of the Company's Series D Preferred Stock; and together, the Existing Investors
and Tanabe possess certain registration rights, information rights, rights of
first offer, and other rights pursuant to an existing Amended and Restated
Investors' Rights Agreement dated as of March 31, 1996 between the Company and
such Existing Investors and Tanabe (the "Prior Agreement"); and
WHEREAS, the Existing Investors and Tanabe are holders of more than 50%
of the Registrable Securities of the Company (as defined in the Prior
Agreement), and, in order to induce the New Investors to enter into the Series E
Preferred Stock Purchase Agreement by and between the Company and each of the
New Investors and dated as of the date hereof (the "Series E Stock Purchase
Agreement"), the Company, the Existing Investors and Tanabe desire to terminate
the Prior Agreement in its entirety and to accept the rights created pursuant
hereto in lieu of the rights granted to them under the Prior Agreement, with
such Prior Agreement being superseded, rendered void and replaced in its
entirety with this Agreement; and
WHEREAS, the Company wishes to sell to the New Investors shares of its
Series E Preferred Stock pursuant to the Series E Stock Purchase Agreement, and
in connection therewith, desires to grant certain rights to the New Investors
set forth in this Agreement, and the New Investors wish to receive such rights.
1.
<PAGE> 4
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means the Investor
Registrable Securities and the Tanabe Registrable Securities.
(d) The term "Investor Registrable Securities" means (1) the
Common Stock issuable or issued upon conversion of any Series A Preferred Stock,
(2) the Common Stock issuable or issued upon conversion of any Series B
Preferred Stock, (3) the Common Stock issuable or issued upon conversion of any
Series C Preferred Stock, (4) the Common Stock issuable or issued upon
conversion of any Series E Preferred Stock, and (5) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E
Preferred Stock or Common Stock issuable or issued upon conversion thereof,
excluding in all cases, however, any Investor Registrable Securities sold by a
person in a transaction in which his rights under this Section 1 are not
assigned;
(e) The term "Tanabe Registrable Securities" means (1) the Common
Stock issuable or issued upon conversion of any Series D Preferred Stock, and
(2) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Series D Preferred Stock, excluding in all cases, however,
any Tanabe Registrable Securities sold by a person in a transaction in which his
rights under this Section 1 are not assigned;
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities, which are Registrable Securities.
2.
<PAGE> 5
(g) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(h) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(i) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the earlier of
(i) August 1, 1997, or (ii) one (1) year after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of at
least 40% of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of the
Registrable Securities with an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $2,000,000, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(b), effect as soon as practicable, and in any event shall use its best
efforts to effect within 60 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with paragraph 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter or underwriters will be selected by the Company and
shall be reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to
3.
<PAGE> 6
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter or underwriters advise the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 60 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve month period.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder of Investor Registrable Securities written
notice of such registration. Upon the written request of each Holder of Investor
Registrable Securities given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall, subject
to the provisions of Section 1.8, cause to be registered under the Act all of
the Investor Registrable Securities that each such Holder has requested to be
registered.
4.
<PAGE> 7
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions unless the Company is
already subject to service in such jurisdiction and except as may be required
under the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereto to be listed on each securities exchange or over-the-counter market on
which similar securities issued by the Company are then listed.
5.
<PAGE> 8
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereto and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date for such
Registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the anticipated aggregate offering price required to originally trigger
the Company's obligation to initiate such registration as specified in
subsection 1.2(a) or subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to
6.
<PAGE> 9
Section 1.2 if the registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses pro rata based on
the number of shares to be registered by participating Holders), unless the
Holders of a majority of the Registrable Securities agree to forfeit their right
to one demand registration pursuant to Section 1.2; provided further, however,
that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the Holders at the time of their request and have withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Investor Registrable Securities with respect to the
registrations pursuant to Section 1.3 for each Holder (which right may be
assigned as provided in Section 1.13), including (without limitation) all
registration, filing, and qualification fees, printers' and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
one counsel for the selling Holders selected by them, but excluding underwriting
discounts and commissions relating to the Investor Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Investor Registrable Securities, requested by shareholders
to be included in such offering exceeds the amount of securities sold other than
by the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Investor Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced unless no other
shareholder's securities are included, or (ii) in any event, the amount of
securities of the selling Holders included in the offering be reduced below
twenty-five percent (25%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of
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<PAGE> 10
the Company's securities in which case the selling shareholders may be excluded
if the underwriters make the determination described above and no other
shareholder's securities are included or (iii) notwithstanding (i) and (ii)
above, any shares being sold by a shareholder exercising a demand registration
right similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a Holder of Investor Registrable Securities and
which is a partnership, corporation, or limited liability company, the partners,
retired partners, shareholders and members of such Holder, or the estates and
family members of any such partners, retired partners and members and any trusts
for the benefit of any of the foregoing persons shall be deemed to be a single
"selling shareholder," and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements 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 violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company
8.
<PAGE> 11
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to such indemnified party and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such Final Prospectus
is required to be delivered under the Securities Act if such loss, claim or
damage would have been avoided had the indemnified party furnished the Final
Prospectus to such person.
(d) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any
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<PAGE> 12
indemnifying party under this Section 1.10, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
(e) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(g) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
10.
<PAGE> 13
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive (a) from
any Holder or Holders of Registrable Securities at any time after the date two
(2) years after the effective date of the first registration statement for a
public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction) a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
11.
<PAGE> 14
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected a registration on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders and counsel for the Company, but excluding any underwriters' discounts
or commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
12.
<PAGE> 15
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least twenty percent (20%) of the shares of Registrable Securities originally
purchased by such Holder (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), provided the Company
is, within a reasonable time after such transfer, furnished with written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership or limited liability
company who are partners, retired partners or members of such partnership or
limited liability company (including spouses and ancestors, lineal descendants
and siblings of such partners or members or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership or limited liability company; provided that all
assignees and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this
Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2, 1.3 or 1.12 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company (not to exceed 180 days),
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to
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<PAGE> 16
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 (i) after seven (7) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public, or
(ii) on the closing of the first Company-initiated registered public offering of
Common Stock of the Company if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period, or on such date after the closing of the
first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.
14.
<PAGE> 17
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Investor as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company. In
addition, the Company shall promptly deliver to each Investor each Board of
Directors' approved financial plan for the next fiscal year, including delivery
of all modifications, revisions or financial plans subsequently approved by the
Board of Directors.
2.2 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
such Investor.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 2.3, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.3, a Major Investor shall mean any Investor who holds not less
than 100,000 shares of Series A, Series B, Series C or Series E Preferred Stock
in the aggregate. For purposes of this Section 2.3, Investor includes any
general partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to sell any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to the Major
Investors by certified mail or courier of international reputation stating (i)
its bona fide intention to offer such Shares, (ii) the number of such Shares to
be offered, and (iii) the price and terms, if any, upon which it proposes to
offer such Shares.
(b) By written notification received by the Company, within 20
calendar days after giving of the Notice, the Major Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares which
15.
<PAGE> 18
equals the proportion that the number of shares of common stock issued and held,
or issuable upon conversion of the Series A, Series B, Series C and Series E
Preferred Stock then held, by such Major Investor bears to the total number of
shares of common stock of the Company then outstanding (assuming full conversion
and exercise of all convertible or exercisable securities) (the "Pro Rata
Share"). The Company shall promptly, in writing, inform each Major Investor
which purchases all the shares available to it ("Fully-Exercising Investor") of
any other Major Investor's failure to do likewise. During the ten-day period
commencing after such information is given, each Fully-Exercising Investor shall
be entitled to obtain that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
which is equal to the proportion that the number of shares of common stock
issued and held, or issuable upon conversion of Series A, Series B, Series C and
Series E Preferred Stock then held, by such Fully-Exercising Investor bears to
the total number of shares of common stock issued and held, or issuable upon
conversion of the Series A, Series B, Series C and Series E Preferred Stock then
held, by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed shares.
(c) After giving Notice, the Company may, during the 30-day
period following the expiration of the 20-day period provided in subsection
2.3(b) hereof, offer the unsubscribed portion of such Shares (including both
those Shares that the Investors were entitled to purchase but chose not to
purchase and those Shares that the Investors were not entitled to purchase) to
any person or persons at a price not less than, and upon terms no more favorable
to the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such 30-day period, or if
such agreement is not consummated within 60 days of the execution thereof, the
right provided hereunder shall be deemed to be revived and such Shares shall not
be offered unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall not be
applicable (i) to the issuance or sale of shares of common stock or preferred
stock (or options therefor) to employees, directors or consultants for the
primary purpose of soliciting or retaining their services, provided that such
issuances or sales are first approved by the Company's Board of Directors, (ii)
to or after consummation of a bona fide, firmly underwritten public offering of
shares of common stock, registered under the Act pursuant to a registration
statement on Form S-1, at an offering price of at least $5.00 per share
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) and $15,000,000 in the aggregate, (iii) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities (iv) to the issuance of securities in connection with a stock split,
stock dividend or other recapitalization of the Company, (v) to the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (vi) to the issuance of securities
16.
<PAGE> 19
approved by the Company's Board of Directors in connection with a transaction
with a corporation or other third party which is not primarily in the business
of making equity investments that also involves other strategic elements such
as, but not by way of limitation, a joint marketing agreement, a license
agreement, or a technology development agreement, (vii) to the issuance of
stock, warrants or other securities or rights in connection with equipment
leasing or bank financing transactions provided such issuances are for other
than primarily equity financing purposes, or (viii) to the issuance of stock,
warrants or other securities or rights in connection with a bona fide research
and development financing transaction with universities and other research
institutions upon the approval of the Board of Directors.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
any Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by courier to the party to
be notified or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on Schedule A hereto, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
17.
<PAGE> 20
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding; provided, however, that in no event
shall any Investor be treated in any respect which is adverse from the treatment
of any other Investor hereunder except with the prior written consent of such
Investor. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company. In the event of the exercise of a demand registration right pursuant to
Section 1.2 hereof, any amendment of Section 1.15 hereof shall only be effective
if approved by a majority of the nonparticipating Holders in such registration.
3.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 AGGREGATION OF STOCK. All shares of the Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.10 TERMINATION OF PRIOR AGREEMENT. The Company, the Existing
Investors and Tanabe, are holders of at least a majority of the "Registrable
Securities" (as defined in the Prior Agreement), and hereby agree that all
rights granted and covenants made under the Prior Agreement are hereby waived,
released and terminated in their entirety and shall have no further force or
effect whatsoever. The rights and covenants provided herein set forth the sole
and entire agreement between the Company and the Investors with respect to the
subject matter hereof.
3.11 REGULATED FINANCIAL INSTITUTIONS COMPLIANCE OBLIGATIONS. Nothing
contianed in this Agreement shall diminish the continuing obligations of any
financial institution to comply with applciable requirements of law that such
financial institution maintain responsiblity for the disposition of, and control
over, its admitted assets, investments and property, including (without limiting
the generality of the foregoing) the provisions of Section 1411(b) of the New
York Insurance Law, as amended, and as hereinafter from time to time in effect.
18.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SIGNAL PHARMACEUTICALS, INC.
By:
-------------------------------------
Alan J. Lewis, President
INVESTORS:
ARES-SERONO S.A.
By:
-------------------------------------
Its:
------------------------------------
BIOCENTIVE
By:
-------------------------------------
Its:
------------------------------------
FINSBURY WORLDWIDE PHARMACEUTICAL
TRUST, PLC
By:
-------------------------------------
Its:
------------------------------------
LOMBARD ODIER IMMUNOLOGY FUND
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 22
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
By:
-------------------------------------
Its:
------------------------------------
NEW YORK LIFE INSURANCE COMPANY
By:
-------------------------------------
Its:
------------------------------------
PHARMA/WHEALTH
By:
-------------------------------------
Its:
------------------------------------
THE HEALTH CARE AND BIOTECHNOLOGY
VENTURE FUND
By:
-------------------------------------
Its:
------------------------------------
BAYVIEW INVESTORS LTD.
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
VENROCK ASSOCIATES
By:
-------------------------------------
Its:
------------------------------------
VENROCK ASSOCIATES II, L.P.
By:
-------------------------------------
Its:
------------------------------------
KLEINER PERKINS CAUFIELD & BYERS VI
By:
-------------------------------------
Its:
------------------------------------
ACCEL INVESTORS `93 L.P.
By:
-------------------------------------
Its:
------------------------------------
ACCEL IV L.P.
By:
-------------------------------------
Its:
------------------------------------
ACCEL JAPAN L.P.
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
ACCEL KEIRETSU L.P.
By:
-------------------------------------
Its:
------------------------------------
ELLMORE C. PATTERSON PARTNERS
By:
-------------------------------------
Its:
------------------------------------
PROSPER PARTNERS
By:
-------------------------------------
Its:
------------------------------------
INTERWEST INVESTORS V
By:
-------------------------------------
Its:
------------------------------------
INTERWEST PARTNERS V
By:
-------------------------------------
Its:
------------------------------------
OXFORD BIOSCIENCE PARTNERS (ADJUNCT) L.P.
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
OXFORD BIOSCIENCE PARTNERS (BERMUDA) L.P.
By:
-------------------------------------
Its:
------------------------------------
OXFORD BIOSCIENCE PARTNERS L.P.
By:
-------------------------------------
Its:
------------------------------------
SECOND VENTURES II, L.P.
By:
-------------------------------------
Its:
------------------------------------
U.S. VENTURES PARTNERS IV, L.P.
By:
-------------------------------------
Its:
------------------------------------
USVP ENTREPRENEUR PARTNERS II, L.P.
By:
-------------------------------------
Its:
------------------------------------
HARRY F. HIXSON, JR. SEPARATE PROPERTY
TRUST, DATED DECEMBER 15, 1995
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
VERTICAL FUND ASSOCIATES, L.P.
By:
-------------------------------------
Its:
------------------------------------
LEHMAN BROTHERS
By:
-------------------------------------
Its:
------------------------------------
HAMBRECHT & QUIST
By:
-------------------------------------
Its:
------------------------------------
ROBERTSON, STEPHENS & COMPANY
By:
-------------------------------------
Its:
------------------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
SCHEDULE A
TO THE INVESTORS' RIGHTS AGREEMENT
Ares-Serono S.A.
c/o Ares Services S.A.
Attn: Leon R. Bushara
15bis Chemin des Mines
1202 Geneva
Switzerland
BioCentive
c/o Mesco Ltd.
Attn: Joel R. Mesznik
122 East 42nd Street
49th Floor
New York, NY 10168
Finsbury Worldwide
Pharmaceutical Trust, plc
c/o Finsbury Asset Management
Attn: Barbara Macaulay
Alderman's House
Alderman's Walk
London EC2M 3XR
England
Lombard Odier Immunology Fund
c/o Lombard Odier & Cie
Attn: Mlle. Laurence Mauron
11, rue de la Corraterie
1204 Geneva
Switzerland
Neuroscience Partners Limited Partnership
Attn: Michael Callaghan
100 International Boulevard
Etobicoke, Ontario
Canada M9W 6J6
A-1.
<PAGE> 28
New York Life Insurance Company
Attn: Dominique Semon
51 Madison Avenue
New York, NY 10010
PHARMA/wHEALTH
c/o. Mehta and Isaly
Attn: Mr. Samuel D. Isaly
41 Madison Avenue
40th Floor
New York, NY 10010
The Health Care and Biotechnology Venture Fund
Attn: Micahel Callaghan
100 International Boulevard
Etobicoke, Ontario
Canada M9W 6J6
Bayview Investors Ltd.
c/o Robertson Stephens & Co.
Attn: John Coquia
555 California Street
Suite 2600
San Francisco, CA 94104
Venrock Associates
Venrock Associates II, L.P.
Attn: Patrick F. Latterell
One Maritime Plaza, Suite 1919
San Francisco, CA 94111
Kleiner Perkins Caufield & Byers VI
Attn: Brook H. Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Accel Investors `93 L.P.
Accel IV L.P.
Accel Japan L.P.
Accel Keiretsu L.P.
Ellmore C. Patterson Partners
A-2.
<PAGE> 29
Prosper Partners
Attn: Luke B. Evnin, Ph.D.
One Embarcadero Center, Suite 3820
San Francisco, CA 94111
InterWest Investors V
InterWest Partners V
Attn: Arnold Oronsky, Ph.D.
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Oxford Bioscience Partners (Adjunct) L.P.
Oxford Bioscience Partners (Bermuda) L.P.
Oxford Bioscience Partners L.P.
Attn: Edmund M. Olivier
650 Town Center Drive, Suite 810
Costa Mesa, CA 92626
Second Ventures II, L.P.
U.S. Venture Partners IV, L.P.
USVP Entrepreneur Partners II, L.P.
Attn: Philip M. Young
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Harry F. Hixson, Jr. Separate Property Trust, Dated December 15, 1995
Attn: Harry F. Hixson, Ph.D.
c/o Neuroscience Biosciences Inc.
3050 Science Park Road
San Diego, CA 92121-1102
Vertical Fund Associates, L.P.
Attn: John Runnells
18 Bank Street
Summit, NJ 07901
Lehman Brothers
3 World Financial Center
New York, NY 10285
A-3.
<PAGE> 30
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Robertson, Stephens & Company
555 California Street
Suite 2600
San Francisco, CA 94104
A-4.
<PAGE> 31
SCHEDULE B
TO THE INVESTORS' RIGHTS AGREEMENT
Accel IV L.P.
Accel Investors `93 L.P.
Accel Japan L.P.
Accel Keiretsu L.P.
Carl D. Carman
Mark D. Carman
Fred H. Gage Trust
Harry F. Hixson, Jr. Separate Property Trust, Dated December 15, 1995
Georgiana B. Hixson
InterWest Partners V
InterWest Investors V
Kleiner Perkins Caufield & Byers VI
KPCB VI Founders Fund
Matthew A. Megaro
Oxford Bioscience Partners L.P.
Oxford Bioscience Partners (Adjunct) L.P.
Oxford Bioscience Partners (Bermuda) Limited Partnership
Ellmore C. Patterson Partners
Prosper Partners
Second Ventures II, L.P.
B-1
<PAGE> 32
U.S. Venture Partners IV, L.P.
USVP Entrepreneur Partners II, L.P.
Venrock Associates
Venrock Associates II, L.P.
Inder Verma
Vertical Medical Partners, L.P.
B-2
<PAGE> 1
EXHIBIT 10.10
SIGNAL PHARMACEUTICALS, INC.
AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Amendment") is entered into as of November 25, 1997, by and among SIGNAL
PHARMACEUTICALS, INC., a California corporation (the "Company"), and the
undersigned parties (the "Investors") to that certain Amended and Restated
Investors' Rights Agreement dated as of September 9, 1997 (the "Agreement") in
connection with that certain Series F Preferred Stock Purchase Agreement of even
date herewith (the "Stock Purchase Agreement") providing for the issuance and
sale of 2,722,513 shares of Series F Preferred Stock to Ares-Serono S.A. (the
"Financing"). Capitalized terms contained herein shall have the meanings set
forth in the Agreement.
WHEREAS, the Company and the Investors desire to amend the Agreement as
set forth below; and
WHEREAS, the execution of this Amendment by the parties is a condition
to the Financing as set forth in Section 5.7 of the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises set forth below, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties to this Amendment agree
as follows:
1. The definition of "Investor Registrable Securities" set forth in
Section 1.1(d) of the Agreement is hereby amended to read in its entirety as
follows:
The term "Investor Registrable Securities" means (1) the Common
Stock issuable or issued upon conversion of any Series A Preferred
Stock, (2) the Common Stock issuable or issued upon conversion of any
Series B Preferred Stock, (3) the Common Stock issuable or issued upon
conversion of any Series C Preferred Stock, (4) the Common Stock
issuable or issued upon conversion of any Series E Preferred Stock, (5)
the Common Stock issuable or issued upon conversion of any Series F
Preferred Stock, and (6) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Common Stock
issuable or issued upon conversion
1.
<PAGE> 2
thereof, excluding in all cases, however, any Investor Registrable
Securities sold by a person in a transaction in which his rights under
this Section 1 are not assigned.
2. The first paragraph of Section 2.3 of the Agreement is hereby amended
to read in its entirety as follows:
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 2.3, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For
purposes of this Section 2.3, a Major Investor shall mean any Investor
who holds not less than 100,000 shares of Series A, Series B, Series C,
Series E or Series F Preferred Stock in the aggregate. For purposes of
this Section 2.3, Investor includes any general partners and affiliates
of an Investor. An Investor shall be entitled to apportion the right of
first offer hereby granted it among itself and its partners and
affiliates in such proportions as it deems appropriate.
3. Section 2.3(b) of the Agreement is hereby amended to read in its
entirety as follows:
(b) By written notification received by the Company, within 20
calendar days after giving of the Notice, the Major Investor may elect
to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion
that the number of shares of common stock issued and held, or issuable
upon conversion of the Series A, Series B, Series C, Series E and Series
F Preferred Stock then held, by such Major Investor bears to the total
number of shares of common stock of the Company then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities) (the "Pro Rata Share"). The Company shall promptly, in
writing, inform each Major Investor which purchases all the shares
available to it ("Fully-Exercising Investor") of any other Major
Investor's failure to do likewise. During the ten-day period commencing
after such information is given, each Fully-Exercising Investor shall be
entitled to obtain that portion of the Shares for which Major Investors
were entitled to subscribe but which were not subscribed for by the
Major Investors which is equal to the proportion that the number of
shares of common stock issued and held, or issuable upon conversion of
Series A, Series B, Series C, Series E and Series F Preferred Stock then
held, by such Fully-Exercising Investor bears to the total number of
shares of common stock issued and held, or issuable upon conversion of
the Series A, Series B, Series C, Series E and Series F Preferred Stock
then held, by all Fully-Exercising Investors who wish to purchase some
of the unsubscribed shares.
2.
<PAGE> 3
4. Section 3.1 of the Agreement is hereby amended to read in its
entirety as follows:
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or any Common Stock
issued upon conversion thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except
as expressly provided in this Agreement.
5. This Amendment shall be deemed an amendment to the Agreement and
shall become effective when executed by the Company and the holders of at least
a majority of the outstanding shares of Registrable Securities as provided for
under Section 3.7 of the Agreement. Except as expressly amended pursuant to this
Amendment, the Agreement shall continue in full force and effect.
6. This Amendment shall be governed by the laws of the State of
California as applicable to contracts entered into and performed entirely within
the State of California by residents of California.
7. This Amendment may be executed in counterparts, each of which shall
be enforceable against the party actually executing such counterpart, and which
together shall constitute one instrument.
[The remainder of this page is intentionally left blank]
3.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
SIGNAL PHARMACEUTICALS, INC.
By:
------------------------------------
Alan J. Lewis, President
and Chief Executive Officer
INVESTORS:
ARES-SERONO S.A.
By:
-----------------------------------
Its:
-----------------------------------
BIOCENTIVE
By:
-----------------------------------
Its:
-----------------------------------
FINSBURY WORLDWIDE PHARMACEUTICAL
TRUST, PLC
By:
-----------------------------------
Its:
-----------------------------------
<PAGE> 5
LOMBARD ODIER IMMUNOLOGY FUND
By:
-----------------------------------
Its:
-----------------------------------
NEUROSCIENCE PARTNERS LIMITED
PARTNERSHIP
By:
-----------------------------------
Its:
-----------------------------------
NEW YORK LIFE INSURANCE COMPANY
By:
-----------------------------------
Its:
-----------------------------------
PHARMA/WHEALTH
By:
-----------------------------------
Its:
-----------------------------------
THE HEALTH CARE AND BIOTECHNOLOGY
VENTURE FUND
By:
-----------------------------------
Its:
-----------------------------------
<PAGE> 6
BAYVIEW INVESTORS LTD.
By:
-----------------------------------
Its:
-----------------------------------
VENROCK ASSOCIATES
By:
-----------------------------------
Its:
-----------------------------------
VENROCK ASSOCIATES II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
KLEINER PERKINS CAUFIELD & BYERS VI
By:
-----------------------------------
Its:
-----------------------------------
ACCEL INVESTORS `93 L.P.
By:
-----------------------------------
Its:
-----------------------------------
ACCEL IV L.P.
By:
-----------------------------------
Its:
-----------------------------------
Signature Page to Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 7
ACCEL JAPAN L.P.
By:
-----------------------------------
Its:
-----------------------------------
ACCEL KEIRETSU L.P.
By:
-----------------------------------
Its:
-----------------------------------
ELLMORE C. PATTERSON PARTNERS
By:
-----------------------------------
Its:
-----------------------------------
PROSPER PARTNERS
By:
-----------------------------------
Its:
-----------------------------------
INTERWEST INVESTORS V
By:
-----------------------------------
Its:
-----------------------------------
INTERWEST PARTNERS V
By:
-----------------------------------
Its:
-----------------------------------
Signature Page to Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 8
OXFORD BIOSCIENCE PARTNERS (ADJUNCT)
L.P.
By:
-----------------------------------
Its:
-----------------------------------
OXFORD BIOSCIENCE PARTNERS (BERMUDA)
L.P.
By:
-----------------------------------
Its:
-----------------------------------
OXFORD BIOSCIENCE PARTNERS L.P.
By:
-----------------------------------
Its:
-----------------------------------
SECOND VENTURES II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
U.S. VENTURES PARTNERS IV, L.P.
By:
-----------------------------------
Its:
-----------------------------------
USVP ENTREPRENEUR PARTNERS II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
Signature Page to Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 9
HARRY F. HIXSON, JR. SEPARATE PROPERTY
TRUST, DATED DECEMBER 15, 1995
By:
-----------------------------------
Its:
-----------------------------------
VERTICAL FUND ASSOCIATES, L.P.
By:
-----------------------------------
Its:
-----------------------------------
LEHMAN BROTHERS
By:
-----------------------------------
Its:
-----------------------------------
HAMBRECHT & QUIST
By:
-----------------------------------
Its:
-----------------------------------
ROBERTSON, STEPHENS & COMPANY
By:
-----------------------------------
Its:
-----------------------------------
Signature Page to Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 10
HARRY F. HIXSON FAMILY TRUST,
DATED 8/25/86
By:
-----------------------------------
Its:
-----------------------------------
GEORGIANA B. HIXSON
----------------------------------------
TANABE SEIYAKU CO., LTD.
By:
-----------------------------------
Its:
-----------------------------------
VERTICAL MEDICAL PARTNERS L.P.
By:
-----------------------------------
Its:
-----------------------------------
Signature Page to Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 1
EXHIBIT 10.11
LOAN AND SECURITY AGREEMENT
Agreement No. 30433 Dated as of November 22, 1996
between
MMC/GATX PARTNERSHIP NO. I
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
as Lender
and
SIGNAL PHARMACEUTICALS, INC.
a California corporation
5555 Oberlin Drive
San Diego, California 92121
as Borrower
CREDIT AMOUNT: $3,000,000
Treasury Note Maturity: 42 months
Loan Margin: 777 basis points
Commitment Termination Date: November 30, 1996
The defined terms and information set forth on this cover page are a part
of the LOAN AND SECURITY AGREEMENT, dated as of the date first written above
(this "Agreement"), entered into by and between MMC/GATX PARTNERSHIP NO. I
("Lender") and the borrower ("Borrower") set forth above. The terms and
conditions of this Agreement agreed to between Lender and Borrower are as
follows:
<PAGE> 2
ARTICLE I
INTERPRETATION
1.01. Certain Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, the following terms, when used in this Agreement or
any other Operative Document, shall have the following respective meanings:
"Borrower's Home State" shall mean the state in which Borrower's
principal place of business is located.
"Business Day" shall mean any day other than a Saturday, Sunday or
public holiday under the laws of California, Illinois or Borrower's Home State
or other day on which banking institutions are authorized or obligated to close
in California, Illinois or Borrower's Home State.
"Claim" has the meaning given to that term in Section 10.03.
"Collateral" has the meaning given to that term in Section 5.01.
"Commitment Fee" has the meaning given to that term in Section 2.04.
"Commitment Termination Date" shall mean the date specified on the cover
page of this Agreement.
"Credit Amount" shall mean the maximum amount that Lender is committed
to lend (if the conditions specified in Schedule 3 are satisfied), which amount
is set forth following such term on the cover page of this Agreement.
"Current Assets" shall mean the aggregate amount of all of the
consolidated assets of Borrower and its Subsidiaries that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Current Liabilities" shall mean the aggregate amount of all of the
consolidated liabilities of Borrower and its Subsidiaries that would, in
accordance with GAAP, be classified on a balance sheet as current liabilities.
"Default" shall mean any event which with the passing of time or the
giving of notice or both would become an Event of Default hereunder.
"Default Rate" shall mean the per annum rate of interest equal to the
Loan Rate plus 6%, but such rate shall in no event be more than the highest rate
permitted by applicable law.
"Disclosure Schedule" has the meaning set forth in the definition of the
term "Permitted Liens."
"Environmental Law" shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, and any other federal, state or local statute, law, ordinance,
code, rule, regulation, order or decree (in each case having the force of law)
regulating or imposing liability or standards of conduct concerning any
Hazardous Material, as now or at any time hereafter in effect.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
1
<PAGE> 3
"Event of Default" has the meaning given to that term in Section 9.01.
"Funding Date" shall mean the date on which the Loan is made to or on
account of Borrower under this Agreement.
"GAAP" shall mean generally accepted accounting principles and practices
as in effect in the United States of America from time to time, consistently
applied.
"Hazardous Material" means any hazardous, dangerous or toxic constituent
material, pollutant, waste or other substance, whether solid, liquid or gaseous,
which is regulated by any federal, state or local governmental authority.
"Indebtedness" shall mean, with respect to Borrower or any Subsidiary,
the aggregate amount of, without duplication, (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "Indebtedness" shall include all Indebtedness of Borrower and the
Subsidiaries.
"Intellectual Property" shall mean all of Borrower's right, title and
interest in and to patents, patent rights (and applications therefor),
trademarks and service marks (and applications and registrations therefor),
inventions, copyrights, mask works (and applications and registrations
therefor), trade names, trade styles, software and computer programs, trade
secrets, methods, processes, know how, drawings, specifications, descriptions,
and all assays, compounds, cell lines, media, plasmids, gene sequences,
proteins, vectors, other biological or chemical material to the extent the same
are proprietary to Borrower, and all memoranda, notes, and records with respect
to any research and development, all whether now owned or subsequently acquired
or developed by Borrower and whether in tangible or intangible form or contained
on magnetic media readable by machine together with all such magnetic media. The
term "Intellectual Property" shall not include the proceeds of Intellectual
Property except to the extent such proceeds constitute intellectual property.
"Investment" of any Person shall mean any loan or advance of funds by
such Person to any other Person (other than advances to employees of such Person
for moving and travel expense, drawing accounts and similar expenditures in the
ordinary course of business), any purchase or other acquisition of any Equity
Securities or Indebtedness of any other Person, any capital contribution by such
Person to or any other investment by such Person in any other Person (including,
without limitation, any Indebtedness incurred by such Person of the type
described in clauses (a) and (b) of the definition of "Indebtedness" on behalf
of any other Person); provided, however, that Investments shall not include
accounts receivable or other indebtedness owed by customers of such Person which
are current assets and arose from sales or non-exclusive licensing (or exclusive
licensing within a particular field) in the ordinary course of such Person's
business.
"Landlord Consent" shall mean a consent in the form of Exhibit C or such
other form as Lender may agree to accept.
"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
2
<PAGE> 4
"Loan" shall mean the loan advanced by Lender to Borrower under this
Agreement.
"Loan Margin" shall mean the number of basis points set forth following
such term on the cover page of this Agreement.
"Loan Rate" shall mean, with respect to the Loan, the per annum rate of
interest (based on a year of 360 days and actual days elapsed) equal to the sum
of (a) the U.S. Treasury note rate of a term equal to the Treasury Note Maturity
as quoted in The Wall Street Journal on the date two (2) Business Days prior to
the requested Funding Date of the Loan plus (b) the Loan Margin.
"Make-Whole Premium" shall mean an amount equal to the greater of (i)
zero and (ii) the excess of (x) the sum of the present values, at the date of
prepayment of the amount of each remaining scheduled payment of interest on and
principal on the Loan, or portion of such payment, which will not be required to
be made as a result of such prepayment (each such payment an "Amount Payable")
(each such Amount Payable discounted separately at the Treasury Rate plus 100
basis points, determined on the date three (3) Business Days before the date of
prepayment, compounded monthly, from the date such Amount Payable would be due),
over (y) the principal amount of the Loan to be prepaid. The "Treasury Rate"
shall be the yield (as quoted in the "Money Rates" column of The Wall Street
Journal on the date which is three (3) Business Days prior to the date of
prepayment) on U.S. Treasury securities adjusted to a constant maturity equal to
the then remaining number of full months to maturity of the Note.
"Note"shall mean the secured promissory note of Borrower substantially
in the form of Exhibit A.
"Obligations" has the meaning given to that term in Section 5.01.
"Operative Documents" shall mean this Agreement, the Note, the Landlord
Waiver and Consent(s) and all other documents, instruments and agreements
executed and delivered in connection herewith or therewith or in respect of the
closing of the transactions contemplated hereby or thereby, excluding the
warrant.
"Payment Date" means the last day of each calendar month.
"Permitted Indebtedness" shall mean and include:
(a) Indebtedness of Borrower to Lender;
(b) Indebtedness of Borrower secured by Liens described in
clause (d) of the definition of Permitted Liens;
(c) Indebtedness of Borrower to Subordinated Lenders;
(d) Indebtedness arising from the endorsement of instruments
in the ordinary course of business; II. Indebtedness existing on the
date of this Agreement and disclosed in Borrower's financial statements
dated as of September 30, 1996 or on the disclosure schedule attached
hereto as Schedule 2 ("Disclosure Schedule");
(f) Indebtedness consisting of bridge loans from borrower's
shareholders which are convertible into equity securities upon the
closing of the next equity financing or which are to be repaid upon the
closing of such equity offering;
3
<PAGE> 5
(g) Other Indebtedness of Borrower not exceeding Two Hundred
Fifty Thousand Dollars ($250,000) at any time;
(h) Extensions, renewals, refinancings, modifications,
amendments and restatements of any of the foregoing; provided, that the
amount thereof is not increased or the terms thereof are not modified to
impose more burdensome terms on the Borrower.
"Permitted Investments" shall mean and include:
(a) Deposits with commercial banks organized under the laws
of the United States or a state thereof to the extent such deposits are
fully insured by the Federal Deposit Insurance Corporation;
(b) Investments in marketable obligations issued or fully
guaranteed by the United States and maturing not more than thirteen (13)
months from the date of issuance; and
(c) Investments in open market commercial paper rated at
least "A1" or "P1" or higher by a national credit rating agency and
maturing not more than one (1) year from the creation thereof.
(d) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary
course of business;
(e) Investments consisting of deposit accounts of Borrower
in which Lender has a perfected security interest;
(f) Investments permitted by Borrower's written and then
current investment policy, as amended from time to time and approved by
Borrower's Board of Directors; provided, that such investment policy and
any amendments thereto from time to time have been approved in writing
by Lender;
(g) Investments existing on the date of this Agreement
disclosed on the Schedule;
(h) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or
suppliers, in each case, if created, acquired or made in the ordinary
course of business;
(i) Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions to customers and suppliers
in the ordinary course of business;
(j) Other Investments aggregating not in excess of Two
Hundred Fifty Thousand Dollars ($250,000) at any time; and
(k) Investments consisting of (i) employee relocation loans
and other employee loans not for ordinary business purposes, and (ii)
loans to employees, officers or directors relating to the purchase of
Equity Securities of Borrower, all of which loans described in clauses
(i) and (ii) shall not exceed $250,000 in the aggregate (but excluding
the relocation loan to Allen Lewis in such calculation).
"Permitted Liens" shall mean (a) the Lien created by this Agreement, (b)
Liens for fees, taxes, levies, imposts, duties or other governmental charges of
any kind which are not yet delinquent or which are being contested in good
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faith by appropriate proceedings which suspend the collection thereof (provided,
however, that such proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any material portion of the Collateral subject to
the Lien hereof and that Borrower has adequately bonded such Lien or reserves
sufficient to discharge such Lien have been provided on the books of Borrower),
(c) Liens identified on Borrower's financial statements dated as of September
30, 1996 or in the Disclosure Schedule, (d) Liens upon any equipment or other
personal property acquired by Borrower to secure (i) the purchase price of such
equipment or other personal property or (ii) lease obligations or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment
or other personal property; provided that (A) such Liens are confined solely to
the equipment or other personal property so acquired, and (B) no such Lien shall
be created, incurred, assumed or suffered to exist in favor of Borrower's
officers, directors or shareholders holding five percent (5%) or more of
Borrower's Equity Securities unless such Lien is created, incurred, assumed or
suffered to exist on terms no less favorable to Borrower than those available
from third parties in arms-length transactions, (e) Liens on and licenses of
Borrower's Intellectual Property in connection with a merger, acquisition, joint
venture, business, research or development collaboration or similar agreement,
(f) Liens granted to Subordinated Lenders, (g) Liens consisting of leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of Borrower's business not interfering in any material respect with the business
of Borrower and any interest or title of a lessor or licensor under any lease or
license, as applicable, (h) liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons or entities
imposed without action of such parties, provided that the payment thereof is not
yet required or that Borrower is in good faith contesting such claim or demand,
(i) liens incurred or deposits made in the ordinary course of Borrower's
business in connection with worker's compensation, unemployment insurance,
social security and other like laws, (j) liens arising from judgments, decrees
or attachments in circumstances not constituting an Event of Default, (k) liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods, (l) liens
that are not prior to Lender's security interest which constitute rights of
set-off of a customary nature; and (m) Liens on Borrower's property or assets
created in connection with the refinancing of Indebtedness secured by Permitted
Liens on such Property, provided that the amount of Indebtedness secured by any
such Lien shall not be increased as a result of such refinancing and no such
Lien shall extend to property and assets of Borrower not encumbered prior to any
such refinancing.
"Person" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.
"Prime Rate" shall mean the interest rate per annum publicly announced
from time to time by Bank of America NT & SA (or its successor) as its reference
rate, but such rate shall in no event be more than the highest interest rate
permitted by applicable law.
"Subordinated Lenders" shall mean lenders providing subordinated loans
to Borrower on terms and conditions (including subordination provisions)
reasonably acceptable to Lender.
"Subsidiary" shall mean any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.
"Term" shall mean the period from and after the date hereof until the
payment or satisfaction in full of all Obligations under this Agreement and the
Note.
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"Treasury Note Maturity" shall mean the period of months set forth
following such term on the cover page of this Agreement.
"Warrant" shall mean a warrant to purchase securities of Borrower
substantially in the form of Exhibit C.
1.02. Headings. Headings in this Agreement and each of the other
Operative Documents are for convenience of reference only and are not part of
the substance hereof or thereof.
1.03. Plural Terms. All terms defined in this Agreement or any other
Operative Document in the singular form shall have comparable meanings when used
in the plural form and vice versa.
1.04. Construction. This Agreement is the result of negotiations
among, and has been reviewed by, Borrower and Lender and their respective
counsel. Accordingly, this Agreement shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Borrower or Lender.
1.05. Entire Agreement. This Agreement, together with the terms set
forth in each of the other Operative Documents, taken together, constitute and,
contain the entire agreement of Borrower and Lender and, with regard to their
respective subject matters, supersede any and all prior agreements, term sheets,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, with respect to their respective subject
matters.
1.06. Other Interpretive Provisions. References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to recitals,
articles, sections, exhibits, schedules and annexes herein and hereto unless
otherwise indicated. References in this Agreement and each of the other
Operative Documents to any document, instrument or agreement shall include (a)
all exhibits, schedules, annexes and other attachments thereto, (b) all
documents, instruments or agreements issued or executed in replacement thereof,
and (c) such document, instrument or agreement, or replacement or predecessor
thereto, as amended, modified and supplemented from time to time and in effect
at any given time. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement or any other Operative Document shall
refer to this Agreement or such other Operative Document, as the case may be, as
a whole and not to any particular provision of this Agreement or such other
Operative Document, as the case may be. The words "include" and "including" and
words of similar import when used in this Agreement or any other Operative
Document shall not be construed to be limiting or exclusive. Unless otherwise
indicated in this Agreement or any other Operative Document, all accounting
terms used in this Agreement or any other Operative Document shall be construed,
and all accounting and financial computations hereunder or thereunder shall be
computed, in accordance with generally accepted accounting principles as in
effect in the United States of America from time to time.
ARTICLE II
THE CREDIT
2.01. Credit Facility
(a) Commitment. On the terms and subject to the conditions hereof and
relying upon the representations and warranties herein set forth as and when
made or deemed to be made, Lender agrees to make a Loan in the principal amount
of Three Million Dollars ($3,000,000).
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(b) Loan Interest Rate. Borrower shall pay interest on the unpaid
principal amount of the Loan from the date of the Loan until the Loan is paid in
full, at a per annum rate of interest equal to the Loan Rate determined in
accordance with the definition of Loan Rate. The Loan Rate applicable to the
Loan shall not be subject to change in the absence of manifest error. All
computations of interest on the Loan shall be based on a year of 360 days and
actual days elapsed. If Borrower pays interest on any Loan which is determined
to be in excess of the then legal maximum rate, then that portion of each
interest payment representing an amount in excess of the then legal maximum rate
shall be deemed a payment of principal and applied against the principal of the
Loan.
(c) Payments of Principal and Interest. Borrower shall make payments of
accrued interest only on the outstanding principal amount of the Loan on each
Payment Date through and including May 31, 1997. Thereafter, on each Payment
Date, commencing on June 30, 1997, Borrower shall make thirty-five (35) payments
of principal equal to $83,333.33 and a final payment of $83,333.45, plus accrued
but unpaid interest (at the rate applicable to the Loan) on the unpaid principal
balance of the Loan, until the Loan is paid in full.
2.02. Use of Proceeds; the Loan and the Note; Disbursement.
(a) Use of Proceeds. The proceeds of the Loan shall be used solely for
working capital or general corporate purposes of Borrower including capital
investments.
(b) The Loan and the Note. The obligation of Borrower to repay the
unpaid principal amount of and interest on the Loan shall be evidenced by the
Note. Lender may, and is hereby authorized by Borrower to, endorse on a grid
annexed to the Note appropriate notations regarding the Loan; provided, however,
that the failure to make, or an error in making, any such notation shall not
limit or otherwise affect the obligations of Borrower hereunder or under the
Note.
(c) Disbursement. Subject to the satisfaction of the conditions set
forth in this Agreement, Lender shall disburse such Loan by wire transfer to
Borrower unless otherwise directed in writing by Borrower.
(d) Termination of Commitment to Lend. Notwithstanding anything to the
contrary in the Operative Documents, Lender's obligation to lend the undisbursed
portion of the Credit Amount to Borrower hereunder shall terminate on the
earlier of (i) the occurrence of any Event of Default hereunder which is not
cured to Lender's satisfaction prior to the Commitment Termination Date, and
(ii) the Commitment Termination Date.
(e) Optional Prepayment with Premium. Upon three (3) Business Days'
prior written notice to Lender, Borrower may, at its option, at any time, prepay
the Loan, either in whole or from time to time in any part of the principal
amount thereof equal to $500,000 or more (unless the prepayment consists of the
remaining balance o f the Loan), at a prepayment price equal to the principal
amount of the Loan so to be prepaid, plus interest accrued thereon through and
including the date of such prepayment, plus a premium equal to the Make-Whole
Premium. Any prepayment of principal shall be applied pro rata to the scheduled
principal payments.
2.03. Other Payment Terms
(a) Place and Manner. Borrower shall make all payments due to Lender in
lawful money of the United States, in immediately available funds, at the
address for payments and in the manner specified in Section 10.05(b).
(b) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) Default Rate. If either (i) any amounts required to be paid by
Borrower under this Agreement or the Note (including principal or interest
payable on any Loan, any fees or other amounts) remain unpaid after such
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amounts are due, or (ii) an Event of Default has occurred and is continuing,
Borrower shall pay interest on the outstanding principal balance hereunder from
the date due or from the date of the Event of Default, as applicable, until such
past due amounts are paid in full or until all Events of Defaults are cured, as
applicable, at a per annum rate equal to the Default Rate, such rate to change
from time to time as the Prime Rate shall change. All computations of such
interest at the Default Rate shall be based on a year of 360 days and actual
days elapsed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warrants. Except as set forth in the
Disclosure Schedule, Borrower makes the following representations and warranties
to Lender as of the date hereof and again on the Funding Date:
(a) Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and is duly qualified to do business in Borrower's Home State.
Borrower has no Subsidiaries.
(b) Authority. Borrower has all necessary corporate power, authority and
legal right and has obtained all approvals and consents and has given all
notices necessary to execute and deliver this Agreement and the other Operative
Documents and to perform the terms hereof and thereof. Borrower has all
requisite corporate power and authority to own and operate its properties and to
carry on its businesses as now conducted.
(c) Conflict with Other Instruments, etc. Neither the execution and
delivery of any Operative Document to which Borrower is a party nor the
consummation of the transactions therein contemplated nor compliance with the
terms, conditions and provisions thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.
(d) Title to Properties. Borrower has good and marketable title to the
Collateral, free and clear of all Liens, other than Permitted Liens. Borrower
has title and ownership of, or is licensed under, all Intellectual Property,
with no known infringement of the established rights of others. Borrower has not
received any communications alleging that Borrower has violated, or by
conducting its business as proposed, would violate any proprietary rights of any
other Person. Borrower has no knowledge of any infringement or violation by it
of the established intellectual property rights of any third party and, except
as set forth on the Disclosure Schedule, has no knowledge of any violation or
infringement by a third party of any of its Intellectual Property. The
Collateral and the Intellectual Property constitute substantially all of the
assets and property of Borrower. Borrower does not own any right, title or
interest in or to any real property (except for its interest in tenant
improvements and other rights under its real property lease or motor vehicles,
other than motor vehicles leased for executives as part of a benefit
arrangement.
(e) Authorization, Governmental Approvals, etc. The execution and
delivery by Borrower of each Operative Document, the granting of the security
interest in the Collateral, the issuance of the Warrant, the issuance of the
securities into which the Warrant is exercisable, the issuance of any securities
into which the securities issuable upon exercise of the Warrant are convertible,
and the performance of the obligations herein and therein contemplated have each
been duly authorized by all necessary action on the part of Borrower. No
authorization, consent, approval, license or exemption of, and no registration,
qualification, designation, declaration or filing with, or notice to, any Person
is, was or will be necessary to (i) the valid execution and delivery of any
Operative Document to which Borrower is a party, (ii) the performance of
Borrower's obligations under any Operative Document, or (iii) the
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granting of the security interest in the Collateral, except for filings in
connection with the perfection of the security interest in any of the Collateral
or the issuance of the Warrant. The Operative Documents have been or will be
duly executed and delivered and constitute or will constitute legal, valid and
binding obligations of Borrower, enforceable in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws of general application relating to or affecting
the enforcement of creditors' rights or by general principles of equity.
(f) Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Borrower, threatened against or
affecting Borrower, or the business or any property or asset owned by it, before
any court or governmental department, agency or instrumentality which, if
adversely determined, would reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower.
(g) Disclosure. Neither any Operative Document nor any other agreement,
document or certificate furnished by Borrower to Lender, including, without
limitation, historical financial statements, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact known
to Borrower which materially adversely affects, or which would in the future
reasonably be expected to materially adversely affect, its ability to perform
its obligations under the Operative Documents to which it is a party.
(h) Security Interest. Assuming the proper filing of one or more
financing statement(s) identifying the Collateral with the proper state and/or
local authorities, the security interests in the Collateral granted to Lender
pursuant to this Agreement (i) constitute and will continue to constitute first
priority security interests (except to the extent any other Permitted Lien may
be prior to Lender's Lien under this Agreement) and (ii) are and will continue
to be superior and prior to the rights in the Collateral of all other creditors
of Borrower (except to the extent of such Permitted Liens).
(i) Executive Offices. The principal place of business and chief
executive office of Borrower, and the office where Borrower will keep all
records and files regarding the Collateral, is set forth on the cover page of
this Agreement.
ARTICLE IV
REPORTING REQUIREMENTS
4.01. Furnishing Reports. Borrower shall furnish to Lender:
(a) Financial Statements. So long as Borrower is not subject to the
reporting requirements of Section 12 or Section 15 of the Securities and
Exchange Act of 1934, as amended, promptly as they are available, unaudited
monthly and audited annual financial statements of Borrower and such other
financial information as Lender may reasonably request from time to time. From
and after such time as Borrower becomes a publicly reporting company, promptly
as they are available and in any event: (i) at the time of filing of Borrower's
Form 10-K with the Securities and Exchange Commission after the end of each
fiscal year of Borrower, the financial statements of Borrower filed with such
Form 10-K; and (ii) at the time of filing of Borrower's Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q.
(b) Notice of Defaults. As soon as possible, and in any event within
five (5) Business Days after the discovery of a Default or Event of Default
provide Lender with an Officer's Certificate of Borrower setting forth the facts
relating to or giving rise to such Default or Event of Default and the action
which Borrower proposes to take with respect thereto.
(c) Miscellaneous. Such other information as Lender may reasonably
request from time to time.
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ARTICLE V
GRANT OF SECURITY INTEREST
GENERAL PROVISIONS CONCERNING SECURITY
5.01. Grant of Security Interest. Borrower, in order to secure the
payment of the principal and interest with respect to the Loan made pursuant to
this Agreement, all other sums due under and in respect hereof and of the Note,
including reasonable fees, charges, expenses and attorneys' fees and costs and
the performance and observance by Borrower of all other terms, conditions,
covenants and agreements herein and in the Note (all such amounts and
obligations being herein sometimes called the "Obligations"), does hereby grant
to Lender and its successors and assigns a security interest in and to the
following property (collectively, the "Collateral"): All right, title, interest,
claims and demands of Borrower in and to:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment,
office equipment, machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing (but specifically excluding
from the term "inventory" all items constituting the physical embodiment of
intellectual property and media in or on which physical embodiments of
intellectual property are actually being stored);
(c) All contract rights and general intangibles (except to the
extent included within the definition of Intellectual Property or where licensed
to or by borrower pursuant to a license that would become void or voidable or
which would cause any other license to become void or voidable on the pledge of
a security interest in it), now owned or hereafter acquired, including, without
limitation, goodwill, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer disks, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's books relating to the
foregoing;
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof,
including, without limitation, insurance, condemnation, requisition or similar
payments and proceeds of the sale or licensing of Intellectual Property to the
extent such proceeds no longer constitute Intellectual Property; but
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(g) Excluding, all Intellectual Property.
The security interest granted in this Section 5.1 shall be subject to the
contractual rights of third parties to require funds received by Borrower to be
expended in a particular manner.
5.02. Duration of Security Interest. Lender's security interest in the
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate. Lender, upon
payment in full and the satisfaction of the Obligations, shall execute such
further documents and take such further actions as may be necessary to effect
the release and/or termination contemplated by this Section 5.02, including duly
executing and delivering termination statements for filing in all relevant
jurisdictions.
5.03. Possession of Collateral. Except as set forth in Section 5.04,
so long as no Event of Default has occurred and is continuing, Borrower shall
remain in full possession, enjoyment and control of the Collateral (except only
as may be otherwise required by Lender for perfection of its security interest
therein) and to manage, operate and use the same and each part thereof with the
rights and franchises appertaining thereto; provided, however, that the
possession, enjoyment, control and use of the Collateral shall at all times be
subject to the observance and performance of the terms of this Agreement.
5.04 Lien Subordination. Lien Subordination. Lender agrees that the
Liens granted to it hereunder shall be subordinate to the Liens of existing and
future lenders providing equipment financing and tenant improvements and
equipment lessors; provided that such Liens are confined solely to the equipment
so financed, together with accessions, replacements and the proceeds thereof;
and provided, further, that the Obligations hereunder shall not be subordinate
in right of payment to any obligations to other lenders or equipment lessors and
Lender's rights to exercise remedies hereunder shall not in any way be
subordinate to the rights of any such lenders or equipment lessors. Lender
agrees to execute and deliver such agreements and documents as may be reasonably
requested by Borrower from time to time which set forth the lien subordination
described in this Section 5.05 and are reasonably acceptable to Lender. Lender
shall have no obligation to execute any agreement or document which would impose
obligations, restrictions or lien priority on Lender which are less favorable
than those described in this Section 5.05. Borrower may grant additional
security interests in the Collateral to Subordinated Lenders.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01. Affirmative Covenants
(a) Payment of Taxes, etc. Borrower shall pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; provided that there shall be no
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize a
material portion of the Collateral or (ii) for which payment in full is bonded
or reserved in Borrower's financial statements.
(b) Inspection Rights. Borrower shall, at any reasonable time and from
time to time, upon reasonable notice during normal business hours, permit Lender
or any of its agents or representatives to inspect the Collateral, to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, Borrower and to discuss the affairs, finances and
accounts of Borrower with any of its officers or directors relating in each case
to Lender's capacity as lender and secured party hereunder and with respect to
the Collateral.
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(c) Maintenance of Equipment and Similar Assets. Borrower shall keep and
maintain all items of equipment and other similar types of personal property
that form any significant portion or portions of the Collateral in good
operating condition and repair and shall make all necessary replacements thereof
and renewals thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved, ordinary wear and tear excepted. Borrower
shall not permit any such material item of Collateral to become a fixture to
real estate or an accession to other personal property, without the prior
written consent of Lender unless a Landlord Consent has been obtained in
relation to such real property. Borrower shall not permit any such material item
of Collateral to be operated or maintained in violation of any applicable law,
statute, rule or regulation except where such violation would not reasonably be
expected to have a material adverse effect on the financial condition, business
or operations of Borrower. With respect to items of leased equipment (to the
extent Lender has any security interest in any residual Borrower's interest in
such equipment under the lease), Borrower shall keep, maintain, repair, replace
and operate such leased equipment in accordance with the terms of the applicable
lease.
(d) Insurance.
(i) Borrower shall, obtain and maintain for the Term, at its own
expense, (x) "all risk" insurance against loss or damage to the Collateral
(which need not include earthquake coverage), (y) commercial general liability
insurance (including contractual liability, products liability and completed
operations coverages) reasonably satisfactory to Lender, and (z) such other
insurance against such other risks of loss and with such terms, as shall in each
case be reasonably satisfactory to or reasonably required by Lender (as to
carriers, amounts and otherwise). The amount of the "all risk" insurance shall
be determined to Lender's reasonable satisfaction as of each anniversary date of
this Agreement and the appropriate amount of coverage shall be put in effect on
the next succeeding renewal or inception date of such insurance.
(ii) The deductible with respect to "all-risk" insurance required by
clause (x) above and product liability insurance required by clause (y) above
shall not exceed $25,000; otherwise there shall be no deductible with respect to
any insurance required to be maintained hereunder. The amount of commercial
general liability insurance (other than products liability coverage and
completed operations insurance) required by clause (y) above shall be at least
$2,000,000 per occurrence. The amount of the products liability and completed
operations insurance required by clause (y) above shall be at least $2,000,000
per occurrence. Each "all risk" policy shall: (x) name Lender as loss payee, (y)
provide for each insurer's waiver of its right of subrogation against Lender,
and (z) provide that such insurance (A) shall not be invalidated by any action
of, or breach of warranty by, Borrower of a provision of any of its insurance
policies, and (B) shall waive set-off, counterclaim or offset against Lender.
Each liability policy shall (w) name Lender as an additional insured in the full
amount of Lender's liability coverage limits (or the coverage limits of any
successor to Lender or such successor's parent which is providing coverage) and
(x) provide that such insurance shall have cross-liability and severability of
interest endorsements (which shall not increase the aggregate policy limits of
Borrower's insurance). All insurance policies shall (y) provide that Borrower's
insurance shall be primary without a right of contribution of Lender's
insurance, if any, or any obligation on the part of Lender to pay premiums of
Borrower, and (z) shall contain a clause requiring the insurer to give Lender at
least 30 days' prior written notice of its cancellation (other than cancellation
for non-payment for which 10 days' notice shall be sufficient). Borrower shall
on or prior to the first Funding Date and prior to each policy renewal, furnish
to Lender certificates of insurance or other evidence satisfactory to Lender
that such insurance coverage is in effect.
Notwithstanding the foregoing, Borrower shall not be required to carry
products liability and completed operations insurance until the commencement of
clinical trials of Borrower's products, unless during such clinical trials
Borrower and Lender are indemnified in a manner satisfactory to Lender by a
licensee pharmaceutical company conducting such clinical trials; provided, that,
in any case, Borrower shall obtain products liability insurance and completed
operations insurance prior to its undertaking any manufacturing or sales
activities.
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<PAGE> 14
ARTICLE VII
NEGATIVE COVENANTS
7.01. Negative Covenants. So long as the Obligations remain
outstanding, without Lender's prior written consent, Borrower shall not:
(a) Name; Location of Chief Executive Office and Collateral. Without
thirty (30) days prior written notice to Lender, change its chief executive
office or principal place of business or remove or cause to be removed from the
location set forth on the cover page hereof or move any Collateral to a location
other than that set forth on the cover page hereof.
(b) Liens on Collateral. Create, incur, assume or suffer to exist any
Lien of any kind upon any Collateral, whether now owned or hereafter acquired,
except Permitted Liens.
(c) Negative Pledge Regarding Intellectual Property. Create, incur,
assume or suffer to exist any Lien of any kind upon any Intellectual Property,
whether now owned or hereafter acquired, except Permitted Liens and except any
residual patent rights associated with patents acquired by or licensed to or by
Borrower.
(d) Dispositions of Collateral or Intellectual Property. Convey, sell,
offer to sell, lease, transfer, exchange or otherwise dispose of (collectively,
a "Transfer") all or any part of the Collateral to any Person, other than: (i)
transfers of inventory in the ordinary course of business; (ii) transfers of
non-exclusive licenses or licenses which are exclusive with respect to a
particular field and similar arrangements for the use of the property of
Borrower in the ordinary course of business; (iii) transfers of worn-out or
obsolete equipment, or (iv) other Transfers not exceeding $100,000 in the
aggregate in any fiscal year. It is expressly agreed and understood that the
ordinary course of Borrower's business includes entering into agreements and
arrangements with third parties for research, development, manufacturing, sale
or marketing of products and the licensing of Intellectual Property in
connection with such agreements and arrangements.
(e) Distributions. (i) Pay any dividends or make any distributions on
its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise
acquire for value any of its Equity Securities (other than repurchases pursuant
to the terms of employee stock purchase plans, employee restricted stock
agreements or similar arrangements) in an aggregate amount not to exceed
$100,000 in any fiscal year; (iii) return any capital to any holder of its
Equity Securities as such; (iv) make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity Securities as
such; or (v) set apart any sum for any such purpose; provided, however, that
Borrower may pay dividends payable solely in Common Stock and may convert
convertible securities into other securities according to the terms of such
securities.
(f) Mergers or Acquisitions. Merge or consolidate with or into any other
Person or acquire or all or substantially all of the capital stock or assets of
another Person unless such merger, consolidation or acquisition is a Permitted
Investment; provided, that if Lender does not consent to a transaction otherwise
prohibited by this Section 2.01(f), Borrower shall have the right to prepay the
Loans pursuant to the provisions of this Agreement.
(i) Transactions With Affiliates. Shall enter into any contractual
obligation with any affiliate or engage in any other transaction with any
affiliate except upon terms at least as favorable to Borrower or such Subsidiary
as an arms-length transaction with unaffiliated Persons.
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<PAGE> 15
(j) Maintenance of Accounts. Maintain any deposit accounts or accounts
holding securities owned by Borrower except (i) accounts located at Wells Fargo
Bank , N.A. and (ii) other accounts with respect to which Lender takes such
action as it deems necessary to obtain a perfected security interest in such
account.
(k) Indebtedness Payments. Prepay, redeem, purchase, defease or
otherwise satisfy in any manner prior to the scheduled repayment thereof any
Indebtedness for borrowed money (other than amounts due under this Agreement,
the Note or Borrower's note with General Electric Capital Corporation) or lease
obligations, (ii) amend, modify or otherwise change the terms of any
Indebtedness for borrowed money (other than the Obligations) or lease
obligations so as to accelerate the scheduled repayment thereof or (iii) repay
any notes to officers, directors or shareholders, except bridge loans made in
contemplation of an equity offering which are being repaid with the proceeds of
such offering. This Section 7.01(k) shall not be deemed to cover draws on a
restricted cash account by Borrower's landlord pursuant to documentation
existing on the date hereof so long as Borrower does not control such draws.
(l) Subsidiaries. Without the prior written consent of Lender, form any
Subsidiary.
(m) Indebtedness. Create, incur, assume or permit to exist any
Indebtedness except Permitted Indebtedness.
(n) Investments. Make any Investment except for Permitted Investments.
ARTICLE VIII
CONDITIONS PRECEDENT
8.01. Closing. At the time of execution and delivery of this
Agreement, Borrower shall have duly executed and/or delivered to Lender the
items set forth in Part I of Schedule 3.
8.02. Other Conditions. The obligation of Lender to make the Loan
shall be subject to the execution and/or delivery to Lender of each of the items
set forth in Part I of Schedule 3 and the satisfaction of by Borrower of each
condition set forth in Part II of Schedule 3.
8.03. Covenant to Deliver. Borrower agrees (not as a condition but as
a covenant) to deliver to Lender each item required to be delivered to Lender as
a condition to the Loan, if the Loan is advanced. Borrower expressly agrees that
the extension of such Loan prior to the receipt by Lender of any such item shall
not constitute a waiver by Lender of Borrower's obligation to deliver such item.
ARTICLE IX
DEFAULT AND REMEDIES
9.01. Events of Default. An "Event of Default" shall mean the
occurrence of one or more of the following described events:
(a) Borrower shall (i) default in the payment of principal of or
interest on the Loan for five (5) days after the same is due, or (ii) default in
the payment of any expense or other amount payable hereunder or thereunder for
ten (10) days after receipt of written notice from Lender that the same is due;
or
(b) Borrower shall breach any provision of Section 7.01 or Section
6.01(d); or
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<PAGE> 16
(c) Borrower shall default in the performance of any covenant, agreement
or obligation (other than a covenant, agreement or obligation referred to in,
Section 9.01(a) or Section 9.01(b)) contained in any Operative Document (other
than the Warrant) and Borrower shall fail to cure within thirty (30) days after
receipt of written notice from Lender any default in the performance of any such
covenant, agreement or obligation contained therein; or
(d) Any representation or warranty made herein or on the Funding Date by
Borrower in any Operative Document, or any certificate or financial statement
furnished pursuant to the provisions of any Operative Document, shall prove to
have been false or misleading in any material respect as of the time made or
furnished; or
(e) Any Operative Document shall in any material respect cease to be, or
Borrower shall assert that any Operative Document is not, a legal, valid and
binding obligation of Borrower enforceable in accordance with its terms; or
(f) A default shall exist under any agreement with any third party or
parties (but excluding Borrower's note due to General Electric Capital
Corporation) which consists of the failure to pay any Indebtedness at maturity
or which results in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness of Borrower in an
amount in excess of Two Hundred Fifty Thousand Dollars ($250,000); or
(g) A final judgment or order for the payment of money in excess of Two
Hundred Fifty Thousand Dollars ($250,000) (exclusive of amounts covered by
insurance issued by an insurer not an affiliate of Borrower) shall be rendered
against Borrower and the same shall remain undischarged for a period of thirty
(30) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy; or
(h) a proceeding shall have been instituted in a court of competent
jurisdiction seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee (or similar official) of Borrower or
for any substantial part of its property, or for the winding-up or liquidation
of its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of forty-five (45) consecutive days or such court shall
enter a decree or order granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian (or other similar official)
of Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
any of the foregoing.
9.02. Consequences of Event of Default. (a) If an Event of Default
specified under clauses (a) through (g) of Section 9.01 shall occur and be
continuing, Lender may (i) declare the Loan, together with interest thereon,
plus premium and all other liabilities of Borrower hereunder and under the Note
to be immediately due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived, and (ii)
terminate its commitment to make the Loan and terminate any commitment to
advance money or extend credit to or for the benefit of Borrower pursuant to any
other agreement or commitment extended by Lender to Borrower.
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<PAGE> 17
(b) If an Event of Default specified under clause (h) or (i) of Section
9.01 shall occur, then immediately and without notice (i) the Loan, together
with interest thereon, plus premium, and all other liabilities of Borrower
hereunder and under the other Operative Documents shall automatically become due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and (ii) Lender's commitment hereunder to
make the Loan and any other commitment of Lender to Borrower to advance money or
extend credit pursuant to any other agreement or commitment shall be terminated.
9.03. Rights Regarding Collateral. Borrower agrees that when any Event
of Default has occurred and is continuing, Lender shall have the rights,
options, duties and remedies of a secured party as permitted by law and, in
addition to and without limiting the foregoing, Lender may exercise any one or
more or all, and in any order, of the remedies herein set forth, including the
following:
(a) Lender, personally or by agents or attorneys, shall have the right
(subject to compliance with any applicable mandatory legal requirements) to
require Borrower to assemble the Collateral and make it available to Lender at a
place to be designated by Lender or to take immediate possession of the
Collateral, or any portion thereof, and for that purpose may pursue the same
wherever it may be found, and may enter any of premises of Borrower, with or
without notice, demand, process of law or legal procedure, to the extent
permitted by applicable law, and search for, take possession of, remove, keep
and store the same, or use and operate or lease the same until sold. In
furtherance of Lender's rights hereunder, Borrower hereby grants to Lender an
irrevocable, non-exclusive license (exercisable without royalty or other payment
by Lender) to use, license or sublicense any trademark or trade name in which
Borrower now or hereafter has any right, title or interest together with the
right of access to all media in which any of the foregoing may be recorded or
stored; provided, however, that such license shall only be exercisable in
connection with the disposition of Collateral upon Lender's exercise of its
remedies as permitted hereunder.
(b) Lender may, if at the time such action may be lawful and always
subject to compliance with any mandatory legal requirements, either with or
without taking possession and either before or after taking possession, without
instituting any legal proceedings whatsoever, having first given notice of such
sale by registered or certified mail to Borrower once at least ten (10) days
prior to the date of such sale, and having first given any other notice which
may be required by law, sell and dispose of the Collateral, or any part thereof,
at a private sale or at public auction, to the highest bidder, in one lot as an
entirety or in separate lots, and either for cash or on credit and on such terms
as Lender may determine, and at any place (whether or not it be the location of
the Collateral or any part thereof) designated in the notice referred to above.
To the extent permitted by applicable law, any such sale or sales may be
adjourned from time to time by announcement at the time and place appointed for
such sale or sales, or for any such adjourned sale or sales, without further
published notice, and Borrower, Lender or the holder or holders of the Note, or
of any interest therein, may bid and become the purchaser at any such sale.
(c) Lender may proceed to protect and enforce this Agreement and the
other Operative Documents by suit or suits or proceedings in equity, at law or
in bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained or in execution or aid of any power herein granted;
or for foreclosure hereunder, or for the appointment of a receiver or receivers
for any real property security or any part thereof, or for the recovery of
judgment for the Obligations or for the enforcement of any other proper, legal
or equitable remedy available under applicable law.
9.04. Effect of Sale. Any sale, whether under any power of sale
available to Lender or by virtue of judicial proceedings, shall operate to
divest all right, title, interest, claim and demand whatsoever, either at law or
in equity, of Borrower in and to the property sold, and shall be a perpetual
bar, both at law and in equity, against Borrower, its successors and assigns,
and against any and all persons claiming the property sold or any part thereof
under, by or through Borrower, its successors or assigns.
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<PAGE> 18
9.05. Application of Collateral Proceeds. The proceeds and/or avails
of the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lender at the
time of, or received by Lender after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses, including
all amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies,
and of all proper fees, expenses, liability and advances, including reasonable
legal expenses and attorneys' fees, incurred or made hereunder by Lender;
(b) Second, to the payment to Lender of the amount then owing or unpaid
on the Note, and in case such proceeds shall be insufficient to pay in full the
whole amount so due, owing or unpaid upon the Note, then first, to the unpaid
interest thereon, second, to unpaid principal thereof and third to the remaining
balance of the Obligations under the Note; such application to be made upon
presentation of the Note, and the notation thereon of the payment, if partially
paid, or the surrender and cancellation thereof, if fully paid;
(c) Third, to the payment of other amounts then payable to Lender under
this Agreement or the Note; and
(d) Fourth, to the payment of the surplus, if any, to Borrower, its
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
9.06. Reinstatement of Rights. If Lender shall have proceeded to
enforce any right under this Agreement the Note or the Landlord Waiver by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Lender shall be restored to its former position and
rights hereunder with respect to the property subject to the security interest
created under this Agreement.
ARTICLE X
MISCELLANEOUS
10.01. Modifications, Amendments or Waivers. The provisions of any
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.
10.02. No Implied Waivers; Cumulative Remedies; Writing Required. No
delay or failure of Lender in exercising any right, power or remedy hereunder
shall affect or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or remedy preclude any further exercise thereof or of any other
right, power or remedy. The rights and remedies hereunder of Lender are
cumulative and not exclusive of any rights or remedies which it would otherwise
have. Any waiver, permit, consent or approval of any kind or character on the
part of Lender of any breach or default under this Agreement or any such waiver
of any provision or condition of this Agreement must be in writing and shall be
effective only in the specified instance and to the extent specifically set
forth in such writing.
10.03. Expenses; Indemnification. Borrower agrees upon demand to pay or
reimburse Lender for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and expenses of counsel for Lender, from time to time
arising in connection with (i) the documentation, negotiation, execution and
delivery of the Operative Documents, but in an amount not to exceed $5,000, and
(ii) the enforcement or collection of the Obligations. Borrower shall indemnify,
reimburse and hold Lender, each of Lender's partners, and each of their
respective successors, assigns, agents, officers, directors, shareholders,
servants, agents and employees (each, a "Related
17
<PAGE> 19
Party") harmless from and against all liabilities, losses, damages, actions,
suits, demands, claims of any kind and nature (including claims relating to
environmental discharge, cleanup or compliance), all costs and expenses
whatsoever to the extent they may be incurred or suffered by such indemnified
party in connection therewith (including reasonable attorneys' fees and
expenses), fines, penalties (and other charges of applicable governmental
authorities), licensing fees relating to any item of Collateral, damage to or
loss of use of property (including consequential or special damages to third
parties or damages to Borrower's property), or bodily injury to or death of any
person (including any agent or employee of Borrower) (each, a "Claim"), directly
or indirectly relating to or arising out of the use of the proceeds of the Loan
or otherwise, the falsity of any representation or warranty of Borrower or
Borrower's failure to comply with the terms of this Agreement or any other
Operative Document during the Term. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any item of equipment included in the Collateral, (ii) any Claim for
infringement of any patent, copyright, trademark or other intellectual property
right (but excluding any Claims brought by Lender or its Related Parties other
than by way of counterclaim), (iii) any Claim resulting from the presence on or
under or the escape, seepage, leakage, spillage, discharge, emission or release
of any Hazardous Materials on the premises of Borrower, including any Claims
asserted or arising under any Environmental Law, or (iv) any Claim for
negligence or strict or absolute liability in tort; provided, however, that
Borrower shall not indemnify Lender or any Related Party for any liability
incurred by Lender as a direct result of Lender's gross negligence or willful
misconduct. Such indemnities shall continue in full force and effect,
notwithstanding the expiration or termination of this Agreement, but shall
exclude any Claims brought by Lender or its related parties other than by way of
counterclaim. Upon Lender's written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lender, each of its
partners, and each of their respective, agents, employees, directors, officers,
shareholders, successors and assigns against any indemnified Claim described in
this Section 10.03. Borrower shall not settle or compromise any Claim against or
involving Lender without first obtaining Lender's written consent thereto, which
consent shall not be unreasonably withheld.
10.04. Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM
LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.05. Notices; Payments. (a) All notices and other communications
given to or made upon any party hereto in connection with this Agreement shall
be in writing (including telexed, telecopied or telegraphic communication) and
mailed (by certified or registered mail), telexed, telegraphed, telecopied or
delivered to the respective parties, as follows:
Borrower: At the address set forth on the cover page of this Agreement.
Lender: MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
Telephone No.: 415-955-3200
Telecopier No.: 415-955-3493
Attention: Contract Administration
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<PAGE> 20
with a copy of all financial information to:
MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200B
Orinda, California 94563
or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.
(b) Unless Lender specifies otherwise in writing, all payments shall be
made to:
MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation, as Agent
Box 71316
Chicago, Illinois 60694
10.06. Severability. If any provision of any Operative Document is held
invalid or unenforceable to any extent or in any application, the remainder of
such Operative Document and all other Operative Documents, or the application of
such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.
10.07. Survival. All representations, warranties, covenants and
agreements of Borrower contained herein or made in writing in connection
herewith shall survive the execution and delivery of the Operative Documents,
the making of the Loan hereunder, the granting of security and the issuance of
the Note.
10.08. Governing Law. THIS AGREEMENT, THE OTHER OPERATIVE DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. ANY ACTION TO ENFORCE THIS AGREEMENT AGAINST BORROWER MAY BE BROUGHT
IN CALIFORNIA OR, WITH REGARD TO COLLATERAL, MAY ALSO BE BROUGHT WHEREVER SUCH
COLLATERAL IS LOCATED.
10.09. Successors and Assigns. This Agreement and the other Operative
Documents shall be binding upon and inure to the benefit of Lender, all future
holders of the Note, Borrower and their respective successors and permitted
assigns, except that Borrower may not assign or transfer its rights hereunder or
any interest herein without the prior written consent of Lender. Lender may sell
to any other financial entity that is not a competitor of Borrower (a
"Participant") participation interests in Lender's rights under this Agreement
and the other Operative Documents; provided that notwithstanding the sale of
participations, Lender shall remain solely responsible for the performance of
its obligations under this Agreement, Lender shall remain the holder of the Note
for all purposes under this Agreement and Borrower shall continue to deal solely
and directly with Lender in connection with this Agreement and the other Loan
Documents. Lender may disclose the Operative Documents and any other financial
or other information relating to Borrower or any Subsidiary to any potential
Participant, provided that such Participant agrees to protect the
confidentiality of such documents and information using the same measures that
it uses to protect its own confidential information.
10.10. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.11. Further Assurances. Borrower will, at its own expense, from time
to time do, execute, acknowledge and deliver all further acts, deeds,
conveyances, transfers and assurances, and all financing and continuation
statements and similar notices, reasonably necessary or proper for the
perfection of the security interest being herein provided for in the Collateral,
whether now owned or hereafter acquired.
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<PAGE> 21
10.12. Power of Attorney in Respect of the Collateral. Borrower does
hereby irrevocably appoint Lender (which appointment is coupled with an
interest), the true and lawful attorney-in-fact of Borrower with full power of
substitution, for it and in its name (a) to perform (but Lender shall not be
obligated to and shall incur no liability to Borrower or any third party for
failure to perform) any act which Borrower is obligated by this Agreement to
perform, (b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all rents, issues, profits, avails,
distributions, income, payment draws and other sums in which a security interest
is granted under Section 5.01 with full power to settle, adjust or compromise
any claim thereunder as fully as if Lender were Borrower itself, (c) to receive
payment of and to endorse the name of Borrower to any items of Collateral
(including checks, drafts and other orders for the payment of money) that come
into Lender's possession or under Lender's control, (d) to make all demands,
consents and waivers, or take any other action with respect to, the Collateral,
(e) in Lender's discretion, to file any claim or take any other action or
institute proceedings, either in its own name or in the name of Borrower or
otherwise, which Lender may reasonably deem necessary or appropriate to protect
and preserve the right, title and interest of Lender in and to the Collateral,
and (f) to otherwise act with respect thereto as though Lender were the outright
owner of the Collateral; provided, however, that the power of attorney herein
granted shall be exercisable only upon the occurrence and during the
continuation of an Event of Default. Borrower agrees to reimburse Lender upon
demand for all reasonable costs and expenses, including reasonable attorneys'
fees and expenses, which Lender may incur while acting as Borrower's attorney in
fact hereunder, all of which costs and expenses are included within the
Obligations.
10.13 Confidentiality. All information (other than periodic reports
filed by Borrower with the Securities and Exchange Commission) disclosed by
Borrower to Lender in writing or through inspection pursuant to this Agreement
shall be considered confidential. Lender agrees to use the same degree of care
to safeguard and prevent disclosure of such confidential information as Lender
uses with its own confidential information, but in any event no less than a
reasonable degree of care. Lender shall not disclose such information to any
third party (other than Lender's or Lender's partner's attorneys and auditors
subject to the same confidentiality obligation set forth herein) and shall use
such information only for purposes of evaluation of its investment in Borrower
and the exercise of Lender's rights and the enforcement of its remedies under
this Agreement and the other Operative Agreements. The obligations of
confidentiality shall not apply to any information that (a) was known to the
public prior to disclosure by Borrower under this Agreement, (b) becomes known
to the public through no fault of Lender, (c) is disclosed to Lender by a third
party' having a legal right to make such disclosure, or (d) is independently
developed by Lender.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRAD GORDON
---------------------------------------------
Name: Brad Gordon
-------------------------------------------
Title: V.P. Finance, CFO
------------------------------------------
MMC/GATX PARTNERSHIP NO. I
By: Meier Mitchell & Company, as general partner
By: /s/ JAMES V. MITCHELL
---------------------------------------------
Name: James V. Mitchell
-------------------------------------------
Title: Seretary
------------------------------------------
21
<PAGE> 23
SCHEDULES
1 Funding Certificate
2 Disclosure Schedule
3 Conditions Precedent
EXHIBITS
A Form of Secured Promissory Note
B Form of Landlord Consent
C Form of Warrant
D Form of Opinion of Counsel
<PAGE> 24
FUNDING CERTIFICATE
The undersigned, Bradley B. Gordon, being the duly elected and acting
Vice President Finance, CFO of SIGNAL PHARMACEUTICALS, INC., a California
corporation ("Borrower"), does hereby certify to MMC/GATX Partnership No. I, in
connection with that certain Loan and Security Agreement dated as of November
22, 1996, (the "Loan Agreement"; with other capitalized terms used below having
the meanings ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Article
III of the Loan Agreement and in the other Operative Documents
are true and correct as of the date hereof.
2. No event or condition has occurred and is continuing that would
constitute a Default or an Event of Default under the Loan
Agreement or any other Operative Document.
3. Borrower is in compliance with the covenants and requirements
contained in Articles IV, VI and VII of the Loan Agreement.
4. All conditions referred to in Article VIII of the Loan Agreement
to the making of the Loan to be made on or about the date hereof
have been satisfied.
5. No material adverse change in the general affairs, management,
results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from transactions
in the ordinary course of business, has occurred.
Dated: December 2, 1996
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRAD GORDON
-----------------------------------
Name: Brad Gordon
---------------------------------
Title: V.P. Finance, CFO
--------------------------------
<PAGE> 25
SCHEDULE 2
DISCLOSURE SCHEDULE
<PAGE> 26
SCHEDULE 3
CONDITIONS PRECEDENT
PART I:
At the time of execution and delivery of this Agreement, there shall
also have been duly executed and delivered to Lender:
(a) The Warrant;
(b) A Landlord Consent, from the owner of each building in which
Collateral is anticipated to be located;
(c) A favorable opinion of counsel for Borrower, dated as of the
closing date, in the form attached hereto as Exhibit D;
(d) Copies, certified by the Secretary, Assistant Secretary or Chief
Financial Officer of Borrower as of the closing date, of
Borrower's charter documents and bylaws and of all documents
evidencing corporate action taken by Borrower authorizing the
execution, delivery and performance of the Operative Documents
to which Borrower is a party, in form and substance satisfactory
to Lender and its counsel;
(e) Good standing certificate from Borrower's state of incorporation
and the state in which Borrower's principal place of business is
located, together with certificates of the applicable
governmental authorities that Borrower is in compliance with the
franchise tax laws of each such state, each dated as of a recent
date;
(f) Evidence of the insurance coverage required by Section 6.01(d)
of this Agreement;
(g) All necessary consents of shareholders and other third parties
with respect to the execution, delivery and performance of this
Agreement, the Warrant, the Note and the other Operative
Documents; and
(h) Form UCC-1 Financing Statements, duly executed by Borrower, or
other documents, and Borrower shall have taken such actions, if
any, as Lender shall reasonably determine are necessary or
desirable to perfect and protect its security interest in the
Collateral;
(i) Notices of Security Interest to Depository Banks in the forms
provided by Lender; and
(k) All other documents as Lender shall have reasonably requested.
PART II
On or prior to the Funding Date of the Loan, each of the items set forth
in Part I of this Schedule 3 shall have been delivered to Lender and the
following conditions shall have been satisfied or waived by Lender:
(a) Borrower shall have provided to Lender such documents,
instruments and agreements as Lender shall reasonably request to
evidence the perfection and priority of the security interests
granted to Lender pursuant to Article V;
(b) No Event of Default or Default shall have occurred and be
continuing;
(c) Borrower shall have duly executed and delivered to Lender the
Note;
(d) In Lender's sole discretion, there shall not have occurred any
material adverse change in the general affairs, management,
results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from transactions
in the ordinary course of business, and there shall not have
<PAGE> 27
occurred since the date first written on the cover page of this
Agreement any material adverse deviation by Borrower from the
business plan of Borrower presented to and not disapproved by
Lender;
(e) The representations and warranties contained in this Agreement
and the other Operative Documents to which Borrower is a party
shall be true and correct in all material respects as if made on
such Funding Date;
(f) Each of the Operative Documents remains in full force and
effect; and
(g) The Funding Date of the Loan shall not be later than the
Commitment Termination Date.
<PAGE> 28
EXHIBIT A
SECURED PROMISSORY NOTE
$3,000,000 Dated: November 22, 1996
FOR VALUE RECEIVED, the undersigned, SIGNAL PHARMACEUTICALS, INC.
("Borrower"), a California corporation, HEREBY PROMISES TO PAY to the order of
MMC/GATX PARTNERSHIP NO. I, a California general partnership ("Lender") the
principal amount of Three Million Dollars ($3,000,000) or such lesser amount as
shall equal the outstanding principal balance of the Loan made by Lender to
Borrower pursuant to the Loan and Security Agreement referred to below (the
"Loan Agreement"), and to pay all other amounts due with respect to the Loan on
the dates and in the amounts set forth in the Loan Agreement.
The principal amount of this Note shall be payable in thirty-five (35)
consecutive monthly installments of $83,333.33 per month and a final installment
of $83,333.45 on the last day of each month commencing on June 30, 1997. All
unpaid principal and interest shall, in any event, be payable no later than May
31, 2000
Interest on the unpaid principal amount of this Note from the date of
this Note until such principal amount is paid in full shall accrue at the Loan
Rate or, if applicable, the Default Rate. The Loan Rate for this Note is % per
annum (based on a year of 360 days and actual days elapsed). All accrued
interest shall be payable on the last day of each calendar month, commencing
November 30, 1996.
Whenever any payment due hereunder shall fall on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall be included in the computation of interest or
fees, as the case may be.
Principal, interest and all other amounts due with respect to the Loan,
are payable in lawful money of the United States of America to Lender as
follows: GATX Capital Corporation, P.O. Box 71316, Chicago, Illinois 60694, in
immediately available funds. The Loan made by Lender to Borrower and the
interest rate applicable thereto, and all payments made with respect thereto,
shall be recorded by Lender by Lender on its books. Attached hereto is an
amortization schedule showing the scheduled payments of principal and interest.
This Note is the Note referred to in, and is entitled to the benefits
of, the Loan and Security Agreement, dated as of November 22, 1996, between
Borrower and Lender. The Loan Agreement, among other things, (a) provides for
the making of a secured Loan by Lender to Borrower in the principal amount first
above mentioned, and (b) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events.
Borrower may, at its option, prepay the Loan evidenced by this Note,
either in whole or from time to time in any part of the principal amount thereof
equal to $500,000 or more, at a prepayment price equal to the principal amount
of the Loan so to be prepaid, plus interest accrued thereon through and
including the date of such prepayment, plus the premium set forth in the Loan
Agreement. If the maturity of the Loan is accelerated under the Loan Agreement,
Borrower shall pay to Lender, in addition to principal, interest and all other
amounts due with respect to the Loan, as liquidated damages for loss of Lender's
benefit of the bargain and not as a penalty, an amount equal to the premium
payable if the Loan were prepaid on the date of such acceleration.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, interest on the Loan and all other amounts due Lender under
the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands
and notices of any kind in connection with the execution, delivery, performance
and enforcement of this Note are hereby waived.
A-1
<PAGE> 29
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred by Lender in the
enforcement or attempt to enforce any of Borrower's obligations hereunder not
performed when due. This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.
SIGNAL PHARMACEUTICALS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
A-2
<PAGE> 30
LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL
Principal Scheduled
Date Amount Interest Rate Payment Amount Notation By
---- ------ ------------- -------------- -----------
A-3
<PAGE> 31
EXHIBIT B
LANDLORD'S WAIVER AND CONSENT
<PAGE> 32
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
MMC/GATX PARTNERSHIP NO. I
c/o GATX CAPITAL CORPORATION, Agent
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
- --------------------------------------------------------------------------------
LANDLORD'S WAIVER AND CONSENT
THIS LANDLORD'S WAIVER AND CONSENT (this "Waiver"), dated as of ________
____________________, 1996, is executed by and between ("Landlord") and MMC/GATX
PARTNERSHIP NO. I, a California general partnership ("Lender").
RECITALS
A. Landlord and SIGNAL PHARMACEUTICALS, INC. ("Tenant") are parties to a
______________ [Lease Agreement], dated as of ____________________, 199___
(together with any other agreement between Landlord and Tenant relating to the
Premises, as defined below, all as amended from time to time, to be referred to
herein collectively as the "Lease"), pursuant to which Landlord has leased to
Tenant that certain real property commonly known as ___________________________,
and more particularly described in Attachment 1 hereto (the "Premises").
B. Tenant and Lender intend to or have entered into a Loan and Security
Agreement dated as of November 22, 1996 (the "Loan Agreement") pursuant to which
Lender has agreed or will agree to make a loan to Tenant from time to time
secured by certain assets (the "Assets") which will be located on the Premises.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Lender hereby agree as follows:
1. Waiver and Consent. Landlord hereby does irrevocably waive, disclaim
and relinquish and assign to Lender any and all rights to impose, receive,
assert or enforce any lien, encumbrance, charge, security interest, ownership
interest, claim or demand of any kind against or involving the Assets, whether
arising by common law, statute or consensually (under the Lease or otherwise)
and whether now in existence or hereafter created, including, but not limited
to, those for rent or other right of payment. This waiver, disclaimer,
relinquishment and assignment shall survive the termination of the Lease.
Landlord further agrees that (a) neither the Assets nor any item thereof shall
become part of, or otherwise be or become a fixture attached to, the Premises,
notwithstanding the manner of the Assets' annexation, the Assets' adaptability
to the uses and purposes for which the Premises are used, and the intentions of
the party making the annexation; (b) the Assets (or any item thereof) may be
repossessed by Lender; (c) in connection with such repossession or otherwise,
Lender, and any of its agents and employees, may enter upon the Premises for the
purposes of preparing for transport, disassembling, dismantling, loading and/or
removing the Assets (or any item thereof); and (d) the right of Lender to enter
the Premises and the other rights granted to Lender in this Waiver shall not
terminate until up to thirty (30) days after Lender receives written notice from
Landlord of the termination of the Lease; provided, that if Lender exercises its
rights hereunder, for any such period after the termination of the Lease, Lender
shall pay to Landlord a pro rated rental payment for the space in which the
Assets are located (at the last monthly rate payable by Tenant) for the period
until the Assets are removed.
B-1
<PAGE> 33
2. Costs. Lender agrees to indemnify and hold the Landlord harmless from
any out-of-pocket costs incurred by Landlord for any physical damage to the
Premises caused by Lender solely from the exercise of its rights under clauses
(b) or (c) of Paragraph 1 above.
3. Lease Defaults. Landlord further agrees to provide Lender with
telephonic confirmation of any default or event of default under the Lease upon
inquiry by Lender.
4. Landlord's Representations and Warranties. Landlord hereby warrants
and represents to Lender that (a) Landlord is the lessor under the Lease; (b)
there are no other agreements between the parties affecting or relating to the
Premises; (c) Landlord has all requisite power and authority to execute and
deliver this Waiver and no consents from any third party are required to do so;
(d) no event of default (nor any event which with the passage of time would
constitute an event of default) has occurred under the Lease; (e) there exists
no litigation affecting title to the Premises or any adverse claim with respect
to the Premises of which Landlord has received notice; and (f) there is no
condemnation proceeding pending with respect to any part of the Premises, nor
any threat thereof, of which the Landlord has received notice.
5. Miscellaneous. This Waiver and all rights hereby granted to Lender
hereunder shall remain in effect so long as there are any obligations owing by
Tenant under the Loan Agreement or any present or future agreement between
Tenant and Lender which involves the Assets. All the terms and provisions of
this Waiver shall be binding on and inure to the benefit of the respective
successors and assigns of Landlord and Lender. The rights and benefits of this
Waiver may be assigned or transferred by Lender or to third parties who may
become the lender, directly or indirectly, to Tenant. Lender shall provide
subsequent written notice to Landlord and Tenant of the assignment or transfer.
Headings in this Waiver are for convenience of reference only and are not part
of the substance hereof. This Waiver shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, Landlord and Lender have executed this Waiver as of
the date and year first written above.
LANDLORD:
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
LENDER:
MMC/GATX PARTNERSHIP NO. I
By: Meier Mitchell & Company, as general partner
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
B-2
<PAGE> 34
ATTACHMENT 1
LEGAL DESCRIPTION OF PREMISES
[To Be Provided By Tenant]
<PAGE> 35
State of _____________________ )
)
County of ____________________ )
On __________________________, 199___ before me, the undersigned,
personally appeared _,_______________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(is), and that
by his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature __________________________________ (Seal)
State of _____________________ )
)
County of ____________________ )
On __________________________, 199___ before me, the undersigned,
personally appeared _,_______________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(is), and that
by his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature __________________________________ (Seal)
<PAGE> 36
EXHIBIT C
WARRANT
C-1
<PAGE> 37
EXHIBIT D
FORM OF OPINION OF COUNSEL
November 22, 1996
MMC/GATX Partnership No. I
c/o GATX Capital Corporation, Agent
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
Gentlemen:
We have acted as counsel for SIGNAL PHARMACEUTICALS, INC. (the
"Borrower") in connection with (i) the execution of the Loan and Security
Agreement of even date herewith (the "Loan") between Borrower and MMC/GATX
Partnership No. I ("Lender"), (ii) the issuance of a warrant to purchase 250,000
shares of Borrower's Series Preferred Stock (the "Warrant") and (iii) the
transactions contemplated thereby. This opinion is being rendered to you
pursuant to Section 8.01 of the Loan Agreement. Capitalized terms not otherwise
defined in this opinion have the meaning given them in the Loan Agreement.
In connection with this opinion and our representation, we have examined
originals, or copies certified or otherwise identified to our satisfaction, of
the following:
(i) The Loan Agreement;
(ii) The Warrant and exhibits thereto dated as of November 22, 1996,
issued by Borrower to Lender;
(iii) The Note dated as of November 22, 1996;
(iv) The Restated Articles of Incorporation and the Bylaws of
Borrower, each as in effect on the date hereof;
(v) The certificate of an officer of Borrower as to certain factual
matters ("Officer Certificate");
(vi) Certificates issued by the Secretary of State of the State of
_________________________ dated _______________________,
199_____, certifying the good standing of Borrower;
(vi) Such other documents, records, and certificates as we have
deemed necessary or appropriate as a basis for the opinions
hereafter expressed.
The Loan Agreement, the Note and the Warrant are hereinafter referred to
as the "Transaction Documents."
In such examinations we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to originals of all documents submitted to us as certified,
facsimile, telecopied or photostatic copies thereof. As to certain matters of
fact material to our opinion, we have relied upon the Officer Certificate and
upon your representations in the Transaction Documents.
As used in this opinion, the expression "to the best of our knowledge,"
means the actual present knowledge or belief of those attorneys in our firm who
have or who are currently representing Borrower. We have not undertaken any
independent investigation to determine the existence or nonexistence of other
facts, and no inference as to our knowledge of the existence or nonexistence of
other facts should be drawn from the fact of this firm's representation of
Borrower in connection with the Transaction Documents.
D-1
<PAGE> 38
Based upon and subject to the foregoing and subject to the
qualifications contained herein, we are of the opinion that:
(a) Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of California.
(b) Borrower has the requisite corporate power and authority to
execute, deliver and perform the Transaction Documents and to issue the Warrant.
All action on the part of Borrower, its directors and its shareholders necessary
for the authorization, execution, delivery and performance of the Transaction
Documents, has been taken. The Transaction Documents have been duly executed and
delivered by an authorized officer of Borrower.
(c) The execution, delivery and performance of the Transaction
Documents do not conflict with or violate any provision of Borrower's Restated
Articles of Incorporation or Bylaws or of applicable law and, to the best of our
knowledge, do not conflict with or constitute a default under any provision of
any judgment, writ, decree, order or material agreement, indenture, or
instrument to which Borrower is a party or by which it is bound.
(d) The Transaction Documents constitute legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms.
To our knowledge, no filing need be made with any governmental authority with
respect to the Transaction Documents in connection with an exemption from state
usury laws or in connection with any other matter.
(e) The Series Preferred Stock issuable upon exercise of the
Warrant have been duly authorized and reserved for issuance upon such exercise,
and when issued in accordance with the terms of the Warrant, will be duly
authorized, validly issued, fully paid and non-assessable.
(f) The shares of Common Stock issuable upon conversion of the
Series Preferred Stock into which the Warrant is convertible, have been duly
authorized and reserved and for issuance, when so issued in accordance with the
terms of Borrower's Restated Articles of Incorporation, will be validly issued,
fully paid and non-assessable.
The opinions set forth above are subject to the following
additional qualifications, assumptions, limitations and exceptions:
(A) The effect of bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws relating to or
affecting the rights and remedies of creditors generally.
(B) Limitations imposed by general equitable principles upon the
specific enforceability of any of the provisions of the Transaction Documents
and upon the availability of injunctive relief or other equitable remedies.
(C) We express no opinion as to the enforceability of any choice
of law provision in the documents.
(D) We express no opinion as to the compliance or noncompliance
with applicable antifraud statutes under the rules and regulations of state and
federal securities laws concerning the issuance of the Warrant.
(E) We express no opinion herein concerning any law other than
the law of the State of California [the general corporate law of the State of
Delaware] and the federal laws of the United States of America.
This opinion is furnished to you solely for your benefit and may not be
relied upon by any other person (other than assignees of any of your rights)
without our prior written consent, which consent shall not be unreasonably
withheld or delayed.
Very truly yours,
----------------------------------------
D-2
<PAGE> 1
EXHIBIT 10.12
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES
LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATIS-FACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM
THE APPROPRIATE GOVERN-MENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
SIGNAL PHARMACEUTICALS, INC.
WARRANT TO PURCHASE 250,000 SHARES
OF SERIES C-1 PREFERRED STOCK
THIS CERTIFIES THAT, for value received, MMC/GATX PARTNERSHIP NO. I and
its assignees are entitled to subscribe for and purchase 250,000 shares of the
fully paid and nonassessable Series C-1 Preferred Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of SIGNAL PHARMACEUTICALS, INC., a California
corporation (the "Company"), at the price of $2.10 per share (such price and
such other price as shall result, from time to time, from the adjustments
specified in Section 4 hereof is herein referred to as the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, (a) the term "Series Preferred" shall mean the Company's
presently authorized Series C-1 Preferred Stock, and any stock into or for which
such Series C-1 Preferred Stock may hereafter be converted or exchanged, (b) the
term "Date of Grant" shall mean November 22, 1996, and (c) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
the transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant. The term "Warrant" as
used herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise.
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the Date of Grant
through the tenth anniversary of the Date of Grant; provided, however, that if
the Company's initial public offering ("IPO") of its Common Stock effected
pursuant to a Registration Statement on Form S-1 or Form SB-2 (or their
respective successors) filed under the Securities Act of 1933, as amended (the
"Act") occurs after the fifth anniversary of the Date of Grant and prior to the
tenth anniversary of the Date of Grant, then this Warrant shall be exercisable
through the fifth anniversary of the effective date of such initial public
offering.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased, or (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A-1 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per
<PAGE> 2
share multiplied by the number of Shares then being purchased by the holder
hereof or (c) exercise of the right provided for in Section 10.3 hereof. The
person or persons in whose name(s) any certificate(s) representing shares of
Series Preferred shall be issuable upon exercise of this Warrant shall be deemed
to have become the holder(s) of record of, and shall be treated for all purposes
as the record holder(s) of, the shares represented thereby (and such shares
shall be deemed to have been issued) immediately prior to the close of business
on the date or dates upon which this Warrant is exercised. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty (30) days after such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series Preferred
to provide for the exercise of the rights represented by this Warrant and a
sufficient number of shares of its Common Stock to provide for the conversion of
the Series Preferred into Common Stock.
4. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification
or change of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant with a term
ending on the same date as specified for this Warrant (in form and substance
satisfactory to the holder of this Warrant), so that the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Series Preferred theretofore issuable upon exercise of
this Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, change or merger by a holder
of the number of shares of Series Preferred purchasable under this Warrant
immediately prior to such reclassification, change or merger. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4 and, in the case
of a new Warrant issuable after conversion of the authorized shares of the
Series Preferred into shares of Common Stock or after the amendment of the terms
of the antidilution protection of the Series Preferred, shall provide for
antidilution protection that shall be as nearly equivalent as may be practicable
to the antidilution provisions applicable to the Series Preferred on the Date of
Grant. The provisions of this subparagraph (a) shall similarly apply to
successive reclassifications, changes, mergers and transfers.
-2-
<PAGE> 3
Notwithstanding the foregoing, such antidilution protection shall in no event
provide superior rights, preferences and privileges with regard to the Series
Preferred than the antidilution protection accorded to any then currently
designated series of preferred stock.
(b) Subdivision or Combination of Shares. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Series Preferred payable in Series Preferred, or (ii)
make any other distribution with respect to Series Preferred (except any
distribution specifically provided for in Sections 4(a) and 4(b)), of Series
Preferred, then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of Series Preferred outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of Series Preferred outstanding immediately after
such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(e) Antidilution Rights. The other antidilution rights applicable
to the Shares of Series Preferred purchasable hereunder are set forth in the
Company's Articles of Incorporation, as amended through the Date of Grant, a
true and complete copy of which is attached hereto as Exhibit B (the "Charter").
Such antidilution rights shall not be restated, amended, modified or waived in
any manner which would adversely affect the Series Preferred relative to any
other currently designated series of the Company's preferred stock without such
holder's prior written consent. The Company shall promptly provide the holder
hereof with any restatement, amendment, modification or waiver of the Charter
promptly after the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by
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<PAGE> 4
which such adjustment was calculated, and the conversion price or ratio of the
Series Preferred after giving effect to such adjustment, and shall cause copies
of such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Series Preferred will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.
7. Compliance with Act; Disposition of Warrant or Shares of Series
Preferred.
(a) Compliance with Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the shares of Series Preferred
to be issued upon exercise hereof and any Common Stock issued upon conversion
thereof are being acquired for investment and that such holder will not offer,
sell or otherwise dispose of this Warrant, or any shares of Series Preferred to
be issued upon exercise hereof or any Common Stock issued upon conversion
thereof except under circumstances which will not result in a violation of the
Act or any applicable state securities laws. Upon exercise of this Warrant,
unless the Shares being acquired are registered under the Act and any applicable
state securities laws or an exemption from such registration is available, the
holder hereof shall confirm in writing that the shares of Series Preferred so
purchased (and any shares of Common Stock issued upon conversion thereof) are
being acquired for investment and not with a view toward distribution or resale
in violation of the Act or applicable state securities laws and shall confirm
such other matters related thereto as may be reasonably requested by the
Company. This Warrant and all shares of Series Preferred issued upon exercise of
this Warrant and all shares of Common Stock issued upon conversion thereof
(unless registered under the Act and any applicable state securities laws) shall
be stamped or imprinted with a legend in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT OR OTHERWISE COMPLYING WITH THE PROVISIONS
OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY
OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance of
this Warrant, the holder specifically represents to the Company by acceptance of
this Warrant as follows:
(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
in violation of the Act, and the holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to registration
under the Act or exemption therefrom.
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<PAGE> 5
(2) The holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.
(3) The holder is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Act.
(4) The holder acknowledges that investment in this Warrant and the
Shares to issued upon exercise hereof involves a high degree of risk and
represents that it is able, without materially impairing its financial condition
to hold this Warrant and such Shares for an indefinite period of time and to
suffer a complete loss of its investment.
(5) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and qualified under
any applicable state securities laws, or unless exemptions from registration and
qualification are otherwise available. The holder is aware of the provisions of
Rule 144, promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer,
sale or other disposition of this Warrant or any shares of Series Preferred
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or shares, the holder hereof agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such holder's counsel, or other evidence, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state securities law then in effect) of this
Warrant or such shares of Series Preferred or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Series Preferred to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to ensure
compliance with such law. Promptly upon receiving such written notice and
reasonably satisfactory opinion or other evidence, if so requested, the Company,
as promptly as practicable but no later than fifteen (15) days after receipt of
the written notice, shall notify such holder that such holder may sell or
otherwise dispose of this Warrant or such shares of Series Preferred or Common
Stock, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this Section 7(b) that the opinion
of counsel for the holder or other evidence is not reasonably satisfactory to
the Company, the Company shall so notify the holder promptly with details
thereof after such determination has been made. Notwithstanding the foregoing,
this Warrant or such shares of Series Preferred or Common Stock may, as to such
federal laws, be offered, sold or otherwise disposed of in accordance with Rule
144 or 144A under the Act, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the shares of Series
Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A)
shall bear a legend as to the applicable restrictions on transferability in
order to ensure compliance with such laws, unless in the aforesaid opinion of
counsel for the holder as approved by the Company, such legend is not required
in order to ensure compliance with such laws. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions.
(c) Applicability of Restrictions. Neither any restrictions of
any legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security
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<PAGE> 6
interest in, this Warrant (or the Series Preferred or Common Stock obtainable
upon exercise thereof) or any part hereof (i) to a partner of the holder if the
holder is a partnership, (ii) to a partnership of which the holder is a partner,
or (iii) to any affiliate of the holder if the holder is a corporation;
provided, however, in any such transfer, if applicable, the transferee shall
agree in writing to be bound by the terms of this Warrant as if an original
signatory hereto.
8. Rights as Shareholders; Information. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company will
transmit to the holder of this Warrant such information, documents and reports
(i) as set forth on Exhibit C attached hereto prior to the Company's IPO and
(ii) as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
shareholders after the Company's IPO.
9. Registration Rights. The Company grants registration rights to the
holder of this Warrant for any Common Stock of the Company obtained upon
conversion of the Series Preferred, that are the same as the registration rights
granted to the investors in that certain Amended and Restated Investors' Rights
Agreement dated as of March 31, 1996 (the "Registration Rights Agreement"), with
the following exceptions and clarifications:
(1) The holder will have no demand registration rights as
set forth in Section 1.2 of the Registration Rights
Agreement.
(2) The holder will be subject to the same provisions
regarding indemnification as contained in the
Registration Rights Agreement.
(3) The registration rights are assignable by the holder of
this Warrant to the extent such assignment is not
inconsistent with Section 7 hereof and Section 1.13 of
the Registration Rights Agreement.
(4) The holder shall be subject to the "Market Stand-off"
provisions of Section 1.15 of the Registration Rights
Agreement.
10. Additional Rights.
10.1 Secondary Sales. The Company will promptly provide the holder of
this Warrant with notice of any offer (of which it has knowledge) to acquire
from the Company's security holders more than ten percent (10%) of the total
voting power of the Company.
10.2 Mergers. The Company shall provide the holder of this Warrant with
at least twenty (20) days' notice of the terms and conditions of any of the
following potential transactions: (i) the sale, lease,
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<PAGE> 7
exchange, conveyance or other disposition of all or substantially all of the
Company's property or business, or (ii) its merger into or consolidation with
any other corporation (other than a wholly-owned subsidiary of the Company), or
any transaction (including a merger or other reorganization) or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of.
10.3 Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Series Preferred (or Common Stock if the Series Preferred has
been converted into Common Stock) as provided in this Section 10.3 at any time
or from time to time during the term of this Warrant. Upon exercise of the
Conversion Right with respect to a particular number of shares subject to this
Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable Series
Preferred (or Common Stock if the Series Preferred has been converted into
Common Stock) equal to the quotient obtained by dividing the value of this
Warrant (or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A) the
aggregate Warrant Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right from (B) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (Y) the
fair market value of one share of Series Preferred (or Common Stock if the
Series Preferred has been converted into Common Stock) on the Conversion Date
(as herein defined).
Expressed as a formula, such conversion (assuming the Series Preferred
has been converted into Common Stock) shall be computed as follows:
X = B - A
-----
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value of one share of Common Stock
A = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
B = the aggregate fair market value (i.e., fair market
value x Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares
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<PAGE> 8
issued pursuant to the Conversion Right shall be treated as if they were issued
upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
10.3(a) hereof as the Converted Warrant Shares) in exercise of the Conversion
Right. Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date. Any conversion from Series
Preferred to Common Stock shall be in the ratio of one (1) share of Common Stock
for each share of Series Preferred (as adjusted herein and in the Charter). On
the Date of Grant, each share of the Series Preferred represented by this
Warrant is convertible into one share of Common Stock.
(c) Determination of Fair Market Value. For purposes of this
Section 10.3, "fair market value" of a share of Series Preferred (or Common
Stock if the Series Preferred has been automatically converted into Common
Stock) as of a particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection
with and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the SEC, then the initial "Price to Public" specified in
the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing prices
of the Common Stock on such exchange over the 30-day period ending five
business days prior to the Determination Date, and the fair market value
of the Series Preferred shall be deemed to be such fair market value of
the Common Stock multiplied by the number of shares of Common Stock into
which each share of Series Preferred is then convertible;
(B) If traded over-the-counter, the fair market value of the
Common Stock shall be deemed to be the average of the closing bid prices
of the Common Stock over the 30-day period ending five business days
prior to the Determination Date, and the fair market value of the Series
Preferred shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each
share of Series Preferred is then convertible; and
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<PAGE> 9
(C) If there is no public market for the Common Stock, then fair
market value shall be determined in good faith by the Company' Board of
Directors.
10.4 Exercise Prior to Expiration. To the extent this Warrant is
not previously exercised as to all of the Shares subject hereto, and if the fair
market value of one share of the Series Preferred is greater than the Warrant
Price then in effect, this Warrant shall be deemed automatically exercised
pursuant to Section 10.3 above (even if not surrendered) immediately before its
expiration. For purposes of such automatic exercise, the fair market value of
one share of the Series Preferred upon such expiration shall be determined
pursuant to Section 10.3(c). To the extent this Warrant or any portion thereof
is deemed automatically exercised pursuant to this Section 10.4, the Company
agrees to promptly notify the holder hereof of the number of Shares, if any, the
holder hereof is to receive by reason of such automatic exercise.
11. Representations and Warranties. The Company represents and warrants
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted
to or imposed upon the Series Preferred and the holders thereof are as set forth
in the Charter, as amended to the Date of the Grant, a true and complete copy of
which has been delivered to the original holder of this Warrant and is attached
hereto as Exhibit B;
(d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms of the Charter will be validly issued,
fully paid and nonassessable;
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby; and
(f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant.
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<PAGE> 10
12. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and the obligations of the
Company set forth in Section 8 hereof and the rights, preferences and privileges
set forth in the Charter relating to the Series Preferred issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights (including, without limitation, any right
to registration of the Shares) to which the holder hereof shall continue to be
entitled after such exercise or conversion in accordance with this Warrant;
provided, that the failure of the holder hereof to make any such request shall
not affect the continuing obligation of the Company to the holder hereof in
respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either
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<PAGE> 11
by suit in equity and/or by action at law, including, but not limited to, an
action for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
21. Severability. The invalidity or unenforceability of any provision of
this Warrant in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction, or affect any other provision of
this Warrant, which shall remain in full force and effect.
22. Recovery of Litigation Costs. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
23. Entire Agreement; Modification. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
SIGNAL PHARMACEUTICALS, INC.
By [SIG]
------------------------------------
Title V.P. Finance, CFO
----------------------------------
Address: 5555 Oberlin Drive
San Diego, California 92121
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<PAGE> 12
EXHIBIT A
NOTICE OF EXERCISE
To: SIGNAL PHARMACEUTICALS, INC.
1. The undersigned hereby:
[ ] elects to purchase _______ shares of Series C-1 Preferred
Stock of SIGNAL PHARMACEUTICALS, INC. pursuant to the
terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full, or
[ ] elects to exercise its net issuance rights pursuant to
Section 10.3 of the attached Warrant with respect to
Shares of Series C-1 Preferred Stock.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
-----------------------------
(Name)
-----------------------------
-----------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.
----------------------------------------
(Signature)
- ----------------
(Date)
<PAGE> 13
EXHIBIT A-1
NOTICE OF EXERCISE
To: SIGNAL PHARMACEUTICALS, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S___, filed _____ __, 19__, the undersigned hereby:
[ ] elects to purchase __ shares of Series C-1 Preferred
Stock of the Company (or such lesser number of shares as
may be sold on behalf of the undersigned at the Closing)
pursuant to the terms of the attached Warrant, or
[ ] elects to exercise its net issuance rights pursuant to
Section 10.3 of the attached Warrant with respect to ___
Shares of Series C-1 Preferred Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such ________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
----------------------------------------
(Signature)
- ----------------
(Date)
<PAGE> 14
EXHIBIT B
CHARTER
<PAGE> 15
EXHIBIT C
Information to be provided to the holder prior to the Company's initial public
offering (as described in the Warrant):
(i) As soon as available but in any event within 30 days after the end
of each monthly accounting period in each fiscal year, unaudited consolidated
statements of operations and consolidated cash flows of the Company and its
subsidiaries for such monthly period, and consolidated balance sheets of the
Company and its subsidiaries as of the end of such monthly period.
(ii) Prior to the end of each fiscal year, a summary of an annual budget
(approved by the Board of Directors) prepared on a monthly, consolidated basis
for the Company and its subsidiaries for the succeeding fiscal year (displaying
detailed anticipated statements of operations and cash flows and balance
sheets), and promptly upon preparation thereof any other summaries of
significant budgets which the Company prepares and any revisions of such annual
or other budgets.
<PAGE> 1
EXHIBIT 10.13
SECURED PROMISSORY NOTE
$3,000,000 Dated: December 2, 1996
FOR VALUE RECEIVED, the undersigned, SIGNAL PHARMACEUTICALS, INC.
("Borrower"), a California corporation, HEREBY PROMISES TO PAY to the order of
MMC/GATX PARTNERSHIP NO. I, a California general partnership ("Lender") the
principal amount of Three Million Dollars ($3,000,000) or such lesser amount as
shall equal the outstanding principal balance of the Loan made by Lender to
Borrower pursuant to the Loan and Security Agreement referred to below (the
"Loan Agreement"), and to pay all other amounts due with respect to the Loan on
the dates and in the amounts set forth in the Loan Agreement.
The principal amount of this Note shall be payable in thirty-five (35)
consecutive monthly installments of $83,334.00 per month and a final installment
of $83,310.00 on the last day of each month commencing on June 30, 1997. All
unpaid principal and interest shall, in any event, be payable no later than May
31, 2000.
Interest on the unpaid principal amount of this Note from the date of
this Note until such principal amount is paid in full shall accrue at the Loan
Rate or, if applicable, the Default Rate. The Loan Rate for this Note is 13.6%
per annum (based on a year of 360 days and actual days elapsed). All accrued
interest shall be payable on the last day of each calendar month, commencing
December 31, 1996.
Whenever any payment due hereunder shall fall on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall be included in the computation of interest or
fees, as the case may be.
Principal, interest and all other amounts due with respect to the Loan,
are payable in lawful money of the United States of America to Lender as
follows: GATX Capital Corporation, P.O. Box 71316, Chicago, Illinois 60694, in
immediately available funds. The Loan made by Lender to Borrower and the
interest rate applicable thereto, and all payments made with respect thereto,
shall be recorded by Lender by Lender on its books. Attached hereto is an
amortization schedule showing the scheduled payments of principal and interest.
This Note is the Note referred to in, and is entitled to the benefits
of, the Loan and Security Agreement, dated as of November 22, 1996, between
Borrower and Lender. The Loan Agreement, among other things, (a) provides for
the making of a secured Loan by Lender to Borrower in the principal amount first
above mentioned, and (b) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events.
Borrower may, at its option, prepay the Loan evidenced by this Note,
either in whole or from time to time in any part of the principal amount thereof
equal to $500,000 or more, at a prepayment price equal to the principal amount
of the Loan so to be prepaid, plus interest accrued thereon through and
including the date of such prepayment, plus the premium set forth in the Loan
Agreement. If the maturity of the Loan is accelerated under the Loan Agreement,
Borrower shall pay to Lender, in addition to principal, interest and all other
amounts due with respect to the Loan, as liquidated damages for loss of Lender's
benefit of the bargain and not as a penalty, an amount equal to the premium
payable if the Loan were prepaid on the date of such acceleration.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, interest on the Loan and all other amounts due Lender under
the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands
and notices of any kind in connection with the execution, delivery, performance
and enforcement of this Note are hereby waived.
-13-
<PAGE> 2
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred by Lender in the
enforcement or attempt to enforce any of Borrower's obligations hereunder not
performed when due. This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRAD GORDON
-----------------------------------
Name: Brad Gordon
-----------------------------------
Title: V.P. Finance, CFO
-----------------------------------
<PAGE> 1
EXHIBIT 10.14
SIGNAL PHARMACEUTICALS, INC.
SERIES E PREFERRED
STOCK PURCHASE AGREEMENT
SEPTEMBER 9, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. PURCHASE AND SALE OF STOCK...................................................1
1.1 Sale and Issuance of Series E Preferred Stock................................1
1.2 Closing......................................................................1
(a) First Closing.........................................................1
1.3 Subsequent Sale of Series E Preferred Stock..................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................2
2.1 Organization, Good Standing and Qualification................................2
2.2 Capitalization and Voting Rights.............................................2
(a) Preferred Stock.......................................................2
(b) Common Stock..........................................................2
(c) Other Rights..........................................................2
2.3 Subsidiaries.................................................................3
2.4 Authorization................................................................3
2.5 Valid Issuance of Preferred and Common Stock.................................3
2.6 Governmental Consents........................................................4
2.7 Litigation...................................................................4
2.8 Proprietary Information Agreements...........................................5
2.9 Patents and Trademarks.......................................................5
2.10 Compliance with Other Instruments............................................5
2.11 Agreements; Action...........................................................6
2.12 Related-Party Transactions...................................................7
2.13 Permits......................................................................7
2.14 Environmental and Safety Laws................................................7
2.15 Manufacturing and Marketing Rights...........................................8
2.16 Disclosure...................................................................8
2.17 Registration Rights..........................................................8
2.18 Corporate Documents..........................................................8
2.19 Title to Property and Assets.................................................8
2.20 Qualified Small Business.....................................................8
2.21 Financial Statements.........................................................9
2.22 Changes......................................................................9
2.23 Employee Benefit Plans......................................................10
2.24 Tax Returns, Payments and Elections.........................................10
2.25 Insurance...................................................................10
2.26 Minute Books................................................................10
2.27 Labor Agreements and Actions................................................11
2.28 Section 83(b) Elections.....................................................11
2.29 Real Property Holding Company...............................................11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C> <C> <C>
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.............................12
3.1 Authorization...............................................................12
3.2 Purchase Entirely for Own Account...........................................12
3.3 Disclosure of Information...................................................12
3.4 Investment Experience.......................................................12
3.5 Accredited Investor.........................................................13
3.6 Restricted Securities.......................................................13
3.7 Further Limitations on Disposition..........................................13
3.8 Legends.....................................................................13
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.....................................14
4.1 Corporate Securities Law....................................................14
5. CONDITIONS OF EACH INVESTOR'S OBLIGATION AT THE CLOSINGS....................14
5.1 Representations and Warranties..............................................14
5.2 Performance.................................................................14
5.3 Compliance Certificate......................................................14
5.4 Qualifications..............................................................14
5.5 Proceedings and Documents...................................................15
5.6 Board of Directors..........................................................15
5.7 Opinion of Company Counsel..................................................15
5.8 Investors' Rights Agreement.................................................15
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSINGS.....................15
6.1 Representations and Warranties..............................................15
6.2 Payment of Purchase Price...................................................15
6.3 Qualification...............................................................15
7. MISCELLANEOUS...............................................................16
7.1 Survival of Warranties......................................................16
7.2 Successors and Assigns......................................................16
7.3 Governing Law...............................................................16
7.4 Counterparts................................................................16
7.5 Expenses....................................................................16
7.6 Titles and Subtitles........................................................16
7.7 Notices.....................................................................16
7.8 Finder's Fee................................................................17
7.9 Amendments and Waivers......................................................17
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C> <C> <C>
7.10 Severability................................................................17
7.11 Aggregation of Stock........................................................17
7.12 Regulated Financial Institutions Compliance Obligations.....................17
</TABLE>
iii.
<PAGE> 5
TABLE OF CONTENTS
SCHEDULE A - Schedule of Investors
SCHEDULE B - Schedule of Exceptions
EXHIBIT A - Amended and Restated Articles of Incorporation
EXHIBIT B - Amended and Restated Investors' Rights Agreement
EXHIBIT C - Proprietary Information and Inventions Agreement
EXHIBIT D - Form of Opinion of Cooley Godward LLP
iv.
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 9th day of September,
1997, by and between Signal Pharmaceuticals, Inc., a California corporation (the
"Company"), and the investors listed on Schedule A hereto (individually an
"Investor" and collectively the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES E PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of California, and the Secretary of State of California shall accept on or
before the First Closing (as defined below), the Amended and Restated Articles
of Incorporation in the form attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at a Closing (as defined
below) under this Agreement, and the Company agrees to sell and issue to the
Investors at a Closing, that number of shares of the Company's Series E
Preferred Stock set forth opposite each Investor's name on Schedule A hereto for
a price of $1.91 for each share of Series E Preferred Stock.
1.2 CLOSING.
(a) FIRST CLOSING. The initial purchase and sale of the Series E
Preferred Stock shall take place at the offices of Cooley Godward LLP, 4365
Executive Drive, Suite 1100, San Diego, California 92121, at 4:30 P.M. on
September 9, 1997, or at such other time and place as the Company and the
Investors agree orally or in writing (which time and place are designated as the
"First Closing"). At the First Closing and each subsequent Closing, the Company
shall deliver to each Investor purchasing at the First Closing or such
subsequent Closing, a certificate representing the shares of Series E Preferred
Stock which each Investor is purchasing against delivery to the Company by each
Investor of a wire transfer or check in the amount of the purchase price
therefor payable to the Company's order.
1.3 SUBSEQUENT SALE OF SERIES E PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, the Company may sell, on or before
October 31, 1997, up to the balance of the Company's authorized but unissued
Series E Preferred Stock to such persons as the Company may determine at the
same price per share as the Series E Preferred Stock purchased and sold at the
First Closing. Any such sale (each, a
1.
<PAGE> 7
"Closing") shall be upon the same terms and conditions as those contained
herein, and such persons or entities shall become parties to this Agreement and
that certain Amended and Restated Investors' Rights Agreement of even date
herewith, by and among the Company and the Investors, the form of which is
attached hereto as Exhibit B (the "Investors' Rights Agreement"), and shall have
the rights and obligations of an Investor hereunder and thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors that, except as set forth on a Schedule
of Exceptions attached hereto as Schedule B, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist prior to the First Closing, of:
(a) PREFERRED STOCK. 21,747,131 shares of Preferred Stock (the
"Preferred Stock"), of which 2,626,892 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, of which 2,875,000
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, of which 8,791,433 shares have been designated Series C
Preferred Stock, of which 8,791,432 are issued and outstanding, of which 250,000
shares have been designated Series C-1 Preferred Stock, all of which are subject
to issued and outstanding warrants, of which 732,601 shares have been designated
Series D Preferred Stock, of which 500,000 shares are issued and outstanding,
and of which 6,471,205 shares have been designated Series E Preferred Stock, up
to all of which will be sold pursuant to this Agreement. The rights, privileges
and preferences of the Series A, Series B, Series C, Series C-1, Series D and
Series E Preferred Stock will be as stated in the Company's Amended and Restated
Articles of Incorporation attached hereto as Exhibit A.
(b) COMMON STOCK. 30,000,000 shares of common stock ("Common
Stock"), of which 2,437,065 shares are issued and outstanding.
(c) OTHER RIGHTS. Except for (A) the conversion privileges of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the
2.
<PAGE> 8
Series C-1 Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock sold pursuant to this Agreement, (B) 2,500,000 shares of Common
Stock reserved for issuance pursuant to the Company's 1993 Stock Option Plan, of
which 1,468,391 shares are subject to outstanding options and of which 993,565
shares are issued and outstanding, (C) 550,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1993 Founders' Stock Option Plan, 159,000
of which are subject to outstanding options and of which 373,000 shares are
issued and outstanding, and (D) 1,000,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1997 Stock Option Plan, of which 610,070
shares are subject to outstanding options and none of which are issued and
outstanding, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. The Company is not a party
or subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company. The only price-based
anti-dilution rights held by any securityholder of the Company are those held by
Tanabe Seiyaku Co., Ltd. ("Tanabe") pursuant to that certain Stock Purchase
Agreement dated March 31, 1996 between the Company and Tanabe, and those set
forth in the Company's Amended and Restated Articles of Incorporation filed
pursuant to Section 1.1(a) hereof.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement, the performance
of all obligations of the Company hereunder and thereunder and the
authorization, issuance (or reservation for issuance) and delivery of the Series
E Preferred Stock being sold hereunder, the Common Stock issuable upon
conversion of the Series E Preferred Stock has been taken or will be taken prior
to the First Closing, and this Agreement and Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
3.
<PAGE> 9
(a) The shares of Series E Preferred Stock which are being
purchased by the Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, and, based in part upon the representations of the
Investors in this Agreement, will be issued in compliance with all applicable
federal and state securities laws and such shares of Series E Preferred Stock
will be fully paid and non-assessable. The Common Stock issuable upon conversion
of the Series E Preferred Stock purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Amended and Restated Articles of Incorporation, shall be duly and validly
issued, fully paid and nonassessable, and issued in compliance with all
applicable securities laws, as presently in effect, of the United States and
each of the states whose securities laws govern the issuance of any of the
Series E Preferred Stock hereunder.
(b) The outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Common
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws. The outstanding warrants to purchase Series C-1 Preferred
Stock were duly and validly authorized and issued, and the shares of Series C-1
Preferred Stock underlying such warrants have been duly and validly reserved for
issuance.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing of a Form D
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended, which filing will be effected within 15 days of the sale of the Series
E Preferred Stock hereunder, and any other filings that must be made after the
Closing, which will be filed in a timely manner.
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement, the
Investors' Rights Agreement, or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
might result, either individually or in the aggregate, in any material adverse
changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The
4.
<PAGE> 10
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 PROPRIETARY INFORMATION AGREEMENTS. Each employee, officer and
consultant of the Company has executed a Proprietary Information and Inventions
Agreement in the form set forth on Exhibit C hereto. The Company, after
reasonable investigation, is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use its best efforts
to prevent any such violation.
2.9 PATENTS AND TRADEMARKS. To the best of its knowledge, the Company
has sufficient title and ownership of all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted, and believes it will be
able to develop such intellectual property such that it can operate its business
as proposed to be conducted, without any conflict with or infringement of the
rights of others. The Schedule of Exceptions contains a complete list of patents
and pending patent applications by the Company, as well as all licenses,
collaborative agreements, development agreements, distribution agreements and
similar agreements. The Company has not received any communications alleging,
nor does the Company have any knowledge, that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, tradenames, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his best efforts to promote the best interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
Investors' Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree,
license, agreement or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. To the Company's
5.
<PAGE> 11
knowledge, no other party to any license, contract or other agreement to which
the Company is a party is in breach, default or violation thereof and, to the
Company's knowledge, no facts exist which could constitute such a breach,
default or violation. The execution, delivery and performance by the Company of
this Agreement or the Investors' Rights Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties, except
that the foregoing may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) with respect to indemnification provisions contained in the
Investors' Rights Agreement, applicable federal or state securities laws. The
Company has not performed any act, or failed to perform any act, which would
result in the Company's loss of any right granted under any license,
collaboration, joint venture or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve obligations
(contingent or otherwise) of, or payments to, the Company in excess of $50,000.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $10,000 (except for trade credit
incurred in the ordinary course of business) or, in the case of indebtedness
and/or liabilities individually less than $10,000, in excess of $50,000 in the
aggregate (except for trade credit incurred in the ordinary course of business),
(iii) made any loans or advances to any person, other than ordinary advances for
travel expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights.
6.
<PAGE> 12
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Amended and Restated Articles of Incorporation or Bylaws, which adversely
affects its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3) months in
any discussion (i) with any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company, (iii) with any
corporation, partnership, association or other business entity or any individual
regarding any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iv) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company or its assets.
2.12 RELATED-PARTY TRANSACTIONS. No employee, officer or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers or directors of the Company and members of their
immediate families may own less than 5% of the outstanding stock in publicly
traded companies that may compete with the Company (except that persons or
entities that are affiliated with venture capital investment firms or other
accredited investment institutions shall have no such 5% ownership limitations).
No member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
2.13 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned
7.
<PAGE> 13
to be conducted. The Company is not in default in any material respect under any
of such franchises, permits, licenses, or other similar authority.
2.14 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.15 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.16 DISCLOSURE. The Company has fully provided each Investor with all
the information which such Investor has requested for deciding whether to
purchase the Series E Preferred Stock and all information which the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither this Agreement, the Investors' Rights Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
when taken together contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading.
2.17 REGISTRATION RIGHTS. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.18 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Amended and Restated
Articles of Incorporation and Bylaws of the Company are in the form previously
provided to the Investors.
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.20 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Investors that it qualifies as a "Qualified Small Business" as defined
Section 1202(d) of the Internal Revenue Code of 1986, as amended (the "Code").
The Company covenants
8.
<PAGE> 14
that so long as it reasonably believes that the Series E Preferred Stock (and/or
Conversion Shares) held by Investors or a transferee would qualify as Qualified
Small Business Stock as defined in Section 1202(c) of the Code it will timely
file all reports or filings with the Internal Revenue Service required of a
Qualified Small Business.
2.21 FINANCIAL STATEMENTS. The Company has delivered to each Investor
its audited Financial Statements at December 31, 1996 and unaudited financial
statements for each of the two quarters ending June 30, 1997 (the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated and with each other, except that unaudited
Financial Statements may not contain all footnotes required by GAAP. The
Financial Statements are complete and correct in all material respects and
fairly present the financial condition and results of operations of the Company
as of the dates and for the periods indicated therein, subject in the case of
the unaudited Financial Statements to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of the Financial Statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company.
2.22 CHANGES. Since June 30, 1997 there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company, except changes which have not been, in the
aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except which is not
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted);
9.
<PAGE> 15
(e) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee or consultant;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer,
key employee or consultant of the Company; and the Company does not know of any
impending resignation or termination of employment of any such officer, employee
or consultant; or
(i) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted).
2.23 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The provisions for taxes as set forth in the
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Code, to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. Since the date of the
Financial Statements, the Company has made adequate provisions on its books of
account for all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period.
2.25 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
errors and omissions insurance in amounts customary for companies similarly
situated.
10.
<PAGE> 16
2.26 MINUTE BOOKS. The minute books of the Company contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.27 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company. The Company has complied in all material respects with all
applicable state and federal equal employment opportunity and other laws related
to employment.
2.28 SECTION 83(B) ELECTIONS. To the best of the Company's knowledge,
elections and notices pursuant to Section 83(b) of the Code and any analogous
provisions of applicable state tax laws have been timely filed by all
individuals who have purchased shares of the Company's Common Stock which are
subject to vesting or other risk of forfeiture.
2.29 REAL PROPERTY HOLDING COMPANY. The Company is not a "United States
real property holding corporation" (as that term is defined in Treasury
Regulation section 1.897-2(b)). If at any time in the future the Company shall
become a "United States real property holding corporation," the Company shall,
as promptly as practicable, notify each foreign Investor of such change in
status. Within 30 days after receipt of a request from a foreign investor, the
Company shall prepare and deliver to such foreign Investor the statement
required under Treasury Regulation section 1.897-2(h)(l)(i) and either or both
of the following documents: (i) an affidavit in conformance with the
requirements of Section 1445(b)(3) of the Code or (ii) a notarized statement,
executed by an officer having actual knowledge of the facts, that the shares of
Company stock held by such foreign Investor are of a class that is regularly
traded on an established securities market, within the meaning of Section
1445(b)(6) of the Code. If the Company is unable to provide either document
described in (i) or (ii) above, if requested, it shall promptly notify such
foreign Investor in writing of the reasons for such inability. Finally, upon the
11.
<PAGE> 17
request of a foreign Investor and without regard to whether either document
described in (i) or (ii) above has been requested, the Company shall cooperate
fully with the efforts of such foreign Investor to obtain a "qualifying
statement," within the meaning of Section 1445(b)(4) of the Code, or such other
documents as would excuse a transferee of a foreign Investor's interest from
withholding of income tax imposed pursuant to Section 1445(a) of the Code.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor,
severally and not jointly, hereby represents and warrants that:
3.1 AUTHORIZATION. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with each
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement Investors hereby confirm that the
Series E Preferred Stock to be received by Investors will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Series E Preferred
Stock. Each Investor represents that it has full power and authority to enter
into this Agreement.
3.3 DISCLOSURE OF INFORMATION. Each Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series E Preferred Stock. Each Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series E Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of each
Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. Each Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the
12.
<PAGE> 18
investment in the Series E Preferred Stock. If other than an individual, each
Investor also represents it has not been organized for the purpose of acquiring
the Series E Preferred Stock.
3.5 ACCREDITED INVESTOR. Each Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D under the Act, as presently
in effect.
3.6 RESTRICTED SECURITIES. Each Investor understands that the shares of
Series E Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the "Act"),
only in certain limited circumstances. In this connection, each Investor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Investors further agree not to make any
disposition of all or any portion of the Series E Preferred Stock unless:
(a) the disposition is made as part of a firmly underwritten
public offering of the Company's stock, or
(b) until the transferee has agreed in writing for the
benefit of the Company to be bound by this Section 3 and Section 7 hereof, and
the Investors' Rights Agreement and the (i) Investors shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, Investors shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of (a) and (b) above, no
such public offering or opinion of counsel shall be necessary for a transfer by
an Investor which is a partnership or limited liability company to a partner of
such partnership, a retired partner of such partnership who retires after the
date hereof or a member of such limited liability company, or to the estate of
any such partner, retired partner or member, or the transfer by gift, will or
intestate succession of any partner or member to his spouse or to the siblings,
lineal descendants or ancestors of such partner or member or his spouse, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if he were an original Investor hereunder.
13.
<PAGE> 19
3.8 LEGENDS. It is understood that the certificates evidencing the
Series E Preferred Stock may bear the following legend:
"These securities have not been registered under the Securities
Act of 1933, as amended (the "Act"). They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement
in effect with respect to the securities under such Act or an opinion of
counsel reasonably satisfactory to the Company that such registration is
not required or unless sold pursuant to Rule 144 of such Act."
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM SUCH QUALIFICATION. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
5. CONDITIONS OF EACH INVESTOR'S OBLIGATION AT THE CLOSINGS. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the First Closing and each subsequent
Closing, as applicable, of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent in writing
thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the First
Closing and each subsequent Closing, as applicable, with the same effect as
though such representations and warranties had been made on and as of the date
of such closing.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before such closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver
to each Investor at the First Closing or such subsequent Closing, as applicable,
a certificate certifying that the conditions specified in Sections 5.1, 5.2,
5.4, 5.6 and 5.8 have been fulfilled and stating that there shall have been no
adverse change in the business, affairs, operations, properties, assets or
condition of the Company since the date of the Financial Statements.
14.
<PAGE> 20
5.4 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series E Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of the First Closing or any subsequent Closing, as applicable
(except for such as may be properly obtained subsequent to such closing).
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the First Closing and each
subsequent Closing, as applicable, and all documents incident thereto shall be
reasonably satisfactory in form and substance to each Investor, and the Investor
shall have received all such counterpart original and certified or other copies
of such documents as they may reasonably request.
5.6 BOARD OF DIRECTORS. At the time of the First Closing and each
subsequent Closing, the directors of the Company shall be John Walker, Brook
Byers, Luke Evnin, Harry Hixson, Jr., Patrick Latterell, Alan Lewis and Arnold
Oronsky.
5.7 OPINION OF COMPANY COUNSEL. Each Investor shall have received from
Cooley Godward LLP, counsel for the Company, an opinion, dated as of the First
Closing and each subsequent Closing, as applicable, in the form attached hereto
as Exhibit D.
5.8 INVESTORS' RIGHTS AGREEMENT. The Company and Investors shall have
entered into the Investors' Rights Agreement in the form attached hereto as
Exhibit B.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSINGS. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the First Closing and each subsequent Closing, as
applicable, of each of the following conditions by the Investors purchasing at
such Closing:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Investor contained in Section 3 shall be true on and as of the First
Closing and any subsequent Closing, as applicable, with the same effect as
though such representations and warranties had been made on and as of such
closing.
6.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have delivered the
purchase price specified in Section 1.1(b).
6.3 QUALIFICATION. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series E Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of such closing (except for such as may be properly obtained
subsequent to such closing).
15.
<PAGE> 21
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and each Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
First Closing and all subsequent Closings hereunder and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Investors or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Series E Preferred Stock sold hereunder or any
Common Stock issued upon conversion of such Series E Preferred Stock). Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 EXPENSES. If the Closing is effected, the Company shall, at the
First Closing, reimburse the reasonable fees of special counsel for the
Investors, not to exceed $15,000.00, and shall, upon receipt of a bill therefor,
reimburse the reasonable out of pocket expenses of such counsel. In addition, at
each subsequent Closing, the Company shall reimburse the reasonable fees of
special counsel to the Investors, provided all such fees for the First Closing
and any subsequent Closings in the aggregate do not exceed $15,000.00. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Investors' Rights Agreement or the Amended and Restated
Articles of Incorporation, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
7.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.7 NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon
16.
<PAGE> 22
personal delivery or delivery by courier to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Schedule A hereto, or at such other address as such
party may designate by ten (10) days' advance written notice to the other
parties.
7.8 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction, except for the Company's obligation to pay to Lehman Brothers Inc.,
Hambrecht & Quist LLC and Robertson, Stephens & Company LLC (collectively, the
"Agents") a placement fee of 9% of the gross proceeds received by the Company
from the sale of the Series E Preferred Stock, of which two-thirds will be
payable in cash and one-third will be payable in Series E Preferred Stock at the
same price as the Series E Preferred Stock sold at the Closing (the "Placement
Fee"). The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible, including, but not limited to, the Placement Fee
to be paid to the Agents.
Each Investor, severally and not jointly, agrees to indemnify and
to hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which such Investor
or any of its officers, partners, employees, or representatives is responsible.
7.9 AMENDMENTS AND WAIVERS. Except as provided in Section 5 of this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Common Stock issued
or issuable upon conversion of the Series E Preferred Stock. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
17.
<PAGE> 23
7.11 AGGREGATION OF STOCK. All shares of the Series E Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
7.12 REGULATED FINANCIAL INSTITUTIONS COMPLIANCE OBLIGATIONS. Nothing
contained in this Agreement shall diminsh the continuing obligations of any
financial institution to comply with applicable requirements of law that such
financial institution maintain responsibility for the disposition of, and
control over, its admitted assets, investments and property, including (without
limiting the generality of the foregoing) the provisions of Section 1411(b) of
the New York Insurance Law, as amended, and as hereinafter from time to time in
effect.
18.
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
SIGNAL PHARMACEUTICALS, INC.
By:
-----------------------------------
Alan J. Lewis, President
INVESTORS:
ARES-SERONO S.A.
By:
-----------------------------------
Its:
-----------------------------------
BIOCENTIVE
By:
-----------------------------------
Its:
-----------------------------------
FINSBURY WORLDWIDE PHARMACEUTICAL
TRUST, PLC
By:
-----------------------------------
Its:
-----------------------------------
LOMBARD ODIER IMMUNOLOGY FUND
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
<PAGE> 25
NEUROSCIENCE PARTNERS LIMITED
PARTNERSHIP
By:
-----------------------------------
Its:
-----------------------------------
NEW YORK LIFE INSURANCE COMPANY
By:
-----------------------------------
Its:
-----------------------------------
PHARMA/WHEALTH
By:
-----------------------------------
Its:
-----------------------------------
THE HEALTH CARE AND BIOTECHNOLOGY
VENTURE FUND
By:
-----------------------------------
Its:
-----------------------------------
BAYVIEW INVESTORS LTD.
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHAASE AGREEMENT
<PAGE> 26
VENROCK ASSOCIATES
By:
-----------------------------------
Its:
-----------------------------------
VENROCK ASSOCIATES II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
KLEINER PERKINS CAUFIELD & BYERS VI
By:
-----------------------------------
Its:
-----------------------------------
ACCEL INVESTORS `93 L.P.
By:
-----------------------------------
Its:
-----------------------------------
ACCEL IV L.P.
By:
-----------------------------------
Its:
-----------------------------------
ACCEL JAPAN L.P.
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
<PAGE> 27
ACCEL KEIRETSU L.P.
By:
-----------------------------------
Its:
-----------------------------------
ELLMORE C. PATTERSON PARTNERS
By:
-----------------------------------
Its:
-----------------------------------
PROSPER PARTNERS
By:
-----------------------------------
Its:
-----------------------------------
INTERWEST INVESTORS V
By:
-----------------------------------
Its:
-----------------------------------
INTERWEST PARTNERS V
By:
-----------------------------------
Its:
-----------------------------------
OXFORD BIOSCIENCE PARTNERS (ADJUNCT)
L.P.
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
<PAGE> 28
OXFORD BIOSCIENCE PARTNERS (BERMUDA)
L.P.
By:
-----------------------------------
Its:
-----------------------------------
OXFORD BIOSCIENCE PARTNERS L.P.
By:
-----------------------------------
Its:
-----------------------------------
SECOND VENTURES II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
U.S. VENTURES PARTNERS IV, L.P.
By:
-----------------------------------
Its:
-----------------------------------
USVP ENTREPRENEUR PARTNERS II, L.P.
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
19.
<PAGE> 29
HARRY F. HIXSON, JR. SEPARATE PROPERTY
TRUST, DATED DECEMBER 15, 1995
By:
-----------------------------------
Its:
-----------------------------------
VERTICAL FUND ASSOCIATES, L.P.
By:
-----------------------------------
Its:
-----------------------------------
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
<PAGE> 30
SCHEDULE A
Schedule of Investors
<TABLE>
<CAPTION>
NUMBER
INVESTORS AMOUNT INVESTED OF SHARES
<S> <C> <C>
Ares-Serono S.A. $1,883,836.82 986,302
c/o Ares Services S.A.
Attn: Leon R. Bushara
15bis Chemin des Mines
1202 Geneva
Switzerland
BioCentive $999,999.60 523,560
c/o Mesco Ltd.
Attn: Joel R. Mesznik
122 East 42nd Street
49th Floor
New York, NY 10168
Finsbury Worldwide $999,999.60 523,560
Pharmaceutical Trust, plc
c/o Finsbury Asset Management
Attn: Barbara Macaulay
Alderman's House
Alderman's Walk
London EC2M 3XR
England
Lombard Odier Immunology Fund $3,000,000.71 1,570,681
c/o Lombard Odier & Cie
Attn: Mlle. Laurence Mauron
11, rue de la Corraterie
1204 Geneva
Switzerland
</TABLE>
1.
<PAGE> 31
<TABLE>
<CAPTION>
NUMBER
INVESTORS AMOUNT INVESTED OF SHARES
<S> <C> <C>
Neuroscience Partners Limited Partnership $999,999.60 523,560
Attn: Michael Callaghan
100 International Boulevard
Etobicoke, Ontario
Canada M9W 6J6
New York Life Insurance Company $1,499,999.40 785,340
Attn: Dominique Semon
51 Madison Avenue
New York, NY 10010
PHARMA/wHEALTH $999,999.60 523,560
c/o. Mehta and Isaly
Attn: Mr. Samuel D. Isaly
41 Madison Avenue
40th Floor
New York, NY 10010
The Health Care and Biotechnology Venture Fund $499,999.80 261,780
Attn: Micahel Callaghan
100 International Boulevard
Etobicoke, Ontario
Canada M9W 6J6
Bayview Investors Ltd. $116,160.47 60,817
c/o Robertson Stephens & Co.
Attn: John Coquia
555 California Street, Suite 2600
San Francisco, CA 94104
Venrock Associates $ 83,027.70 43,470
Venrock Associates II, L.P. 110,059.93 57,623
Attn: Patrick F. Latterell
One Maritime Plaza, Suite 1919
San Francisco, CA 94111
</TABLE>
2.
<PAGE> 32
<TABLE>
<CAPTION>
NUMBER
INVESTORS AMOUNT INVESTED OF SHARES
<S> <C> <C>
Kleiner Perkins Caufield & Byers VI $ 193,087.63 101,093
Attn: Brook H. Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Accel Investors `93 L.P. $ 7,143.40 3,740
Accel IV L.P. 161,614.65 84,615
Accel Japan L.P. 15,448.08 8,088
Accel Keiretsu L.P. 3,476.20 1,820
Ellmore C. Patterson Partners 4,247.84 2,224
Prosper Partners 1,157.46 606
Attn: Luke B. Evnin, Ph.D.
One Embarcadero Center, Suite 3820
San Francisco, CA 94111
InterWest Investors V $ 947.36 496
InterWest Partners V 150,525.19 78,809
Attn: Arnold Oronsky, Ph.D.
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Oxford Bioscience Partners (Adjunct) L.P. $ 20,196.34 10,574
Oxford Bioscience Partners (Bermuda) L.P. 17,543.35 9,185
Oxford Bioscience Partners L.P. 63,242.01 33,111
Attn: Edmund M. Olivier
650 Town Center Drive, Suite 810
Costa Mesa, CA 92626
Second Ventures II, L.P. $ 10,602.41 5,551
U.S. Venture Partners IV, L.P. 87,350.03 45,733
USVP Entrepreneur Partners II, L.P. 3,029.26 1,586
Attn: Philip M. Young
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
</TABLE>
3.
<PAGE> 33
<TABLE>
<CAPTION>
NUMBER
INVESTORS AMOUNT INVESTED OF SHARES
<S> <C> <C>
Harry F. Hixson, Jr. Separate Property Trust, $ 42,058.20 22,020
Dated December 15, 1995
Attn: Harry F. Hixson, Ph.D.
c/o Neuroscience Biosciences Inc.
3050 Science Park Road
San Diego, CA 92121-1102
Vertical Fund Associates, L.P. $ 25,244.47 13,217
Attn: John Runnells
18 Bank Street
Summit, NJ 07901
TOTAL 11,999,997.11 6,282,721
</TABLE>
4.
<PAGE> 34
SCHEDULE B
Schedule of Exceptions
<PAGE> 35
EXHIBIT A
Amended and Restated Articles of Incorporation
<PAGE> 36
EXHIBIT B
Amended and Restated Investors' Rights Agreement
<PAGE> 37
EXHIBIT C
Proprietary Information and Inventions Agreement
<PAGE> 38
EXHIBIT D
Form of Opinion of Cooley Godward LLP
<PAGE> 1
EXHIBIT 10.15
SIGNAL PHARMACEUTICALS, INC.
SERIES F PREFERRED
STOCK PURCHASE AGREEMENT
NOVEMBER 25, 1997
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TABLE OF CONTENTS
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1. PURCHASE AND SALE OF STOCK...................................................1
1.1 Sale and Issuance of Series F Preferred Stock................................1
1.2 Closing......................................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................1
2.1 Organization, Good Standing and Qualification................................2
2.2 Capitalization and Voting Rights.............................................2
2.3 Subsidiaries.................................................................3
2.4 Authorization................................................................3
2.5 Valid Issuance of Preferred and Common Stock.................................3
2.6 Governmental Consents........................................................4
2.7 Litigation...................................................................4
2.8 Proprietary Information Agreements...........................................4
2.9 Patents and Trademarks.......................................................4
2.10 Compliance with Other Instruments............................................5
2.11 Agreements; Action...........................................................6
2.12 Related-Party Transactions...................................................7
2.13 Permits......................................................................7
2.14 Environmental and Safety Laws................................................7
2.15 Manufacturing and Marketing Rights...........................................7
2.16 Disclosure...................................................................7
2.17 Registration Rights..........................................................8
2.18 Corporate Documents..........................................................8
2.19 Title to Property and Assets.................................................8
2.20 Qualified Small Business.....................................................8
2.21 Financial Statements.........................................................8
2.22 Changes......................................................................9
2.23 Employee Benefit Plans......................................................10
2.24 Tax Returns, Payments and Elections.........................................10
2.25 Insurance...................................................................10
2.26 Minute Books................................................................10
2.27 Labor Agreements and Actions................................................10
2.28 Section 83(b) Elections.....................................................11
2.29 Real Property Holding Company...............................................11
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR..............................11
3.1 Authorization...............................................................11
3.2 Purchase Entirely for Own Account...........................................12
3.3 Disclosure of Information...................................................12
3.4 Investment Experience.......................................................12
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TABLE OF CONTENTS
(CONTINUED)
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3.5 Accredited Investor.........................................................12
3.6 Restricted Securities.......................................................12
3.7 Further Limitations on Disposition..........................................13
3.8 Legends.....................................................................13
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.....................................14
4.1 Corporate Securities Law....................................................14
5. CONDITIONS OF THE INVESTOR'S OBLIGATION AT THE CLOSING......................14
5.1 Representations and Warranties..............................................14
5.2 Performance.................................................................14
5.3 Compliance Certificate......................................................14
5.4 Qualifications..............................................................14
5.5 Proceedings and Documents...................................................14
5.6 Board of Directors..........................................................14
5.7 Investors' Rights Amendment.................................................14
5.8 Opinion of Company Counsel..................................................15
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING......................15
6.1 Representations and Warranties..............................................15
6.2 Payment of Purchase Price...................................................15
6.3 Qualification...............................................................15
7. ADDITIONAL AGREEMENT........................................................15
7.1 Standstill Provisions.......................................................15
8. MISCELLANEOUS...............................................................17
8.1 Survival of Warranties......................................................17
8.2 Successors and Assigns......................................................17
8.3 Governing Law...............................................................17
8.4 Counterparts................................................................17
8.5 Attorneys' Fees.............................................................17
8.6 Titles and Subtitles........................................................17
8.7 Notices.....................................................................17
8.8 Finder's Fee................................................................18
8.9 Amendments and Waivers......................................................18
8.10 Severability................................................................19
8.11 Aggregation of Stock........................................................19
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TABLE OF CONTENTS
SCHEDULE A - Schedule of Exceptions
EXHIBIT A - Amended and Restated Articles of Incorporation
EXHIBIT B - Amendment to Amended and Restated Investors' Rights Agreement
EXHIBIT C - Proprietary Information and Inventions Agreement
EXHIBIT D - Form of Opinion of Cooley Godward LLP
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 25th day of November,
1997, by and between Signal Pharmaceuticals, Inc., a California corporation (the
"Company"), and Ares-Serono S.A., a Swiss company (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES F PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of California, and the Secretary of State of California shall accept on or
before the Closing (as defined below), the Amended and Restated Articles of
Incorporation in the form attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase at the Closing (as defined below) under this
Agreement, and the Company agrees to sell and issue to the Investor at the
Closing, 2,722,513 shares of the Company's Series F Preferred Stock for an
aggregate price of $8,200,000.72.
1.2 CLOSING. The purchase and sale of the Series F Preferred Stock
shall take place at the offices of Cooley Godward LLP, 4365 Executive Drive,
Suite 1100, San Diego, California 92121, at 1:00 P.M. on December 1, 1997, or at
such other time and place as the Company and the Investor agree orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to the Investor a certificate representing the shares
of Series F Preferred Stock which the Investor is purchasing against delivery to
the Company by the Investor of a wire transfer in the amount of the purchase
price therefor payable to the Company's order. The Investor shall also become a
party to that certain Amendment to Amended and Restated Investors' Rights
Agreement of even date herewith, by and among the Company, the Investor and
certain other investors of the Company, the form of which is attached hereto as
Exhibit B (the "Investors' Rights Amendment"), which Investors' Rights Amendment
shall amend the Company's Amended and Restated Investors' Rights Agreement as in
effect immediately prior to the Closing (the "Investors' Rights Agreement"), and
the Investor shall have the rights and obligations of an Investor thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth on a Schedule
of Exceptions attached hereto as Schedule A, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
1.
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2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist prior to the Closing, of:
(a) PREFERRED STOCK. 24,453,931 shares of Preferred Stock (the
"Preferred Stock"), of which 2,626,892 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, of which 2,875,000
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, of which 8,791,432 shares have been designated Series C
Preferred Stock, all of which are issued and outstanding, of which 250,000
shares have been designated Series C-1 Preferred Stock, all of which are subject
to issued and outstanding warrants, of which 732,601 shares have been designated
Series D Preferred Stock, all of which are issued and outstanding, of which
6,455,493 shares have been designated Series E Preferred Stock, all of which
shares are issued and outstanding, and of which 2,722,513 shares have been
designated Series F Preferred Stock, all of which will be sold pursuant to this
Agreement. The rights, privileges and preferences of the Series A, Series B,
Series C, Series C-1, Series D, Series E and Series F Preferred Stock will be as
stated in the Company's Amended and Restated Articles of Incorporation attached
hereto as Exhibit A.
(b) COMMON STOCK. 35,000,000 shares of common stock ("Common
Stock"), of which 2,449,131 shares are issued and outstanding.
(c) OTHER RIGHTS. Except for (A) the conversion privileges of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series C-1 Preferred Stock, the Series D Preferred Stock, the Series
E Preferred Stock and the Series F Preferred Stock sold pursuant to this
Agreement, (B) 2,500,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1993 Stock Option Plan, of which 1,446,008 shares are subject
to outstanding options and of which 1,005,631 shares are issued and outstanding,
(C) 550,000 shares of Common Stock reserved for issuance pursuant to the
Company's 1993 Founders' Stock Option Plan, 159,000 of which are subject to
outstanding options and of which 373,000 shares are issued and outstanding, (D)
1,000,000 shares of Common Stock reserved for issuance pursuant to the Company's
1997 Stock Option Plan, of which 795,820 shares are subject to outstanding
options and none of which are issued and outstanding, and (E) 250,000 shares of
Series C-1 Preferred Stock reserved for issuance upon the exercise of issued and
outstanding warrants, there are not outstanding any options, warrants, rights
(including conversion or
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preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Investors' Rights Amendment, the
performance of all obligations of the Company hereunder and thereunder and the
authorization, issuance (or reservation for issuance) and delivery of the Series
F Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series F Preferred Stock has been taken or will be taken prior
to the Closing, and this Agreement and Investors' Rights Amendment constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
(a) The shares of Series F Preferred Stock which are being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, and, based in part upon the representations of the
Investor in this Agreement, will be issued in compliance with all applicable
federal and state securities laws and such shares of Series F Preferred Stock
will be fully paid and non-assessable. The Common Stock issuable upon conversion
of the Series F Preferred Stock purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Amended and Restated Articles of Incorporation, shall be duly and validly
issued, fully paid and nonassessable, and issued in compliance with all
applicable securities laws, as presently in effect, of the United States and
each of the states whose securities laws govern the issuance of any of the
Series F Preferred Stock hereunder.
(b) The outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock are all duly and validly authorized and issued,
fully paid and
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nonassessable, and were issued in compliance with all applicable federal and
state securities laws. The outstanding warrants to purchase Series C-1 Preferred
Stock were duly and validly authorized and issued, and the shares of Series C-1
Preferred Stock underlying such warrants have been duly and validly reserved for
issuance.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing of a Form D
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended, which filing will be effected within 15 days of the sale of the Series
F Preferred Stock hereunder, and any other filings that must be made after the
Closing, which will be filed in a timely manner.
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement, the
Investors' Rights Amendment, or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
might result, either individually or in the aggregate, in any material adverse
changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
2.8 PROPRIETARY INFORMATION AGREEMENTS. Each employee, officer and
consultant of the Company has executed a Proprietary Information and Inventions
Agreement in the form set forth on Exhibit C hereto. The Company, after
reasonable investigation, is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use its best efforts
to prevent any such violation.
2.9 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company has sufficient title and ownership of all patents, trademarks, service
marks, tradenames, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted, and believes it will
be able to develop such intellectual property such that it can operate its
business as proposed to be conducted, without any
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conflict with or infringement of the rights of others. The Schedule of
Exceptions contains a complete list of patents and pending patent applications
by the Company, as well as all licenses, collaborative agreements, development
agreements, distribution agreements and similar agreements. The Company has not
received any communications alleging, nor does the Company have any knowledge,
that the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, tradenames, copyrights or
trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his best efforts to promote the
best interests of the Company or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the Investors' Rights Amendment, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the Company's knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree,
license, agreement or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. To the Company's knowledge, no other party
to any license, contract or other agreement to which the Company is a party is
in breach, default or violation thereof and, to the Company's knowledge, no
facts exist which could constitute such a breach, default or violation. The
execution, delivery and performance by the Company of this Agreement or the
Investors' Rights Amendment and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties, except that the foregoing may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, (ii) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies,
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and (iii) with respect to indemnification provisions contained in the Investors'
Rights Agreement, applicable federal or state securities laws. The Company has
not performed any act, or failed to perform any act, which would result in the
Company's loss of any right granted under any license, collaboration, joint
venture or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby, by the
Investors' Rights Amendment and by the Investors Rights Agreement, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve obligations
(contingent or otherwise) of, or payments to, the Company in excess of $50,000.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $10,000 (except for trade credit
incurred in the ordinary course of business) or, in the case of indebtedness
and/or liabilities individually less than $10,000, in excess of $50,000 in the
aggregate (except for trade credit incurred in the ordinary course of business),
(iii) made any loans or advances to any person, other than ordinary advances for
travel expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Amended and Restated Articles of Incorporation or Bylaws, which adversely
affects its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3) months in
any discussion (i) with any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company,
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(iii) with any corporation, partnership, association or other business entity or
any individual regarding any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company would be
disposed of, or (iv) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company or its assets.
2.12 RELATED-PARTY TRANSACTIONS. No employee, officer or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers or directors of the Company and members of their
immediate families may own less than 5% of the outstanding stock in publicly
traded companies that may compete with the Company (except that persons or
entities that are affiliated with venture capital investment firms or other
accredited investment institutions shall have no such 5% ownership limitations).
No member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
2.13 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.14 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.15 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.16 DISCLOSURE. The Company has fully provided the Investor with all
the information which the Investor has requested for deciding whether to
purchase the Series F Preferred Stock and all information which the Company
believes is reasonably
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necessary to enable the Investor to make such decision. Neither this Agreement,
the Investors' Rights Amendment, nor any other statements or certificates made
or delivered in connection herewith or therewith when taken together contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading.
2.17 REGISTRATION RIGHTS. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.18 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investor), the Amended and Restated Articles
of Incorporation and Bylaws of the Company are in the form previously provided
to the Investor.
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.20 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Investor that it qualifies as a "Qualified Small Business" as defined
Section 1202(d) of the Internal Revenue Code of 1986, as amended (the "Code").
The Company covenants that so long as it reasonably believes that the Series F
Preferred Stock (and/or Conversion Shares) held by the Investor or a transferee
would qualify as Qualified Small Business Stock as defined in Section 1202(c) of
the Code it will timely file all reports or filings with the Internal Revenue
Service required of a Qualified Small Business.
2.21 FINANCIAL STATEMENTS. The Company has delivered to the Investor
its audited Financial Statements at December 31, 1996 and unaudited financial
statements for each of the three quarters ending September 30, 1997 (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
GAAP. The Financial Statements are complete and correct in all material respects
and fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated therein, subject in the
case of the unaudited Financial Statements to normal year-end audit adjustments.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent
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or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of the Financial Statements and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.
2.22 CHANGES. Since September 30, 1997 there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company, except changes which have not been, in the
aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except which is not
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted);
(e) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee or consultant;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer,
key employee or consultant of the Company; and the Company does not know of any
impending resignation or termination of employment of any such officer, employee
or consultant; or
(i) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the assets,
properties, financial
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condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted).
2.23 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The provisions for taxes as set forth in the
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Code to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. Since the date of the
Financial Statements, the Company has made adequate provisions on its books of
account for all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period.
2.25 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
errors and omissions insurance in amounts customary for companies similarly
situated.
2.26 MINUTE BOOKS. The minute books of the Company contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.27 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer
10.
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or key employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company. The Company
has complied in all material respects with all applicable state and federal
equal employment opportunity and other laws related to employment.
2.28 SECTION 83(B) ELECTIONS. To the best of the Company's knowledge,
elections and notices pursuant to Section 83(b) of the Code and any analogous
provisions of applicable state tax laws have been timely filed by all
individuals who have purchased shares of the Company's Common Stock which are
subject to vesting or other risk of forfeiture.
2.29 REAL PROPERTY HOLDING COMPANY. The Company is not a "United
States real property holding corporation" (as that term is defined in Treasury
Regulation section 1.897-2(b)). If at any time in the future the Company shall
become a "United States real property holding corporation," the Company shall,
as promptly as practicable, notify the Investor of such change in status. Within
30 days after receipt of a request from the Investor, the Company shall prepare
and deliver to the Investor the statement required under Treasury Regulation
section 1.897-2(h)(l)(i) and either or both of the following documents: (i) an
affidavit in conformance with the requirements of Section 1445(b)(3) of the Code
or (ii) a notarized statement, executed by an officer having actual knowledge of
the facts, that the shares of Company stock held by the Investor are of a class
that is regularly traded on an established securities market, within the meaning
of Section 1445(b)(6) of the Code. If the Company is unable to provide either
document described in (i) or (ii) above, if requested, it shall promptly notify
the Investor in writing of the reasons for such inability. Finally, upon the
request of the Investor and without regard to whether either document described
in (i) or (ii) above has been requested, the Company shall cooperate fully with
the efforts of the Investor to obtain a "qualifying statement," within the
meaning of Section 1445(b)(4) of the Code, or such other documents as would
excuse a transferee of the Investor's interest from withholding of income tax
imposed pursuant to Section 1445(a) of the Code.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants that:
3.1 AUTHORIZATION. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable
11.
<PAGE> 16
remedies and (iii) to the extent the indemnification provisions contained in the
Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Series F Preferred Stock to be received by the Investor will
be acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents that the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Series F Preferred Stock. The Investor represents that it
has full power and authority to enter into this Agreement.
3.3 DISCLOSURE OF INFORMATION. The Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series F Preferred Stock. The Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series F Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. The Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Series F Preferred Stock. The
Investor also represents it has not been organized for the purpose of acquiring
the Series F Preferred Stock.
3.5 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D under the Act, as presently
in effect.
3.6 RESTRICTED SECURITIES. The Investor understands that the shares
of Series F Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the "Act"),
only in certain limited circumstances. In this connection, the Investor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
12.
<PAGE> 17
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Series F Preferred Stock unless:
(a) the disposition is made as part of a firmly underwritten
public offering of the Company's stock, or
(b) until the transferee has agreed in writing for the benefit of
the Company to be bound by this Section 3 and Section 8 hereof, and the
Investors' Rights Amendment and the (i) Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of (a) and (b) above, no such
public offering or opinion of counsel shall be necessary for a transfer by (i)
an Investor which is a partnership or limited liability company to a partner of
such partnership, a retired partner of such partnership who retires after the
date hereof or a member of such limited liability company, or to the estate of
any such partner, retired partner or member, or the transfer by gift, will or
intestate succession of any partner or member to his spouse or to the siblings,
lineal descendants or ancestors of such partner or member or his spouse, or (ii)
an Investor which is an entity to any corporation, firm, partnership or other
entity that controls, is controlled by or is under common control with the
Investor, so long as the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he were the original Investor hereunder. For
purposes of this Section 3.7(c), "control" shall mean the ownership, whether
direct or indirect, of fifty percent (50%) or more of the equity having the
power to vote on or otherwise direct the affairs of the entity.
3.8 LEGENDS. It is understood that the certificates evidencing the
Series F Preferred Stock may bear the following legend:
"These securities have not been registered under the
Securities Act of 1933, as amended (the "Act"). They may not be
sold, offered for sale, pledged or hypothecated in the absence of
a registration statement in effect with respect to the securities
under such Act or an opinion of counsel reasonably satisfactory
to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
13.
<PAGE> 18
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. The sale of the securities which are
the subject of this Agreement is exempt from qualification with the Commissioner
of Corporations of the State of California.
5. CONDITIONS OF THE INVESTOR'S OBLIGATION AT THE CLOSING. The obligations
of the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing, with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 5.1, 5.2, 5.4, 5.6 and 5.7 have been fulfilled
and stating that there shall have been no adverse change in the business,
affairs, operations, properties, assets or condition of the Company since the
date of the Financial Statements.
5.4 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Series F Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing (except for such as may be properly obtained
subsequent to the Closing).
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing, and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor, and the Investor shall have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
5.6 BOARD OF DIRECTORS. At the time of the Closing, the directors of
the Company shall be John Walker, Brook Byers, Luke Evnin, Harry Hixson, Jr.,
Patrick Latterell, Alan Lewis and Arnold Oronsky.
5.7 INVESTORS' RIGHTS AMENDMENT. The Company and the Investor shall
have entered into the Investors' Rights Amendment in the form attached hereto as
Exhibit B.
14.
<PAGE> 19
5.8 OPINION OF COMPANY COUNSEL. The Investor shall have received from
Cooley Godward LLP, counsel for the Company, an opinion, dated as of the
Closing, in the form attached hereto as Exhibit D.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by the
Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing, with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE. The Investor shall have delivered the
purchase price specified in Section 1.1(b).
6.3 QUALIFICATION. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series F Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing (except for such as may be properly obtained
subsequent to the Closing).
7. ADDITIONAL AGREEMENT.
7.1 STANDSTILL PROVISIONS. During the period commencing on the date
of consummation of the sale of the Company's Common Stock in an initial public
offering in which the requirements for the automatic conversion of the Company's
Preferred Stock set forth in Article III, Section B(4)(a)(ii)(A) or (B) of the
Amended and Restated Articles of Incorporation, as they may be amended from time
to time, are satisfied in accordance with the terms of the Amended and Restated
Articles of Incorporation (a "Qualifying IPO"), and ending on the later of (a)
the fifth anniversary of the Qualifying IPO or (b) the first anniversary after
all research support is terminated under the Research, Development and License
Agreement dated of even date herewith between the Company and Ares Trading S.A.,
the Investor shall not, and shall cause its affiliates not to, in any manner,
singly or as part of a partnership, limited partnership, syndicate or other
"Group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended), directly or indirectly, acquire, or offer or agree to
acquire, record ownership or beneficial ownership of any shares of capital stock
of the Company, any securities convertible into or exchangeable for capital
stock or any other right to acquire capital stock from the Company or any other
person, without the prior written consent of the Company; provided, however,
that the restrictions on Investor under this Section 7.1 shall not be applicable
to:
15.
<PAGE> 20
(a) a tender offer for the Company's securities formally
initiated by the Investor following formal initiation of a tender offer for a
controlling interest of the Company's outstanding voting securities made by a
third party (the "Third-Party Tender Offer"); provided, however, that the
Investor's right to commence a tender offer under this subparagraph shall cease
immediately upon (i) the withdrawal, termination or cessation of any such
Third-Party Tender Offer if the Investor has not formally commenced a tender
offer pursuant to this Section 7.1(a) prior to such withdrawal, termination or
cessation of such Third-Party Tender Offer, or (ii) the withdrawal, termination
or cessation of any such tender offer made by the Investor pursuant to this
Section 7.1(a), unless a Third-Party Tender Offer has been formally commenced
that has not been withdrawn, terminated or otherwise ceased. (For purposes of
this subparagraph 7.1(a) and subparagraph 7.1(c) below, "control" or
"controlling" shall mean the ownership, whether direct or indirect, of fifty
percent (50%) or more of the equity having the power to vote on or otherwise
direct the affairs of another entity);
(b) an acquisition of the Company's securities which does not
cause the ratio of (i) (x) the total number of shares of the Company's capital
stock held by the Investor and any of its affiliates, to (y) the total number of
outstanding shares of the Company's capital stock, to exceed (ii) such ratio as
it was calculated immediately following the Qualifying IPO; provided, however,
that in no event shall such ratio be required to equal an amount less than ten
percent (10%);
(c) with respect to any acquisition not otherwise exempt from the
restrictions on Investor under Section 7.1 by virtue of subparagraph 7.1(b), an
acquisition of the Company's securities by an entity in which the Investor or
any of its affiliates is a stockholder, partner or a member so long as (i) such
entity does not control, is not controlled by and is not under common control
with the Investor or any of its affiliates, and (ii) to the extent that the
Investor or any of its affiliates has direct voting control with respect to any
of the capital stock of the Company owned or held by such entity, the Investor
or its affiliates, as applicable, will vote such shares or cause such shares to
be voted in accordance with the recommendations of the Company's Board of
Directors; or
(d) with respect to any acquisition not otherwise exempt from the
restrictions on Investor under Section 7.1 by virtue of subparagraph 7.1(b), an
acquisition of the Company's securities as a result of the combination of
Investor or any of its affiliates with, or the acquisition by Investor or any of
its affiliates of, any other entity as long as any such securities so acquired
are voted in accordance with the recommendations of the Company's Board of
Directors.
16.
<PAGE> 21
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing hereunder and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investor or the Company.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Series F Preferred Stock sold hereunder or any
Common Stock issued upon conversion of such Series F Preferred Stock). Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the Investors' Rights
Amendment or the Amended and Restated Articles of Incorporation, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
8.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.7 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by courier to the party to
be notified or upon delivery by the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
following address, or at such other address, as such party may designate by ten
(10) days' advance written notice to the other parties:
17.
<PAGE> 22
If to Investor: Ares-Serono S.A.
1267 Coinsins
VD
Switzerland
Telephone: 41-22-364-2838
Facsimile: 41-22-364-2839
With a Copy to: Ares-Serono International S.A.
15 bis, chemin des Mines
1202 Geneva
Switzerland
Telephone: 41-22-738-8000
Facsimile: 41-22-739-3070
If to Company: Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attn: Chief Financial Officer
Telephone: (619) 558-7500
Facsimile: (619) 558-7513
With a Copy to: Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: Frederick T. Muto, Esq.
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
8.8 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and hold harmless the other party
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the first party or any of its officers, employees
or representatives is responsible.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Common Stock issued or issuable upon conversion of the Series F Preferred Stock.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities
18.
<PAGE> 23
purchased under this Agreement at the time outstanding (including securities
into which such securities are convertible), each future holder of all such
securities, and the Company.
8.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.11 AGGREGATION OF STOCK. All shares of the Series F Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
19.
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SIGNAL PHARMACEUTICALS, INC.
By: _____________________________________
Alan J. Lewis, President
and Chief Executive Officer
ARES-SERONO, S.A.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
<PAGE> 25
SCHEDULE A
Schedule of Exceptions
<PAGE> 26
EXHIBIT A
Amended and Restated Articles of Incorporation
<PAGE> 27
EXHIBIT B
Amendment to Amended and Restated Investors' Rights Agreement
<PAGE> 28
EXHIBIT C
Proprietary Information and Inventions Agreement
<PAGE> 29
EXHIBIT D
Form of Opinion of Cooley Godward LLP
<PAGE> 1
EXHIBIT 10.16
SECOND AMENDMENT TO NOTE DATED JUNE 14, 1994
This Second Amendment (the "Second Amendment") to the Promissory Note (the
"Note") dated June 14, 1994, as amended on May 14, 1998 (the "First Amendment"),
executed by Alan J. Lewis ("Maker") in favor of Signal Pharmaceuticals, Inc.
(the "Company") in the amount of $250,000.000, a copy of which is attached
hereto as Exhibit A, is made as of October 27, 1999. Capitalized terms used but
not otherwise defined in this Second Amendment shall have the meanings given
such terms in the Note.
The Maker hereby agrees that, effective as of the date hereof, the Note shall be
amended as follows:
1. The second paragraph of the Note is hereby amended to read in its
entirety as follows:
"Beginning on (i) a date eight (8) years from the date of this
note (the "Repayment Commencement Date") or (ii) the date Maker's
employment with the Company is terminated for any reason
whatsoever, interest shall accrue, during each calendar month or
any portion thereof for which this note remains outstanding, at
the per annum rate equal to 7.52% (the minimum rate of interest
required, as of the execution date of this note, to avoid the
imputation or imposition of interest under the Internal Revenue
Code).
Accrued interest shall be compounded annually."
2. The fourth paragraph of the Note (formerly the fifth paragraph prior to
the First Amendment) is hereby amended to read in its entirety as
follows:
"The entire unpaid principal, together with accrued interest,
shall be amortized over the five (5) years following the
Repayment Commencement Date, with monthly payments commencing
July 14, 2002."
Except as specifically amended by this Second Amendment, the terms and
conditions of the First Amendment and Note shall remain in full force and
effect.
/s/ ALAN J. LEWIS
-----------------------------------------
ALAN J. LEWIS, MAKER
Agreed to and accepted this 27th day of October, 1999:
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRADLEY B. GORDON
----------------------------------------------
Bradley B. Gordon
Chief Financial Officer and Corporate Secretary
EXHIBIT A - First Amendment and Note Secured by Security Agreement dated June
14, 1994
FIRST AMENDMENT TO NOTE DATED JUNE 14, 1994
This First Amendment (the "First Amendment") to the Promissory Note (the "Note")
dated June 14, 1994 executed by Alan J. Lewis ("Maker") in favor of Signal
Pharmaceuticals, Inc. (the "Company") in the amount of $250,000.000, a copy of
which is attached hereto as Exhibit A, is made as of May 14, 1998. Capitalized
terms used but not otherwise defined in this First Amendment shall have the
meanings given such terms in the Note.
The Maker hereby agrees that, effective as of the date hereof, the Note shall be
amended as follows:
1. The fourth paragraph of the Note is hereby deleted in its entirety.
2. The fifth paragraph of the Note is hereby amended to read in its
entirety as follows:
"The entire unpaid principal, together with accrued interest, shall be
amortized over the five (5) years following the Repayment Commencement
Date, with monthly payments commencing July 14, 1999."
Except as specifically amended by this First Amendment, the terms and conditions
of the Note shall remain in full force and effect.
/s/ ALAN J. LEWIS
------------------------------------
ALAN J. LEWIS, MAKER
Agreed to and accepted this 14th day of May, 1998:
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRADLEY B. GORDON
---------------------------------------
Bradley B. Gordon
Chief Financial Officer and Corporate Secretary
EXHIBIT A - Note Secured by Security Agreement dated June 14, 1994
<PAGE> 2
NOTE SECURED BY SECURITY AGREEMENT
$250,000.00 June 14, 1994
San Diego, California
FOR VALUE RECEIVED, the undersigned Maker promises to pay to Signal
Pharmaceuticals, Inc. (the "Company"), at its principal offices at 5555 Oberlin
Drive, San Diego, California 92121 or order the principal sum of Two Hundred
Fifty Thousand dollars ($ 250,000.00), together with accrued interest on the
unpaid principal balance.
Beginning on (i) a date five (5) years from the date of this note (the
"Repayment Commencement Date") or (ii) the date Maker's employment with the
Company is terminated for any reason whatsoever, interest shall accrue, during
each calendar month or any portion thereof for which this note remains
outstanding, at the per annum rate equal to 7.52% (the minimum rate of interest
required, as of the execution date of this note, to avoid the imputation or
imposition of interest under the Internal Revenue Code). Accrued interest shall
be compounded annually.
The proceeds of the loan evidenced by this note shall be applied solely
to the purchase of Maker's principal residence in Rancho Santa Fe, California.
If, at any time, the Company consummates an Initial Public Offering (an
"IPO"), all unpaid principal and accrued interest shall become payable in one
lump sum sixty (60) days after shares of the Company's Common Stock sufficient
to pay such principal and interest may be sold by Maker in the public market
without restriction imposed by the Company, the Company's underwriters or
federal or state securities laws; provided, however, that failure to make such
payment shall not be deemed a default under this note until a date one year and
one day after the closing of an IPO.
Subject to the foregoing paragraph, in the event that the Company shall
not have closed an IPO on or before the Repayment Commencement Date, then the
entire unpaid principal, together with accrued interest, shall become payable
and shall be amortized over the period of five (5) years following the Repayment
Commencement Date.
Payment shall be made in lawful tender of the United States and shall be
credited first to the accrued interest then due and payable and the remainder
applied to principal. Prepayment of principal, together with accrued interest,
may be made at any time without penalty.
<PAGE> 3
The entire unpaid principal sum of this note, together with accrued and
unpaid interest to date, shall at the election of the holder of this note become
immediately due and payable upon one or more of the following events:
1. the death of the Maker;
2. six (6) months after any termination of the employment of the
Maker with the Company for any reason whatsoever;
3. the disposition of all or substantially all of the assets or
fifty percent (50%) or more of the outstanding voting stock of the Company by
means of sale, merger, reorganization or liquidation; or
4. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of any petition in
bankruptcy or any petition for relief under the provisions of the federal
bankruptcy act or any other state or federal law for the relief of debtors and
the continuation of such petition without dismissal for a period of fifteen (15)
days or more, or the appointment of a receiver or trustee to take possession of
the property or assets of the Maker.
The benefits of the interest arrangements under this note are not
transferable by Maker and are conditioned on the future performance of
substantial services by the Maker.
For purposes of applying the provisions of this note, the Maker shall be
considered to remain in the employ of the Company for so long as the Maker
renders services as a full-time employee of the Company or one or more of its
50%-or-more owned (directly or indirectly) subsidiaries.
The Maker certifies that he reasonably expects to be entitled to and
will itemize deductions for Federal income tax purposes for each year the note
is outstanding.
Payment of this note is secured by a Security Agreement executed on this
date by the Maker, but the Maker shall remain personally liable for payment of
this note and assets of the Maker, other than the collateral under the Security
Agreement, may be applied to the satisfaction of the Maker's obligations
hereunder, it being understood by the Maker that no action shall be taken
against Maker personally until the Company has used its best efforts to collect
on this note or to obtain satisfaction of Maker's obligations hereunder pursuant
to the Security Agreement. If action is instituted to collect this note, the
Maker promises to pay all costs and expenses, including reasonable attorneys'
fees, incurred in connection with such action.
2.
<PAGE> 4
The Maker hereby waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or
demands relative to this instrument.
This note shall be construed in accordance with the laws of the State of
California.
/s/ ALAN J. LEWIS, MAKER
----------------------------------------
Alan J. Lewis, Maker
3.
<PAGE> 1
EXHIBIT 10.17
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made and dated this 14th
day of June 1994, by and between SIGNAL PHARMACEUTICALS, INC. ("Secured Party")
and Alan J. Lewis ("Borrower").
RECITALS
A. In order to allow Borrower to purchase a residence, Secured
Party has accepted the promissory note of Borrower in the amount of two hundred
fifty thousand dollars ($250,000), dated concurrently herewith (the "Note"),
pursuant to which Secured Party has agreed to lend $250,000 to Borrower on the
terms and subject to the conditions set forth therein. All terms not otherwise
defined herein are used with the same meaning as set forth in the Note.
B. As security for the payment and performance of its obligations
to Secured Party under the Note and under this Security Agreement, it is the
intent of Borrower to grant to Secured Party and to create a security interest
in certain property of Borrower, as hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Secured Party and Borrower hereby agree as follows:
1. Stock Pledge. As security for payment and performance of the
obligations of Borrower to Secured Party described in Paragraph 2 below
(collectively and severally, the "Obligations"), Borrower hereby assigns and
pledges to Secured Party all shares of the Common Stock of Signal
Pharmaceuticals, Inc. now or hereafter owned by Borrower (the "Pledged Shares").
Borrower shall deliver the Pledged Shares and a duly endorsed collateral stock
power relating to the Pledged Shares to Secured Party and Secured Party hereby
acknowledges receipt of the Pledged Shares and the endorsed collateral stock
power. Secured Party shall hold the Pledged Shares as security for repayment of
the Note in full.
(a) During the term of this pledge, all cash dividends paid in
respect of the Pledged Shares shall be delivered to Secured Party and applied to
payment of the Note and all stock dividends shall be delivered to and held by
Secured Party as though they were Pledged Shares (hereafter, collectively, the
"Shares").
<PAGE> 2
(b) During the term of this pledge, Borrower shall have all voting
rights, if any, with respect to the Pledged Shares or any other shares held by
Secured Party pursuant to this Agreement on all matters on which such shares may
from time to time be voted.
(c) Upon payment in full of the indebtedness evidenced by the Note,
Secured Party shall surrender the Pledged Shares to Borrower. Upon payment in
part of the indebtedness evidenced by the Note, and upon consent of Secured
Party to be given or withheld in the exercise of Secured Party's absolute
discretion, Secured Party shall surrender such Pledged Shares to Borrower as
Secured Party authorizes.
2. Obligations. The Obligations of Borrower secured by this
Security Agreement shall consist of the debt, obligations and liabilities of
Borrower to Secured Party arising out of, connected with or related to the Note
and this Security Agreement and all amendments or extensions or renewals of the
Note, and/or this Security Agreement, whether now existing or hereafter arising,
voluntary or involuntary, whether or not jointly owed with others, direct or
indirect, absolute or contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred.
3. Additional Representations and Warranties. Borrower hereby
represents and warrants that except as heretofore disclosed to Secured Party in
writing, Borrower is the owner of the Shares and such other property as to which
Borrower may grant Secured Party a security interest pursuant to Paragraph 7
hereof (hereafter, collectively, the "Collateral") (or, in the case of
after-acquired Collateral, at the time Borrower acquires rights in the
Collateral, will be the owner thereof) and that, no other person has (or, in the
case of after-acquired Collateral, at the time Borrower acquires rights therein,
will have) any right, title, claim or interest (by way of security interest or
other lien or charge or otherwise) in, against or to the Collateral.
4. Covenants of Borrower. Borrower hereby agrees (a) to do all acts
that may be necessary to maintain, preserve and protect the Collateral and
Secured Party's interest in the Collateral; (b) not to use or permit any
Collateral to be used unlawfully or in violation of any provision of this
Security Agreement, or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; (c) to pay promptly when due all
taxes, assessments, charges, encumbrances and liens now or hereafter imposed
upon or affecting any Collateral; (d) to procure, execute and deliver from time
to time any endorsements, assignments, financing statements and other writing
deemed necessary or appropriate by Secured Party to perfect, maintain and
protect its security interest hereunder and the priority thereof and to deliver
promptly to Secured Party all originals of Collateral or proceeds consisting of
chattel paper or instruments; (e) to appear in and defend any action or
proceeding which may affect its title to or Secured Party's interest in the
Collateral; (f) if Secured Party gives value to enable Borrower to acquire
rights in or the use of any Collateral, to use such value for such purpose; (g)
to keep separate, accurate and
2.
<PAGE> 3
complete records of the Collateral and to provide Secured Party with such
records and such other reports and information relating to the Collateral as
Secured Party may request from time to time; and (h) not to surrender or lose
possession of (other than to Secured Party), sell, encumber, lease, rent, or
otherwise dispose of or transfer any Collateral or right or interest therein,
and, notwithstanding any provision of the Agreement, to keep the Collateral free
of all levies and security interests or other liens or charges except those
approved in writing by Secured Party.
5. Authorized Action By Secured Party. Borrower hereby irrevocably
appoints Secured Party as its attorney-in-fact to do (but Secured Party shall
not be obligated to and shall incur no liability to Borrower or any third party
for failure so to do) any act which Borrower is obligated by this Security
Agreement to do, and to exercise such rights and powers as Borrower might
exercise with respect to the Collateral, including, without limitation, the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt for all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the Collateral; (b) enter
into any extension, reorganization, deposit, merger, consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the Collateral; (c) insure, process and preserve the
Collateral; (d) transfer the Collateral to its own or its nominee's name; and
(e) make any compromise or settlement, and take any action it deems advisable,
with respect to the Collateral. Borrower agrees to reimburse Secured Party upon
demand for any costs and expenses, including, without limitation, attorneys'
fees, Secured Party may incur while acting as Borrower's attorney-in-fact
hereunder, all of which costs and expenses are included in the Obligations
secured hereby. It is further agreed and understood between the parties hereto
that such care as Secured Party gives to the safekeeping of its own property of
like kind shall constitute reasonable care of the Collateral when in Secured
Party's possession; provided, however, that Secured Party shall not be required
to make any presentment, demand or protest, or give any notice and need not take
any action to preserve any rights against any prior party or any other person in
connection with the Obligations or with respect to the Collateral.
6. Default and Remedies. The occurrence of one or more of the
following events shall constitute an event of default under this Agreement: (a)
failure of Borrower to pay when due under the Note principal or accrued
interest; (b) the occurrence of any event of default specified in the Note; (c)
the failure of Borrower to perform any obligation imposed upon Borrower by
reason of this Agreement; or (d) the breach of any warranty of the Borrower
contained in this Agreement. Upon the occurrence of any such event of default,
Secured Party may, at its option, and without notice to or demand on Borrower
and in addition to all rights and remedies available to Secured Party under the
Agreement, declare the Note to become immediately due and payable and do any of
the following: (a) transfer record ownership of the Shares to itself and
receive, endorse and give receipt for, or collect by legal proceedings or
otherwise, dividends or other distributions made or paid with respect to the
Shares; (b) sell, lease or otherwise dispose of any Collateral at one or more
public or private sales, whether or not such Collateral is present
3.
<PAGE> 4
at the place of sale, for cash or credit or future delivery, on such terms and
in such manner as Secured Party may determine; and (c) apply any proceeds
realized from the disposition of the Collateral pursuant to the power of sale
hereby granted to Secured Party first to the payment of expenses incurred by
Secured Party in connection with the disposition, and the balance to the payment
of the Note. Any surplus proceeds shall be paid over to the Borrower.
7. Deemed Insecure. In the event and at such time as Secured Party
reasonably deems the security interest in the Shares granted pursuant to
Paragraph 2 of this Agreement to be insufficient to secure payment and
performance of the Obligations, Secured Party may, pursuant to the terms of this
Agreement, require Borrower and Borrower hereby agrees (a) to grant Secured
Party a security interest in such additional property as Secured Party in its
sole discretion may designate; and (b) to procure, execute and deliver any
endorsements, assignments, financing statements and any other writing or
instrument deemed necessary and appropriate by Secured Party to perfect,
maintain and protect its security interest in such additional property and the
priority thereof. Such additional property shall be considered Collateral for
all purposes of this Agreement.
8. Cumulative Rights. The rights, powers and remedies of Secured
Party under this Security Agreement shall be in addition to all rights, powers
and remedies given to Secured Party by virtue of any statute or rule of law, the
Note or any other agreement, all of which rights, powers and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
Secured Party's security interest in the Collateral.
9. Waiver. Any forbearance or failure to delay by Secured Party in
exercising any right, power or remedy shall not preclude the further exercise
thereof and every right, power or remedy of Secured Party shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by Secured Party. Borrower waives any right to require Secured
Party to proceed against any person or to exhaust any Collateral or to pursue
any remedy in Secured Party's power.
10. Setoff. Borrower agrees that Secured Party may exercise its
rights of setoff with respect to the Obligations in the same manner as if the
Obligations were unsecured.
11. Binding Upon Successors. All rights of Secured Party under this
Security Agreement shall inure to the benefit of its successors and assigns, and
all obligations of Borrower shall bind its heirs, executors, administrators,
successors and assigns.
12. Entire Agreement: Severability. This Security Agreement contains
the entire security agreement between Secured Party and Borrower. If any of the
provisions of this Security Agreement shall be held invalid or unenforceable,
this Security Agreement
4.
<PAGE> 5
shall be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.
13. References. The singular includes the plural. If more than one
executes this Security Agreement, the term Borrower shall be deemed to refer to
each of the undersigned as well as to all of them and their obligations and
agreements hereunder shall be joint and several. If any of the undersigned is a
married person, recourse may be had against his or her separate property for the
Obligations.
14. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the California Uniform Commercial Code.
15. Notice. Any written notice, consent or other communication
provided for in this Security Agreement shall be delivered or sent by registered
U.S. mail, with postage prepaid, to the following addresses:
Secured Party: Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, California 92121
with a copy to: J. Stephan Dolezalek
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Borrower: Alan J. Lewis
c/o Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, California 92121
Such addresses may be changed by written notice given as provided
herein.
/s/ ALAN J. LEWIS
----------------------------------------
Borrower
5.
<PAGE> 1
EXHIBIT 10.18
[SIGNAL PHARMACEUTICALS, INC. LETTERHEAD]
December 8, 1993
Alan Lewis Ph.D.
5 Shara Lane
Pennington, NJ 08534
Dear Alan:
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is pleased to offer
you the position of President and Director. Your employment with Signal will
commence on February 1, 1994. We would expect that you would spend three to
four days at Signal in the intervening period and attend the Board of Directors
Meeting on January 19, 1994.
Your base salary will be $225,000 annually, less all required withholding for
taxes and social security. A bonus of 25% of salary will be awarded based upon
performance against measurable, mutually agreed upon goals. Individual goals
will be assigned specific percent weighting. Thus if all goals were met a bonus
of up to 150% (of the 25%) would exist. For calendar year 1994 Signal will
guarantee a minimum bonus of $25,000.
Signal will offer you a signing bonus of $50,000. The bonus must be returned to
Signal if you leave voluntarily before the end of the first year (February 1,
1995).
In addition, under Signal's 1993 Long-Term Incentive Plan (the "Plan"), the
Company will offer you an opportunity to option or purchase outright 450,000
(four hundred fifty thousand) shares of SPI Common Stock at the current fair
market value of $0.10/share. Under the Plan, one-tenth (10%) of the shares will
vest on your first day of employment, one-tenth (10%) will vest on the first
day of your thirteenth month of employment. The remaining shares will vest in
equal quarterly installments over a four year period. Note that the initial
grant of 10% of the option or purchase must be returned to the Company if you
leave voluntarily before the end of the first year (February 1, 1995).
<PAGE> 2
Alan Lewis, Ph.D.
December 08, 1993
page 2
An additional bonus option of 150,000 (one hundred fifty thousand) shares at
$0.10/share will be granted and vest as described above. This bonus option is
contingent upon you being appointed the Chief Executive Officer of Signal. The
criteria for appointment to the CEO position would be successful performance
against 1994 and 1995 incentive bonus goals mutually agreed upon with the Board
of Directors.
All shares in Signal are subject to our standard purchase agreement. Signal
shares will not be marketable until such time as an initial public offering has
been successfully completed, and the "lock-up" period has elapsed. While the
company is privately held, the company maintains a first right of refusal on
any potential sale of shares which you own.
Signal will reimburse you for relocation expenses involved in moving your
family to the San Diego area. Signal will also reimburse you for a house
hunting trip for you and your family.
You will be eligible for the standard Company benefits. Signal reserves the
right to modify compensation and benefits from time to time as it deems
necessary.
Signal will reimburse you for the rental cost of a furnished townhouse or
equivalent until such time as your family has relocated and you have permanent
housing. Signal will pay this rental cost until September 1, 1994 if necessary.
Signal will reimburse you for one round trip air fare per month to visit your
family in New Jersey prior to their move to San Diego.
Signal will assist you with the financing of a home purchase. The specifics will
depend upon your investigation of the local real estate market. For example,
Signal will loan you up to $300,000 for the purchase of a family residence in
the San Diego area. This loan would be interest bearing only for the first five
years at the lowest interest rate permissible by the IRS. The loan could be
extended for an additional five years and fully amortized over those five years
at the lowest interest rate permissible by the IRS.
If you visit Signal during the end of December, Signal will reimburse you for
round-trip travel expenses to San Diego for you and your family.
You employment agreement is for one year. Your employment is renewable on an
annual basis.
<PAGE> 3
Alan Lewis, Ph.D.
December 08, 1993
page 3
You will be asked to sign an Employee's Proprietary Information and Inventions
Agreement. In addition, you will be expected to abide by the Company rules and
regulations as described in the Company handbook. The employment terms in this
letter supersede any other agreements or promises made to you. As required by
law, this offer is subject to satisfactory proof of your right to wok in the
United States.
This offer will expire on Saturday December 11, 1993.
Please indicate your acceptance of this offer by signing one of the originals
and returning it to me. Please fax a signed copy to me at (619)-456-4041.
Brook, Luke, Pat and I look forward to working with you and helping build
Signal into a successful public pharmaceutical company.
Sincerely,
/s/ HARRY F. HIXSON, JR.
- --------------------------
Harry F. Hixson, Jr.
Director
ACCEPTED BY:
/s/ ALAN J. LEWIS
- --------------------------
1-4-94
- --------------------------
Date:
<PAGE> 1
EXHIBIT 10.19
[SIGNAL PHARMACEUTICALS, INC. LETTERHEAD]
March 4, 1994
David W. Anderson, Ph.D.
14446 Trailwind Drive
Poway, CA 92064
Dear David:
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is pleased to offer you
the position of Vice President, Drug Discovery and Preclinical Development
reporting to Alan J. Lewis (President). Your employment with Signal will
commence on March 24.
Your starting salary will be $165,000 annually, less all required withholding
for taxes and social security. In addition Signal is offering a one time signing
bonus of $25,000 to help you quickly make the transition to join us. You will be
eligible for the standard Company benefits. Signal reserves the right to modify
compensation and benefits from time to time as it deems necessary,
In addition, under Signal's 1993 Long-Term Incentive Plan (the "Plan"), the
Company will offer you an opportunity to purchase outright 200,000 shares of SPI
Common Stock at the current fair market value, subject to approval by the
Compensation Committee of the Board of Directors. Under the Plan, one-fifth
(20%) of the shares will vest on the first day of your thirteenth month of
employment. The remaining shares will vest in equal quarterly installments over
a four year period. The invested shares will be subject to repurchase by the
company at their cost to you, should you leave the company before all shares
have vested. In addition, all shares issued under the Plan are subject to
certain limitations on the sale and use of the stock,
Your employment is for an indefinite term. In other words, the employment
relationship is "at will," and either you or SPI has the right to terminate that
employment relationship at any time.
<PAGE> 2
David W. Anderson,Ph.D.
March 4, 1994
page 2
You will be required to sign an Employee's Proprietary Information and
Inventions Agreement before your employment begins. In addition, you will be
expected to abide by the Company rules and regulations as described in the
Company handbook.
The employment terms in this letter supersede any other agreements or promises
made to you. As required by law, this offer is subject to satisfactory proof of
your right to work in the United States.
Please indicate your acceptance of this offer by signing one of the originals
and returning it to me by the close of business on Wednesday, March 8, 1994, at
which time this offer will lapse.
We have enjoyed our meetings with you and we look forward to your joining the
Signal team. We feel that your experience and enthusiasm can make a substantial
contribution to the success of Signal.
Sincerely,
/s/ ALAN LEWIS (LJC)
Alan J. Lewis, Ph.D.
President
ACCEPTED BY:
/s/ DAVID W. ANDERSON
- ---------------------------------------
David W. Anderson
3/8/94
- ---------------------------------------
Date:
<PAGE> 1
[SIGNAL PHARMACEUTICALS, INC. LETTERHEAD] EXHIBIT 10.20
August 18, 1994
Bradley B. Gordon
P.O. Box 9173
Rancho Santa Fe, CA 92067
Dear Brad:
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is pleased to offer you
the position of Vice President Finance and Chief Financial Officer, reporting to
the President. Your employment with Signal will commence on August 29, 1994.
Your base salary will be $130,000 annually, less all required withholding for
taxes, social security and other required deductions. A bonus of up to 20% of
salary will be awarded based upon performance against measurable, mutually
agreed upon goals. Individual goals will be assigned specific percent weighting.
In addition, under Signal's 1993 Long-Term Incentive Plan (the "Plan"), the
Company will offer you an option to purchase 150,000 (one hundred and fifty
thousand) shares of SPI Common Stock at fair market value (currently 10 cents a
share). Under the Plan, one-fifth (20%) of the shares will vest on the first day
of your thirteenth month of employment. The remaining shares will vest 5% per
quarter over the next four years.
All shares in Signal are subject to our standard purchase agreement. Signal
shares will not be marketable until such time as an initial public offering has
been successfully completed, and the "lock-up" period has elapsed. While the
company is privately held, the company maintains a first right of refusal on any
potential sale of shares which you own.
You will be eligible for the standard Company benefits. Signal reserves the
right to modify compensation and benefits from time to time as it deems
necessary.
Your employment is "at will," however to cover the unlikely event that your
employment is terminated in the first year without cause, we will offer you
<PAGE> 2
Brad Gordon
August 18, 1994
page 2
continued salary for a maximum of 6 months or until you find a new job, if
sooner. Under this circumstance you will vest shares according to the number of
months worked at the company. After the first year, the maximum salary
continuance will be 3 months. If you choose to leave at your own will or you are
terminated for cause there will be no salary continuation.
You will be asked to sign an Employee's Proprietary Information and Inventions
Agreement. In addition, you will be expected to abide by the Company rules and
regulations as described in the Company handbook. The employment terms in this
letter supersede any other agreements or promises made to you. As required by
law, this offer is subject to satisfactory proof of your right to work in the
United States.
Please indicate your acceptance of this offer by signing one of the originals
and returning it to me. Please fax a signed copy to me at (619)558-7513
Due to the importance of this position we must receive a speedy acceptance to
this offer. If we have not received a signed acceptance from you prior to 5pm
California time on Monday, August 22, 1994, this offer will expire and we will
have to move forward with the other candidates.
Brad we are very excited about the prospect of your joining the Signal team and
hope you are pleased with this attractive offer. Please call me if you have any
additional questions.
Sincerely,
/s/ ALAN J. LEWIS
Alan J. Lewis
President
ACCEPTED BY:
/s/ BRADLEY B. GORDON
----------------------------------------
8-22-94
----------------------------------------
Date:
<PAGE> 1
EXHIBIT 10.21
SIGNAL PHARMACEUTICALS
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "Agreement") is made as of April 1, 1996
(the "Effective Date") by and between Signal Pharmaceuticals, Inc., a California
corporation (the "Company"), and John Walker ("Walker").
WHEREAS, Walker was previously appointed a director of the Company on
June 8, 1995, and in connection with such appointment, Walker was awarded an
option to purchase 50,000 shares of the Company's Common Stock.
WHEREAS, the Company has now appointed Walker as its Chairman of the
Board and the Company desires to have Walker provide additional services to the
Company while acting as its Chairman.
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Description of Services. The Company hereby retains Walker as a
consultant to the Company, and Walker hereby agrees to act in such capacities
and to perform such services as are reasonably requested by the Company (the
"Services"). The Services are expected to consist of one full day per month
on-site at the Company for Company related matters and sufficient phone time to
deal with Company issues in addition to regular attendance at Board meetings.
This scope may be amended from time to time as the Company expands the Services,
by mutual agreement of the parties hereto.
2. Term and Expiration.
(a) Term. This Agreement will become effective as of the
Effective Date and remain so long as Walker remains the Chairman of the Board of
the Company.
(b) Termination. Either party may terminate the Agreement at
any time with thirty (30) days written notice.
3. Compensation.
(a) Cash. For all Services provided hereunder, the Company
will pay Walker at a per diem rate of $1,000.00 for each day of on-site
activities requested by the Company.
<PAGE> 2
(b) Equity.
(i) The Company shall grant to Walker, subject to
approval by the Company's Board of Directors, a non-qualified option to purchase
50,000 shares of the Company's Common Stock (the "Stock Option"), all of which
shall be exercisable at the fair market value of the Company's Common Stock, as
determined by the Company's Board of Directors, on the Grant Date. The Stock
Option shall have a term of ten (10) years measured from the Grant Date and
shall be subject to vesting as follows: 1/60 of the option shares shall vest on
the last day of each month following the Grant Date such that Walker shall
acquire a fully vested interest in such 50,000 shares on the date five (5) years
from the Grant Date. Upon any termination of Walker's role as Chairman of the
Board of Directors, any unvested stock options shall revert back to the Company.
4. Expenses. The Company will reimburse Walker for reasonable
lodging, meal and travel expenses incurred by Walker when the Company's business
needs require that such Services be performed outside of the San Diego area.
Requests for reimbursement must be in a form acceptable to the Company.
5. Notices. Any notice required or permitted hereunder will be given
in writing and will be deemed effectively given as follows: (a) upon personal
delivery; (b) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); (c) one (1) business
day after its deposit with any return receipt express courier (prepaid); or (d)
one (1) business day after transmission by rapifax or telecopier, addressed to
the other party at its address (or facsimile number, in the case of transmission
by telecopier) as shown below its signature to this Agreement, or to such other
address as such party may designate in writing from time to time to the other
party.
6. Governing Law; Severability. This Agreement will be construed and
enforced in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain in full force and effect.
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
COMPANY
SIGNAL PHARMACEUTICALS, INC.
5555 Oberlin Drive
San Diego, CA 92121
By: /s/ ALAN LEWIS
-------------------------------------
Alan Lewis, President
WALKER
NAME: John Walker
-----------------------------------------
(Signature)
3.
<PAGE> 1
EXHIBIT 10.22
LEASE
by and between
SORRENTO VALLEY BUSINESS PARK
("Landlord")
and
SIGNAL PHARMACEUTICALS, INC.
("Tenant")
For the 10,417 SF Premises at
5555 Oberlin Drive, San Diego, CA 92121
Multiple Tenant Modified Net
Multiple Building Project
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. PARTIES ......................................................... 1
2. PREMISES ........................................................ 1
3. LEASE TERM ...................................................... 1
4. RENT ............................................................ 1
5. CONDITION OF PREMISES ........................................... 2
6. USE ............................................................. 2
7. ASSIGNMENT AND SUBLETTING ....................................... 4
8. ALTERATIONS ..................................................... 7
9. REPAIR AND MAINTENANCE .......................................... 8
10. UTILITIES AND SERVICES .......................................... 11
11. REAL PROPERTY TAXES ............................................. 11
12. INSURANCE ....................................................... 13
13. DAMAGE OR DESTRUCTION ........................................... 15
14. NOTICES ......................................................... 16
15. DEFAULT ......................................................... 17
16. SURRENDER OF THE PREMISES ....................................... 20
17. ATTORNEYS' FEES ................................................. 20
18. LIENS ........................................................... 20
19. RENTAL ADJUSTMENT ............................................... 21
20. SUBORDINATION ................................................... 21
21. MORTGAGEE PROTECTION ............................................ 21
22. CONDEMNATION .................................................... 21
23. HOLDING OVER .................................................... 22
24. ENTRY BY LANDLORD ............................................... 22
25. ESTOPPEL CERTIFICATES ........................................... 23
26. TRANSFER OF THE PREMISES BY LANDLORD ............................ 23
27. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS .................. 23
28. TENANT'S REMEDY ................................................. 24
29. SECURITY DEPOSIT ................................................ 24
30. FINANCIAL COVENANTS ............................................. 24
31. PARKING ......................................................... 24
32. QUIET ENJOYMENT ................................................. 25
33. MODIFICATIONS FOR LENDER ........................................ 25
34. SIGNS ........................................................... 25
35. ACCEPTANCE ...................................................... 25
36. RECORDING ....................................................... 25
37. QUITCLAIM ....................................................... 25
38. BROKERS ......................................................... 25
39. GENERAL ......................................................... 26
<PAGE> 3
EXHIBIT A DIAGRAM OF PREMISES
EXHIBIT B LEGAL DESCRIPTION
EXHIBIT C WORK LETTER AGREEMENT
EXHIBIT D COMMENCEMENT DATE MEMORANDUM
EXHIBIT E TENANT IMPROVEMENT PLAN
EXHIBIT F FIRST REFUSAL AREA
ADDENDUM
<PAGE> 4
LEASE SUMMARY
Lease Date: April 30, 1993
Landlord: Sorrento Valley Business Park, a
California Limited Partnership
Address of Landlord The Courson Company
2882 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Tenant: Signal Pharmaceuticals, Inc.
Contact: Mark D. Carman, Ph.D. Telephone: (619)756-9827
Jacqueline Johnson, Ph.D.
Premises: 10,417 Square Feet
Building Address: 5555 Oberlin Drive, Suite 100
City: San Diego
County: San Diego
Tenant's Building Percentage: 44.74%
Tenant's Project Percentage: 9.96%
Anticipated Commencement Date: October 1, 1993
Term: Eighty-four (84) months
Initial Monthly Rent: $16,146.35/month
Security Deposit: $16,146.35
Broker: CB Commercial Real Estate Group, Inc.
<PAGE> 5
LEASE
(MULTIPLE TENANT MODIFIED NET)
PARTIES 1. THIS LEASE (the "Lease"), dated April 30, 1993, is entered
into by and between Sorrento Valley Business Park, a limited
partnership ("Landlord"), whose address is 2882 Sand Hill Road,
Suite 250, Menlo Park, CA 94025 and Signal Pharmaceuticals, Inc., a
California corporation ("Tenant").
PREMISES 2. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of approximately 10,417
rentable square feet, as shown on Exhibit A attached hereto (the
"Premises") , located in a one-story building (the "Building")
commonly known as 5555 Oberlin Drive, Suite 100, San Diego,
California 92121. The Premises are located on that real property
commonly known as Sorrento Valley Business Park (the "Project") ,
and more particularly described in Exhibit B attached hereto, which
includes four buildings, adjacent parking areas, landscaping, and
related improvements. Tenant's right to use the Outside Areas of the
Project shall be a right in common with other tenants of the
Project. For purposes of this Lease, "Outside Areas" shall mean all
areas and facilities within the Project except for the Building and
the other buildings located within the Project, including, but not
limited to, parking areas, access and perimeter roads, sidewalks,
landscaped areas, service areas, trash disposal facilities, and
similar areas, subject to the reasonable rules and regulations and
changes therein from time to time made by Landlord governing the use
of the outside Areas.
LEASE 3. A. TERM. Except as set forth in the Letter Agreement by and
TERM between Signal Pharmaceutical Inc. and the Landlord and dated July
2, 1993 and July 7, 1993, respectively (the "Letter Agreements").
The term of this Lease shall be a period of seven (7) years and zero
(0) months commencing on the Commencement Date, hereinafter referred
to as "Term" including any extensions hereunder.
B. COMMENCEMENT DATE. The Commencement Date of the Lease
shall be the earlier to occur of (i) the date Tenant begins to use
the Premises for the conduct of its business therein, or (ii)
December 1, 1993 ("Commencement Date"), which latter date may be
adjusted by events of "Landlord Delay" or "Force Majeure" (as
defined in the work letter agreement attached hereto as Exhibit C).
C. COMMENCEMENT DATE MEMORANDUM. When the actual
Commencement Date is determined, the parties shall execute a
Commencement Date Memorandum setting forth such date in the form
shown in Exhibit D.
D. Deleted.
E. EARLY ENTRY. At any time after the execution of this
Lease, provided that Tenant shall not be in default hereunder beyond
any applicable cure period, Tenant and Tenant's representatives may
enter the Premises to install tenant improvements, trade fixtures
and equipment in the Premises, and the date of such installation or
work shall not be deemed the Commencement Date of the Lease or
constitute possession of the Premises for purposes of this Lease;
provided, however, that Tenant's use of the Premises during said
period of time shall be at Tenant's sole risk and subject to all the
terms and provisions applicable to Tenant under this Lease, except
for the payment of Monthly Rent and Additional Rent, which shall
commence on the Commencement Date.
F. Deleted.
RENT 4. A. MONTHLY RENT. Tenant shall pay to Landlord, in lawful
money of the United States, for each calendar month of the Term,
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Monthly Rent in the amount of Sixteen Thousand One Hundred Forty-Six
and 35/100ths Dollars ($16,146.35), subject to adjustment as
provided in Paragraph 19, in advance, on the first day of each
calendar month, without abatement, deduction, claim, offset, prior
notice or demand, except as otherwise expressly provided herein.
B. ADDITIONAL RENT. All monies required to be paid by
Tenant under this Lease, including, without limitation, repair and
maintenance charges pursuant to Paragraph 9, Real Property Taxes
pursuant to Paragraph 11, and insurance premiums and deductibles
pursuant to Paragraph 12, shall be deemed Additional Rent. The term
"Rent" as used herein shall refer to Monthly Rent plus any
Additional Rent.
C. PRORATIONS. If the Commencement Date is not the first
(1st) day of a month, or if the termination date of this Lease is
not the last day of a month, a prorated installment of Monthly Rent
based on a thirty (30) day month shall be paid for the fractional
month during which the Lease commences or terminates.
CONDITION 5. By taking possession of the Premises, Tenant shall be deemed
OF to have accepted the Premises in good, clean and completed condition
PREMISES and repair, subject to all applicable laws, codes and ordinances.
Tenant acknowledges that neither Landlord nor its authorized agents,
partners, subsidiaries, directors, officers, and employees
("Agents") have made any representations or warranties as to the
suitability or fitness of the Premises for the conduct of Tenant's
business or for any other purpose, nor has Landlord or its Agents
agreed to undertake any Alterations (as defined below in Paragraph
8) or construct any Tenant Improvements to the Premises except as
expressly provided in this Lease.
USE 6. A. TENANT'S USE. Tenant shall use the Premises solely for
office, warehouse and biotechnology research (including animal
research and a pilot plant manufacturing facility) as permitted in
the current MlB zoning and shall not use the Premises for any other
purpose, without the prior written consent of Landlord.
B. CC&R'S. Tenant agrees that the Premises are subject and
subordinate to those certain covenants, conditions and restrictions
recorded at Series/Instrument #80-317016, of the Official Records of
San Diego County, California, on September 29, 1980, a copy of which
Tenant acknowledges has been delivered to it (the "CC&R's"). Tenant
acknowledges that it has read the CC&R's and knows the contents
thereof. Throughout the term, Tenant shall faithfully and timely
perform and comply with the CC&R's and any modification or
amendments thereto provided to Tenant, including the payment by
Tenant of any periodic or special dues or assessments against the
Premises.
C. COMPLIANCE.
(i) Tenant shall not use the Premises in a manner
which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental law, rule, regulation or
requirement of duly constituted public authorities now in force or
which may hereafter be in force, or the requirements of the Board of
Fire Underwriters or other similar body now or hereafter constituted
relating to or affecting Tenant's use or occupancy of the Premises.
Tenant shall not commit any public or private nuisance or any other
act or thing which might or would disturb the quiet enjoyment of any
other tenant of Landlord or any occupancy of nearby property. Tenant
shall place no loads upon the floors, walls or ceilings in excess of
the maximum designed load determined by Landlord or which endanger
the structure; nor place any harmful liquids in the drainage
systems; nor dump or store (except to the extent such storage is
provided for in
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subparagraph (iv) below) waste materials or refuse or allow such to
remain outside the Building proper, except in the enclosed trash
areas provided. Tenant shall not store or permit to be stored or
otherwise placed any other materials of any nature whatsoever
outside the Building. Tenant shall, at its own cost and expense,
promptly and properly observe and comply with, including the making
by Tenant of any Alteration (as defined in Paragraph 8 below) to the
Premises or any change to the Tenant Improvements prior to the
Commencement Date, all present and future orders, regulations,
directions, rules, laws, ordinances, and requirements of all
governmental authorities (including, without limitation, state,
municipal, county and federal governments and their departments,
bureaus, boards and officials) arising from the use or occupancy of,
or applicable to Tenant's use of, the Premises.
(ii) Tenant shall, at Tenant's sole cost and expense,
take all action, including required Alterations necessary to comply
with the requirements of the Americans With Disabilities Act of 1990
(the "ADA") , which shall arise from Tenant's specific use of the
Premises, or any installations in the Premises, including without
limitation the improvements to be provided under the Work Letter
Agreement, or required by a breach of any of Tenant's covenants or
agreements under this Lease, whether or not such requirements shall
now be in effect or hereafter enacted. Landlord shall perform any
work necessary for the Outside Areas to comply with Title III of the
ADA, to the extent such work is not Tenant's obligation pursuant to
the preceding sentence. The cost of any such work for which Landlord
is obligated shall be included within the Outside Area Expenses.
(iii) In particular, Tenant, at its sole cost, shall
comply with all laws relating to the storage, use, generation,
transportation, disposal and release of hazardous, toxic or
radioactive matter, including those materials identified in Sections
66680 through 66685 of Title 22 of the California Administrative
Code, Division 4, Chapter 30 ("Title 22"), as they may be amended
from time to time (collectively, "Toxic Materials"). If Tenant does
store, use, generate, transport or dispose of any Toxic Materials
(except for the use or storage of usual and customary amounts of
usual office and janitorial supplies), Tenant shall notify Landlord
in writing at least ten (10) days prior to their first appearance on
the Premises. Tenant shall be solely responsible for and shall.
defend with counsel reasonably satisfactory to Landlord, protect,
indemnify and hold Landlord and its Agents harmless from and against
all claims, costs and liabilities, including attorneys' fees and
costs, arising out of or in connection with Tenant's storage, use,
generation, transportation, disposal or release of Toxic Materials,
including without limitation, any such claims, costs, damages and
liabilities, including attorneys' fees and costs, arising out of or
in connection with any investigation, testing, removal, clean-up
and/or restoration services, work, materials and equipment necessary
to return the Premises, the Project and/or any other property of
whatever nature to their condition existing prior to Tenant's or its
Agents' use, storage, generation, transport, disposal or release of
the Toxic Materials in, on or around the Premises or the Project,
and to otherwise satisfactorily investigate and remediate the
contamination arising therefrom. Tenant's obligations hereunder
shall survive the termination of this Lease. If at any time during
or after the term of this Lease, as it may be extended, Tenant
becomes aware of any inquiry, investigation, administrative
proceeding, or judicial proceeding by any governmental agency
regarding the storage, use or disposition of any Toxic Materials by
Tenant or its Agents on or about the Premises or the Project, Tenant
shall within five (5) days after first learning of such inquiry,
investigation or proceeding give Landlord written notice advising
Landlord of same. Notwithstanding the foregoing, Landlord shall
indemnify, defend by counsel reasonably satisfactory to Tenant,
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protect and hold Tenant harmless from and against all claims, costs
and liabilities, including attorneys' fees and costs, arising
directly out of the use, generation, storage or disposal of Toxic
Materials by Landlord. Landlord's obligations pursuant to the
foregoing indemnity shall survive the termination of this Lease.
(iv) At Tenant's sole cost and expense, Tenant may
place no more than two (2) temporary, removable, no larger than five
foot by eight foot (5' x 8') storage containers ("Containers") in an
Enclosure (defined below) located within an area, designated by
Landlord and comprising no more than two parking spaces behind the
Premises, on and subject to the terms and conditions of this Lease
(including without limitation Paragraph 6.C(iii) above), together
with the following additional terms and conditions with which Tenant
shall comply at its sole cost: (a) the Containers and Enclosure
shall be designed, constructed, installed, maintained, used,
replaced (if necessary), and repaired in a good, clean and neat
condition and appearance, strictly in full compliance with all
present and hereinafter enacted Requirements (as hereinafter
defined); (b) the Containers shall be enclosed by a structure the
design, construction, materials and placement of which must be
approved in advance by Landlord (the "Enclosure"); (c) the design,
construction and installation of the Containers and Enclosure shall
be done by contractors approved by Landlord in accordance with plans
and specifications prepared at Tenant's expense and subject to
Landlord's written approval; (d) upon the expiration or earlier
termination of this Lease, Tenant shall remove the Containers and
Enclosure, repair any damage to the Project occasioned by
installation or removal of same and restore the area in which such
Containers and Enclosure were placed to the condition existing prior
to placement thereof; and (e) Tenant shall obtain all necessary
approvals, authorizations and permits for the design, construction,
installation, use, maintenance and removal of the Containers and
Enclosure (including, without limitation, any approvals,
authorizations and permits required by the City and the County of
San Diego and the CC&R's), and shall provide Landlord with true and
complete copies of such approvals, authorizations and permits.
Tenant represents, warrants and covenants that the design,
construction and installation of the Containers and Enclosure and
the use of same for the storage of any and all materials stored by
Tenant is and at all times shall be in full compliance with the
highest standards of the industry pertaining to storage of such
materials and with all laws, rules, regulations, directions,
ordinances, orders and requirements of all governmental
authorities, the Board of Fire Underwriters or any successor or
similarly constituted body, and any covenants, conditions and
restrictions affecting the Premises, Building or Project
(collectively, the "Requirements").
ASSIGN- 7. A. LANDLORD IS CONSENT. Tenant shall not enter into a
MENT AND Sublet (defined below) without Landlord's prior written consent
SUB- which consent shall not be unreasonably withheld or delayed. Any
LETTING attempted or purported Sublet without Landlord's prior written
consent shall be void and confer no rights upon any third person
and, at Landlord's election, shall terminate this Lease. if Tenant
attempts to Sublet without Landlord's prior written consent,
Landlord may accept rent from the purported Subtenant (defined
below) and apply such rent against Tenant's rental obligation under
this Lease. No such acceptance of rent shall be deemed an express or
implied waiver of Tenant's breach of this Paragraph 7.A unless such
waiver is in writing and signed by Landlord, and Landlord reserves
all rights and remedies arising with respect to such breach by
Tenant, including, without limitation, the right to terminate the
Lease. Such acceptance of rent shall not be construed to constitute
a consent to the purported Sublet or to give the purported Subtenant
a right of possession with respect to the Premises.
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B. SUBLET FORM. Each Sublet to which Landlord has consented
shall be by an instrument in writing in a form satisfactory to
Landlord, and shall be executed by Tenant and Subtenant. Each
Subtenant shall agree in writing, for the benefit of Landlord, to
assume, to be bound by, and to perform the terms, conditions, and
covenants of this Lease to be performed by Tenant. Notwithstanding
anything contained herein, Tenant shall not be released from
personal liability for the performance of each term, condition and
covenant of this Lease by reason of Landlord's consent to a Sublet
unless Landlord specifically grants such release in writing.
C. NO WAIVER. Consent by Landlord to one such Sublet shall
not be deemed to be a consent to any subsequent Sublet.
D. INFORMATION TO BE FURNISHED. If Tenant desires at any
time to Sublet the Premises or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing
to Landlord: (i) the name of the proposed Subtenant; (ii) the nature
of the proposed Subtenant's business to be carried on in the
Premises; (iii) the terms and provisions of the proposed Sublet and
a copy of the proposed Sublet agreement and related agreements; (iv)
such financial information, including financial statements, as
Landlord may reasonably request concerning the proposed Subtenant.
E. LANDLORD'S ALTERNATIVES. Tenant acknowledges that the
terms of this Lease, including Rent, have been based on the
understanding that Tenant shall physically occupy the Premises for
the entire Term. Therefore, at any time within ten (10) business
days after Landlord's receipt of the information specified in
Paragraph 7.D., Landlord may, by written notice to Tenant, elect:
(i) to Sublet from Tenant for Landlord's own account the Premises or
the portion thereof so proposed to be Sublet by Tenant, upon the
same terms as those offered to the proposed Subtenant but otherwise
upon the form of this Lease, in which event this Lease shall
continue in full force and effect and Landlord shall have the right
to further Sublet the Premises or portion thereof to any person,
including without limitation Tenant's proposed Subtenant, upon any
terms desired by Landlord; (ii) if Landlord provides Tenant with a
Limited Release Agreement as provided below, to lease for Landlord's
own account the Premises or the portion thereof so proposed to be
Sublet by Tenant to any person, including without limitation
Tenant's proposed Subtenant, upon any terms desired by Landlord, in
which event this Lease shall continue in full force and effect
(subject to the Limited Release Agreement and Landlord's leasing
rights under this election) ; (iii) to consent to the Sublet by
Tenant; or (iv) to refuse its consent to the Sublet.
If Landlord fails to elect any of the alternatives set forth
in Paragraph 7.E.(i) through Paragraph 7.E.(iv) above within the ten
(10) business day period, it shall be deemed that Landlord has
refused its consent to the Sublet.
If Landlord elects to proceed with Paragraph 7.E.(ii), and to
lease the Premises or portion thereof proposed to be Sublet by
Tenant on its own account, Landlord and Tenant shall enter into a
Limited Release Agreement whereby Tenant is relieved of any
liability, including the payment of Rent, with respect to such
portion of the Premises leased by Landlord until the term of such
lease expires or is terminated. Upon the expiration of the lease
between Landlord and the new tenant for such released space,
providing this Lease Term is still in effect, Landlord shall return
possession of the released space to Tenant in substantially the same
condition, normal wear and tear excepted, it was in when Landlord
completed any alterations for its leasing of the Premises, and
Tenant shall resume all its obligations under this Lease with
respect to such space, including, without limitation, the payment of
Rent attributable to such space.
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If Landlord proceeds with Paragraph 7.E.(iii) and consents to
the Sublet, Tenant may thereafter enter into a valid Sublet of the
Premises or portion thereof, upon the terms and conditions and with
the proposed Subtenant set forth in the information furnished by
Tenant to Landlord pursuant to Paragraph 7.D., subject, however, at
Landlord's election, to the condition that fifty percent (50%) of
any excess of the Subrent (defined below) over the Rent required to
be paid by Tenant hereunder shall be paid to Landlord. Any such
Subrent to be paid to Landlord pursuant hereto shall be payable to
Landlord as and with the Monthly Rent payable to Landlord hereunder
pursuant to Paragraph 4.A.
F. PRORATION. If a portion of the Premises is Sublet, the
pro rata share of the Rent attributable to such partial area of the
Premises shall be determined by Landlord by dividing the Rent
payable by Tenant hereunder by the total leasable square footage of
the Premises and multiplying the resulting quotient (the per square
foot rent) by the number of square feet of the Premises which are
Sublet.
G. EXECUTED COUNTERPART. No Sublet shall be valid nor shall
any Subtenant take possession of the Premises until an executed
counterpart of the Sublet agreement has been delivered to Landlord.
H. DEFINITIONS. The following terms as used herein shall
have the following meanings:
(i) SUBLET. Any transfer, sublet, assignment, license
or concession agreement, change of ownership, including, without
limitation, a transfer of the beneficial ownership or effective
voting control of Tenant from the person(s) having effective voting
control as of Tenant's execution of this Lease (if Tenant is a
corporation), the resignation or cessation of a general partner (if
Tenant is a partnership) and a merger or consolidation of Tenant,
any mortgage, or hypothecation of this Lease or the Tenant's
interest in the Lease or in and to all or a portion of the Premises.
If Tenant is a corporation the stock of which is publicly traded, no
transfer of Tenant's stock shall be deemed to be a Sublet.
(ii) SUBRENT. Any consideration of any kind received,
or to be received, by Tenant from a Subtenant if such sums are
related to Tenant's interest in this Lease or in the Premises. As to
any Sublet which is a transfer of voting control or beneficial
ownership of Tenant, Subrent shall include any payment or other
consideration received by Tenant's shareholders or owners in
connection with such transfer (including, but not limited to, bonus
money and payments (in excess of book value) for Tenant's assets
including its trade fixtures, equipment and other personal property,
goodwill, general intangibles, and any capital stock or other equity
ownership of Tenant), up to the bonus value of the Lease as
represented by the present value of the difference between (i) fair
market rent at the time of the Sublet, and (ii) the Rent specified
in the Lease.
(iii) SUBTENANT. The person or entity with whom a Sublet
agreement is proposed to be or is made.
(iv) ASSIGNMENT AND SUBLETTING to AFFILIATE.
Notwithstanding the foregoing, Tenant may without the consent of
Landlord assign this Lease or sublet all or any part of the Premises
to a parent or subsidiary of Tenant or affiliate under common
ownership with Tenant, or to a corporation or other entity or
persons succeeding to substantially all of the assets of Tenant as a
result of consolidation or merger, or to a corporation or other
entity which acquires substantially all of the assets of Tenant,
provided, however, that (a) no such assignment or subletting shall
result in Tenant being released or
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discharged from any liability under the Lease, (b) the proposed
assignee or subtenant agrees in writing to be bound by all of the
terms and conditions of this Lease, and (c) the use proposed by the
proposed assignee or subtenant is, in the reasonable judgment of
Landlord, consistent with the first class nature of the Building and
shall not result in excessive wear or repairs to the Premises.
ALTER- 8. A. PERMITTED ALTERATIONS. Tenant shall not make or permit
ATIONS any Alterations in, on or about the Premises without the prior
written consent of Landlord (which shall not be unreasonably
withheld or delayed) and according to plans and specifications
approved in writing by Landlord, which consent shall not be
unreasonably withheld or delayed. For purposes of this Lease,
"Alterations" shall mean any alterations, additions or improvements
made in, on or about the Premises after the Commencement Date,
including, but not limited to, lighting, heating, ventilating, air
conditioning, electrical, partitioning, fixtures, drapery and
carpentry installations; provided, however, that Tenant, at Tenant's
sole cost and expense, may install its necessary trade fixtures,
equipment and furniture in the Premises without Landlord's consent,
provided that such items are installed and are removable without
damage to the Project or to any of its electrical, mechanical or
plumbing systems, and such alterations do not cost more than
$10,000.00 each. Notwithstanding the foregoing, Landlord may
withhold Landlord's consent in its sole discretion (including,
without limitation, on wholly aesthetic grounds) to any: (i)
alterations to the exterior or structural component of the Building,
including, without limitation, exterior walls and roof of the
Building; and (ii) alterations visible from outside the Building,
including Outside Areas. All alterations shall be installed at:
Tenant's sole expense, in compliance with all applicable laws and
the CC&R's by Landlord's contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the
Premises existing as of the Commencement Date, and shall not
diminish the value of the Premises. Landlord shall have the right to
require that all Alterations shall be of first class quality
consistent with the quality of the Project. All alterations made by
Tenant, or by Landlord at Tenant's expense, shall at the termination
or expiration of the Lease become the property of Landlord and shall
remain upon and be surrendered with the Premises; provided, however,
that Landlord may, at its option, require that Tenant, at Tenant's
expense, remove any or all nonstructural Alterations installed by
Tenant, or by Landlord at Tenant's expense, and return the Premises
to their condition as of the Commencement Date of this Lease, normal
wear and tear excepted and subject to the provisions of Paragraph
13. If requested by Tenant, Landlord shall inform Tenant at the time
Landlord consents to the Alteration as to whether or not the
Alteration in question must be removed from the Premises upon the
expiration or earlier termination of the Lease. Notwithstanding any
other provision of this Lease, Tenant shall be solely responsible
for the maintenance and repair of any and all Alterations to the
Premises made by Tenant, or by Landlord at Tenant's expense.
B. NOTICE. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might
result in any claim of lien at least ten (10) business days prior to
the commencement of such work to enable Landlord to post and record
a Notice of Nonresponsibility or other notice deemed proper before
the commencement of any such work. If Tenant fails to cause any lien
filed against the Premises in connection with any work performed or
claimed to have been performed by or at the direction of Tenant to
be released of record by payment or posting of a proper bond
acceptable to Landlord within ten (10) days from the date of filing,
then Landlord may do so at Tenant's expense and Tenant shall
reimburse Landlord for such amount as Additional Rent. Such
reimbursement shall include all sums disbursed, incurred or
deposited by Landlord, including
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Landlord's costs, expenses and reasonable attorneys' fees with
interest thereon at the Interest Rate from the date of payment by
Landlord.
REPAIR
AND
MAINTE- 9. A. BUILDING.
NANCE
(i) LANDLORD'S OBLIGATIONS. Landlord shall keep in
good order, condition and repair the structural parts of the
Building, which structural parts include only the foundation,
exterior walls (excluding the interior of all walls and the exterior
and interior of all windows, doors, plateglass, showcases and
interior ceiling), heating, ventilating and air conditioning systems
("HVAC"), roof and subflooring of the Building, except for any
damage thereto caused by, the negligence or willful acts or
omissions of Tenant or its Agents, or by reason of the failure of
Tenant to perform or comply with any terms, conditions or covenants
in this Lease, or caused by Alterations made by Tenant or its
Agents. Landlord shall also maintain and repair all utility lines
and installations serving the Premises at the date hereof to the
extent they exist on the Project but outside the Premises, except
for any damage thereto caused by the negligence or willful acts or
omissions of Tenant or its Agents, or by reason of the failure of
Tenant to perform or comply with any terms, conditions or covenants
in this Lease, or caused by Alterations made by Tenant or its
Agents. It is an express condition precedent to all obligations of
Landlord to repair and maintain that Tenant shall have notified
Landlord in writing of the need for such repairs or maintenance.
(ii) TENANT'S OBLIGATIONS. Tenant shall at all times
and at its own expense clean, keep and maintain in good, safe and
sanitary order, condition and repair every part of the Premises
which is not within Landlord's obligation pursuant to Paragraph
9.A.(i). Tenant's repair and maintenance obligations shall include,
without limitation, all plumbing and sewage facilities within the
Premises, fixtures, interior walls, floors, ceilings, windows, store
front, doors, entrances, plateglass, showcases, skylights, all
electrical facilities and equipment, including lighting fixtures
serving the Premises, lamps, fans and any exhaust equipment and
systems, any automatic fire extinguisher equipment within the
Premises, electrical motors and all other appliances and equipment
of every kind and nature located in, upon or about the Premises.
However unless the necessity for such repair arises out of the acts
or omissions of Tenant or its Agents, Tenant shall not be obligated
under this paragraph to repair: (i) damage for which Landlord is
reimbursed under any insurance policy carried by Landlord under this
Lease for which Tenant pays a prorata share of the premiums; (ii)
damage caused by the negligence or willful misconduct of Landlord or
Landlord's agents, employees or contractors; or (iii) damage the
repair of which is paid for under the Outside Area Expenses. All
glass, both interior and exterior, is at the sole risk of Tenant,
and any broken glass shall promptly be replaced by Tenant and at
Tenant's expense with glass of the same kind, size and quality. If
any condition arises in the Premises or the Project which may be
unsafe or dangerous to persons or property in the Project, Tenant
shall immediately notify Landlord of such condition, regardless of
whether the obligation to repair such condition is Tenant's
obligation or Landlord's obligation. Tenant shall, at its own
expense, provide, install and maintain in good condition all of its
trade fixtures, furniture, equipment and other personal property
("Tenant's Personal Property") required in the conduct of its
business in the Premises.
B. OUTSIDE AREAS AND COMMON EXPENSES.
(i) LANDLORD'S OBLIGATIONS. Landlord shall maintain
all outside Areas in good order, condition and repair. The manner in
which such areas shall be maintained and the expenditures therefor
shall be at the reasonable discretion of
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Landlord. Landlord shall at all times have exclusive control of the
Outside Areas and may at any time temporarily close any part
thereof, exclude and restrain anyone from any part thereof, except
the bona fide customers, employees and invitees of Tenant who use
the Outside Areas in accordance with the rules and regulations as
Landlord may from time to time promulgate, and may change the
configuration or location of the Outside Areas. In exercising any
such rights, Landlord shall make a reasonable effort to minimize any
disruption of Tenant's business. Landlord shall have the right to
reconfigure the parking area and ingress and egress to and from the
parking area, and to modify the directional flow of traffic in the
parking area from time to time during the term of this Lease,
provided that Landlord continues to provide the parking provided in
Paragraph 31 of this Lease.
(ii) TENANT TO PAY OUTSIDE AREA EXPENSES AND COMMON
EXPENSES. Tenant shall pay, as Additional Rent, Tenant's Project
Percentage of all reasonable costs and expenses as; may be paid or
incurred by Landlord in maintaining, operating and repairing the
Outside Areas (the "Outside Area Expenses") during the Term. The
Outside Area Expenses shall include, without limitation, CC&R
assessments and dues, and the cost of labor, materials, supplies and
services used or consumed in maintaining, operating and repairing
the Outside Areas, including without limitation, the following:
(a) Maintaining and repairing landscaping and
sprinkler systems, together with all charges for water used in the
Outside Areas of the Project;
(b) Maintaining and repairing concrete walkways
and paved parking areas;
(c) Maintaining and repairing signs and site
lighting in the Project;
(d) Pest control, exterior janitorial, exterior
window washing, sweeping services, and Building and Project
security; and
(e) A management fee equal to five percent (5%)
of the total Outside Area Expenses, Real Property Taxes and
insurance costs for the Project.
Tenant may, at its sole expense, contract for or provide its own
interior janitorial service. If Tenant does not contract for or
otherwise provide for its own interior janitorial services, then
Landlord may provide such services and the costs thereof may be
included within Outside Area Expenses.
The following shall not constitute Outside Area Expenses:
1. Legal fees, brokerage commissions, advertising costs and
other related expenses incurred in connection with the leasing by
Landlord of the Project;
2. Structural repairs of a capital nature;
3. Damage the cost repair of which is reimbursed to
Landlord under any insurance policy carried by Landlord under this
Lease in connection with the Project;
4. Damage and repairs necessitated by the negligence or
willful misconduct of Landlord or Landlord's employees, agents or
contractors;
5. Executive salaries of Landlord;
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6. Salaries of service personnel to the extent such service
personnel perform services not attributable to management,
operation, repair or maintenance of the Project;
7. Landlord's general overhead expenses not related to the
Project;
8. Payments of principal or interest on any mortgage or
other encumbrance including ground lease payments and points,
commissions and legal fees associated with financing;
9. Depreciation;
10. Legal fees, accountants' fees and expenses incurred in
connection with disputes with Tenant or other tenants or occupants
of the Project or associated with the enforcement of any leases;
11. Costs, including permits, license and inspection fees
incurred in renovating or otherwise improving, decorating, painting
or altering space for other tenants in the Project;
12. The cost of any service provided to Tenant or other
tenants of the Project for which Landlord is reimbursed;
13. Charitable or political contributions;
14. Interest, penalties or other costs arising out of
Landlord's failure to make timely payments of its obligations;
15. Costs incurred in advertising and promotional activities
for the Project;
16. Outside Area Expenses charged Landlord by any of its
affiliates for goods and services provided to the Project shall not
exceed the prevailing costs thereof that would be charged to
Landlord by non-affiliated parties;
17. Repairs, alterations, additions, improvements or
replacements to the Project made to comply with requirements of
applicable governmental law in effect as of the date of this Lease,
except for those repairs, alterations, additions, improvements or
replacements for which Tenant is otherwise responsible under this
Lease, and except for those arising out of or necessitated by
Tenant's use, or any alterations or tenant improvements made by or
for Tenant;
18. Damage and repairs attributable to condemnation, fire or
other casualty for which Landlord is reimbursed by condemnation or
insurance proceeds; and
19. The cost or expense of testing for, removal,
transportation or storage of Toxic Materials (as defined above),
except to the extent arising out of the storage, use, generation,
transportation, disposal, or release of Toxic: Materials by Tenant,
or its contractors, employees or invitees.
(iii) MONTHLY PAYMENTS. From and after the Commencement
Date, Tenant shall pay to Landlord on the first day of each calendar
month of the Term an amount estimated by Landlord to be the monthly
Outside Area Expenses. The foregoing estimated monthly charge may be
adjusted by Landlord at the end of any calendar quarter on the basis
of Landlord's experience and reasonably anticipated costs. Any such
adjustment shall be effective as of the calendar month next
succeeding receipt by Tenant of written notice of such adjustment.
(iv) ACCOUNTING. Within one hundred twenty (120) days
following the end of each calendar year Landlord shall furnish
Tenant a reasonably detailed statement of the actual outside Area
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Expenses for the calendar year and the payments made by Tenant with
respect to such period. If Tenant's payments for the, Outside Area
Expenses do not equal the amount of the actual Outside Area
Expenses, Tenant shall pay Landlord the deficiency within twenty
(20) days after receipt of such statement. If Tenant's payments
exceed the actual Outside Area Expenses, Landlord shall either
offset the excess against the Outside Area Expenses next thereafter
to become due to Landlord, or shall refund the amount of the
overpayments to Tenant, in cash, as Landlord shall elect. There
shall be appropriate adjustments of the Outside Area Expenses as of
the Commencement Date and expiration of the Term. If Tenant shall
dispute any amounts set forth in the statement of actual Outside
Area Expenses, Tenant shall have the right not later than ninety
(90) days following receipt of such statement to cause Landlord's
books and records with respect to the preceding calendar year to be
audited by an accountant mutually acceptable to Landlord and Tenant.
The Outside Area Expenses shall be appropriately adjusted on the
basis of such audit. Tenant shall pay the cost and expense of such
audit, unless such audit discloses a liability for a refund by
Landlord to Tenant in excess of five percent (5%) of the payments
previously made by Tenant for such calendar year, in which event
Landlord shall pay the cost and expenses of such audit.
C. WAIVER. Tenant waives the provisions of Sections 1941
and 1942 of the California Civil Code and any similar or successor
law regarding Tenant's right to make repairs and deduct the expenses
of such repairs from the Rent due under this Lease.
UTILITIES 10. A. TENANT'S OBLIGATIONS. Tenant shall be responsible for
AND and shall pay promptly charges for gas, electricity, telephone,
SERVICES refuse pickup, janitorial service, and all other utilities,
materials and services furnished directly to or used by Tenant in,
on or about the Premises during the Term, together with any taxes
thereon. Landlord shall not be liable in damages or otherwise for
any failure or interruption of any utility service or other service
furnished to the Premises, except that resulting from the gross
negligence or willful misconduct of Landlord. No such failure or
interruption shall entitle Tenant to terminate this Lease or
withhold Rent or other sums due hereunder.
B. TENANT TO PAY BUILDING COMMON EXPENSES. Tenant shall
pay, as Additional Rent, Tenant's Building Percentage of (i) all
reasonable costs and expenses as may be paid or incurred by Landlord
in maintaining, operating and repairing the HVAC, and (ii) the
domestic water used in the Building. Tenant shall pay any such
amounts pursuant to the procedure described in Paragraphs 9.B(iii)
and (iv) above. If any of the utilities or services described above
are not separately metered or are contracted for by the Landlord,
the cost of such utilities or services shall be deemed Building
Expenses and Tenant shall pay Tenant's Building Percentage of such
items.
REAL 11. A. PAYMENT BY TENANT. On or before April 1 and December 1
PROP- of each calendar year during the Term, Tenant shall pay to
ERTY Landlord, as Additional Rent, Tenant's Project Percentage of all
TAXES Real Property Taxes as set forth on the county assessor's tax
statement for the Project. Landlord shall give Tenant at least
fifteen (15) days' prior written notice of the amount so due. Upon
Landlord's receipt of the Real Property Tax payment from Tenant,
Landlord shall pay the taxes to the County. If Tenant fails to pay
the Real Property Taxes on or before April 1 and December 1,
respectively, Tenant shall pay to Landlord any penalty incurred by
such late payment. Tenant shall pay any Real Property Tax not
included within the County tax assessor's tax statement at least ten
(10) days after being billed for same by Landlord. If Tenant shall
fail to pay any Real Property Tax payment on time, such overdue
amount and any penalty due hereunder shall bear interest at the
Interest Rate until Paid. For
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purposes of this Lease, "Interest Rate" shall mean five percent (5%)
per annum, plus the greater of (i) the Federal Reserve Bank rate,
specified in Article 15, Section 1 of the California Constitution,
prevailing on the 25th day of the month preceding execution of this
Lease (it being understood that this Lease is not a contract to make
a loan or forbearance), or (ii) such Federal Reserve Bank rate
prevailing on the 25th day of the month preceding the date any
defaulted payment was due. The foregoing dates for payment are based
on the dates currently established by the County as the dates on
which Real Property Taxes become delinquent if not paid. If such
delinquency dates change, the dates on which Tenant must pay such
taxes shall be at least ten (10) days prior to the delinquency
dates.
B. REAL PROPERTY TAXES. For purposes of this Lease, Real
Property Taxes shall mean any form of assessment, license, fee, rent
tax, levy, penalty (if a result of Tenant's delinquency) , or tax
of any nature imposed upon or with respect to the Premises or the
Project or any part thereof (other than net income, estate,
succession, inheritance, transfer or franchise taxes) (collectively
"tax"), imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government or any
improvement or other district or division thereof, whether such tax
is: (i) determined by the area of the Premises or Project or any
part thereof or the rent and other sums payable hereunder by Tenant
or by other tenants, including, but not limited to, any gross income
or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease;
(ii) levied or assessed upon any legal or equitable interest of
Landlord in the Project or the Premises or any part thereof; (iii)
levied or assessed upon this transaction or any document to which
Tenant is a party creating or transferring any interest in the
Premises; (iv) levied or assessed in lieu of, in substitution for,
or in addition to, existing or additional taxes imposed on or with
respect to the Project or the Premises, whether or not now customary
or within the contemplation of the parties; or (v) surcharged
against the parking area. Notwithstanding the foregoing, the
following shall not constitute Real Property Taxes for the purposes
of this Lease: (1) any state, local, federal, personal or corporate
income tax of Landlord; (2) any estate or inheritance taxes; (3) any
franchise, succession or transfer taxes, and (4) interest on taxes
or penalties resulting from Landlord's failure to pay its taxes and
not directly caused by Tenant's delinquency. The reasonable cost and
expenses of contesting the amount or validity of any of the
foregoing taxes shall be included in Real Property Taxes. Real
Property Taxes shall also include all new and increased assessments,
taxes, fees, levies and charges may be imposed by governmental
agencies for such purposes as fire protection, street, sidewalk,
road, utility construction and maintenance, refuse removal,
libraries, street lighting, police services, and for other
governmental services, or any gross or net rental income tax.
C. TAX ON IMPROVEMENTS. Without limiting the generality of
Paragraph 11.B. hereof, Tenant shall pay any increase in Real
Property Taxes resulting from any and all Alterations and Tenant
Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant.
D. PRORATION. Tenant's liability to pay Real Property Taxes
shall be prorated on the basis of a 365-day year to account for any
fractional portion of a fiscal tax year included at the commencement
or expiration of the Term. With respect to any assessments which may
be levied against or upon the Premises, or which under the laws then
in force may be evidenced by improvement bonds or other bonds or may
be paid in annual installments, only the amount of the annual
installment due each year (with appropriate proration for any
partial year) and interest due
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thereon shall be included within the computation of the annual Real
Property Taxes levied against the Premises for such year.
E. PAYMENT ON EXPIRATION OF TERM. If this Lease terminates
on a date earlier than the end of a fiscal tax year, Landlord shall
deliver to Tenant a statement setting forth the amount of Real
Property Taxes to be paid by Tenant adjusted to the date of
termination which shall be paid within five (5) days of such
receipt.
F. PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere. When possible,
Tenant shall cause its Personal Property to be assessed and billed
separately from the real or personal property of Landlord.
INSURANCE 12. A. INDEMNIFICATION. Tenant hereby agrees to defend (with
attorneys acceptable to Landlord), indemnify and, hold harmless
Landlord and its Agents from and against any and all damage, loss,
liability or expense including, without limitation, attorneys' fees
and legal costs suffered directly or by reason of any claim, suit or
judgment brought by or in favor of any person or persons for damage,
loss or expense due to, but not limited to, bodily injury and
property damage sustained by such person or persons which arises out
of, is occasioned by or is in any way attributable to the use or
occupancy of the Premises or any part thereof and adjacent areas by
the Tenant, the acts or omissions of the Tenant or its Agents,
except to the extent caused by the sole negligence or willful
misconduct of Landlord or its Agents. Notwithstanding the foregoing,
Landlord shall indemnify, defend and hold Tenant harmless from and
against any damage, loss, liability, or expense, including without
limitation reasonable attorneys' fees resulting from the negligence
or willful misconduct of Landlord or its Agents. In no event,
however, shall Landlord be liable to Tenant for any lost profits or
consequential damages.
B. TENANT'S INSURANCE. Tenant agrees to maintain in full
force and effect at all times during the Term, at its own expense,
for the protection of Tenant and Landlord, as their interests may
appear, policies of insurance issued by a responsible carrier or
carriers acceptable to Landlord which afford the following
coverages:
(i) Worker's compensation -- Statutory limits.
(ii) Employer's liability -- Not less than one Hundred
Thousand and no/100ths Dollars ($100,000.00).
(iii) comprehensive general liability insurance
including blanket contractual liability broad form property damage,
personal injury, completed operations, products liability, fire
damage legal, in an amount not less than Three Million and no/100ths
Dollars ($3,000,000.00) combined single limit for both bodily injury
and property damage naming Landlord and its Agents as additional
insureds.
(iv) "All Risk" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement,
sprinkler leakage endorsement, and boiler and machinery coverage) on
Tenant's Personal Property located on or in the Premises, and any
Alterations constructed or installed on the Premises by Tenant or by
Landlord at Tenant's expense. Such insurance shall be in the full
amount of the replacement cost, as the same may from time to time
increase as a result of inflation or otherwise, and shall be in a
form providing coverage comparable to the coverage provided in the
standard ISO All-Risk form now or hereafter in effect. As long as
this Lease is in effect, the proceeds of such policy shall be used
for the repair or
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replacement of such items so insured. Landlord shall have no
interest in the insurance upon Tenant's Personal Property.
C. BUILDING INSURANCE. During the Term Landlord shall
maintain "All Risk" property insurance (including, at Landlord's
option, earthquake and flood coverage, inflation endorsement,
sprinkler leakage endorsement, and boiler and machinery coverage)
covering the Project and the Premises, excluding coverage of all
Tenant's Personal Property on or in the Premises, but including the
Project and any Tenant Improvements. Such insurance shall also
include insurance against loss of rents on an "All Risk" basis,
including, at Landlord's option, earthquake and flood, in an amount
equal to the Monthly Rent and Additional Rent, and any other sums
payable under the Lease, for a period of twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord
and its Agents as named insureds and include a lender's loss payable
endorsement in favor of Landlord's lender (Form 438 BFU Endorsement
or successor form). Tenant shall reimburse Landlord for Tenant's
Project Percentage of the costs of such policies and any deductible
amounts paid by Landlord under such policies, annually or upon such
other periodic basis as Landlord shall elect, within ten (10) days
of the date of receipt of a statement for the same, as Additional
Rent. If the insurance premiums are increased after the Commencement
Date due to an increase in premium rates, due to an increase in the
valuation of the Premises or their replacement cost, due to
additional or modified coverages, Tenant shall pay Tenant's Project
Percentage of such increase within ten (10) days of notice of such
increase. Tenant shall pay the entire increase in premium rates
caused by Tenant's use of the Premises.
D. DEDUCTIBLES. Any deductibles in connection with those
items set forth in Paragraph 12.B. must be approved in writing by
Landlord prior to issuance of such policies.
E. CERTIFICATES. Tenant shall deliver to Landlord at least
thirty (30) days prior to the time such insurance is first required
to be carried by Tenant, and thereafter at least thirty (30) days
prior to expiration of each such policy, certificates of insurance
evidencing the above coverage with limits not less than those
specified above. The certificates shall expressly provide that the
interest of Landlord therein shall not be affected by any breach of
Tenant of any policy provision for which such certificates evidence
coverage. Further, all certificates shall expressly provide that no
less than thirty (30) days' prior written notice shall be given
Landlord in the event of cancellation of the coverages evidenced by
such certificates.
F. INCREASED COVERAGE. Deleted.
G. CO-INSURER. If, on account of the failure of Tenant to
comply with the foregoing provisions, Landlord is adjudged a
coinsurer by its insurance carrier, then, any loss or damage
Landlord shall sustain by reason thereof, including attorneys' fees
and costs, shall be borne by Tenant and shall be immediately paid by
Tenant upon receipt of a bill therefor and evidence of such loss.
H. NO LIMITATION OF LIABILITY. Landlord and its Agents make
no representation that the limits of liability specified to be
carried by Tenant under this Lease are adequate to protect Tenant or
that the limits of liability for insurance carried by Landlord will
be equal to the full replacement value of the items insured. If
Tenant believes that any such insurance coverage is insufficient,
Tenant shall provide, at its own expense, such additional insurance
as Tenant deems adequate.
I. INSURANCE REQUIREMENTS. All such insurance shall be in a
form satisfactory to Landlord and shall be carried with
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companies that have a general policyholder's rating of not less than
"A" and a financial rating of not less than Class "X" in the most
current edition of Best's Insurance Reports; shall provide that such
policies shall not be subject to material alteration or cancellation
except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord. The policy or
policies, or duly executed certificates for them, together with
satisfactory evidence of payment of the premium thereon, shall be
deposited with Landlord prior to the Commencement Date, and upon
renewal of such policies, not less than thirty (30) days prior to
the expiration of the term of such coverage. If Tenant fails to
procure and maintain the insurance required hereunder, or fails to
provide Landlord with the policy, policies or duly executed
certificates thereof required hereunder, Landlord may, but shall not
be required to, order such insurance at Tenant's expense and
Tenant's reimbursement to Landlord for such amounts shall be deemed
Additional Rent. Such reimbursement shall include all sums
disbursed, incurred or deposited by Landlord including Landlord's
costs, expenses and reasonable attorneys' fees with interest thereon
at the Interest Rate.
J. LANDLORD'S DISCLAIMER. Landlord and its Agents shall not
be liable for any loss or damage to persons or property resulting
from fire, explosion, falling plaster, glass, tile or sheetrock,
steam, gas, electricity, water or rain which may leak from any part
of the Premises or the Project, or from the pipes, appliances or
plumbing works therein or from the roof, street or subsurface or
whatsoever, unless caused by or due to the sole negligence or
willful acts of Landlord or Landlord's Agents. Landlord and its
Agents shall not be liable for interference with the light, air, or
any latent defect in the Premises or the Project. Tenant shall give
prompt written notice to Landlord in case of a casualty, accident or
repair needed in the Premises.
K. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waive all rights of recovery against the other on account of loss
and damage occasioned to such waiving party for its property or the
property of others under its control to the extent that such loss or
damage is insured against under any insurance policies which may be
in force at the time of such loss or damage. Tenant and Landlord
shall, upon obtaining policies of insurance required hereunder, give
notice to the insurance carrier that the foregoing mutual waiver of
subrogation is contained in this Lease and Tenant and Landlord shall
cause each insurance policy obtained by such party to provide that
the insurance company waives all right of recovery by way of
subrogation against either Landlord or Tenant in connection with any
damage covered by such policy.
DAMAGE OR 13. A. LANDLORD'S OBLIGATION TO REBUILD. If the Premises are
DESTRUC- damaged or destroyed, Landlord shall promptly and diligently repair
TION the Premises unless it has the right to terminate this Lease as
provided herein and it elects to so terminate.
B. RIGHT TO TERMINATE. Landlord shall have the right to
terminate this Lease in the event any of the following events
occurs:
(i) Net insurance proceeds (after deducting the cost
of recovery of such proceeds) are not available to pay one hundred
percent (100%) of the cost of such repair, excluding the deductible
for which Tenant shall be responsible;
(ii) The Premises or the Building cannot, with
reasonable diligence, be fully repaired by Landlord within 120 days
after the date of the damage or destruction; or
(iii) The Premises or the Building cannot be safely
repaired because of the presence of hazardous factors, including,
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but not limited to, earthquake faults, radiation, chemical waste and
other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give
Tenant written notice of its election to terminate within thirty
(30) days after such damage or destruction, and this Lease shall
terminate fifteen (15) days after the date Tenant receives such
notice. If Landlord elects not to terminate the Lease, Landlord
shall promptly, following the date of such damage or destruction,
commence the process of obtaining necessary permits and approvals,
and shall commence repair of the Premises or the Building as soon as
practicable and thereafter prosecute the same diligently to
completion, in which event this Lease will continue in full force
and effect. All insurance proceeds from insurance under Paragraph
12.B, excluding proceeds for Tenant's Personal Property, shall be
disbursed and paid to Landlord, If the Premises is damaged or
destroyed and cannot with reasonable diligence be repaired or
restored within one hundred eighty (180) days after the date of the
damage or destruction, then Tenant may terminate this Lease by
giving Landlord written notice of such election.
C. LIMITED OBLIGATION TO REPAIR. Landlord's obligation,
should it elect or be obligated to repair or rebuild, shall be
limited to the basic Building and the Tenant Improvements, if
insurance proceeds are made available to Landlord therefor, and
Tenant shall, at its expense, replace or fully repair all Tenant's
Personal Property and any Alterations installed by Tenant and
existing at the time of such damage or destruction.
D. ABATEMENT OF RENT. Rent shall be temporarily abated
proportionately, during any period when, by reason of such damage or
destruction, there is substantial interference with Tenant's use of
the Premises, having regard to the extent to which Tenant may be
required to discontinue Tenant's use of the Premises. Such
abatement shall commence upon such damage or destruction and end
upon substantial completion by Landlord of the repair or
reconstruction which Landlord is obligated or undertakes to do, or,
if earlier, when Tenant's use of the Premises is no longer
substantially interfered with as a consequence of such damage.
Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the Premises, damage to Tenant's
Personal Property or any inconvenience occasioned by such damage,
repair or restoration. Tenant hereby waives the provisions of
Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the
California Civil Code, and the provisions of any similar law
hereinafter enacted.
E. DAMAGE NEAR END OF TERM. Anything herein to the contrary
notwithstanding, if the Premises are destroyed or damaged during the
last twelve (12) months of the Term and the cost of the repair
exceeds ten percent (10%) of the replacement cost of the Building,
then Landlord or Tenant may, at its option, cancel and terminate
this Lease as of the date of the occurrence of such damage. If
Landlord or Tenant does not elect to so terminate this Lease, the
repair of such damage shall be governed by Paragraphs 13.A., or
13.B., as the case may be. If this Lease is terminated, Landlord may
keep all the insurance proceeds resulting from such damage, except
for those proceeds payable under policies obtained by Tenant which
specifically insure Tenant's Personal Property.
F. REPLACEMENT COST. The reasonable determination in good
faith by Landlord of the estimated cost of repair of any damage, of
the replacement cost, or of the time period required for repair
shall be conclusive for the purposes of this paragraph.
NOTICES 14. Any notice or demand required or desired to be given under
this Lease shall be in writing and shall be personally delivered to
the address herein provided for the addressee, or in lieu of
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personal delivery may be given by air courier or other commercial
delivery service which guarantees overnight delivery, or messenger,
or by express or regular mail. Notice given by mail (other than
express mail) shall be effective on the day when such notice was
deposited in the United States mail (as determined by the postmark
or, if there is no postmark, then by other competent evidence),
registered or certified, and postage prepaid, addressed to the party
to be served, regardless of whether receipt therefor is given by the
addressee. Notice by any other manner shall be deemed given when
received at the address herein provided for the addressee. After the
Commencement Date, the address of Tenant shall be the address of the
Premises, provided that either party may change its address by
giving notice of same in accordance with this paragraph.
DEFAULT 15. A. TENANT'S DEFAULT. A default under this Lease by Tenant
shall exist if any of the following events shall occur:
(i) If Tenant shall have failed to pay Rent or any
other sum required to be paid hereunder when due; provided, however,
that Landlord shall exercise no remedies provided in Paragraph 15.B
below for such default unless Tenant fails to cure such default
within five (5) days after Landlord gives Tenant written notice of
such default, and Landlord shall have the right to require Tenant to
remit all future payments by certified check after the second such
cure of a default by Tenant; or
(ii) If Tenant shall have failed to perform any term,
covenant or condition of this Lease except (a) those requiring the
payment of money and (b) those defaults set forth in this Paragraph
15.A. below, and Tenant shall have failed to cure such breach within
thirty (30) days after written notice from Landlord where such
breach could reasonably be cured within such thirty (30) day period;
provided, however, that where such failure could not reasonably be
cured within the thirty (30) day period, that Tenant shall not be in
default if it has commenced such performance within the thirty (30)
day period and diligently thereafter prosecutes the same to
completion; or
(iii) If Tenant shall have assigned its assets for the
benefit of its creditors; or
(iv) If the sequestration or attachment of or execution
on any material part of Tenant's Personal Property essential to the
conduct of Tenant's business shall have occurred, and Tenant shall
have failed to obtain a return or release of such Personal Property
within thirty (30) days thereafter, or prior to sale pursuant to
such sequestration, attachment or levy, whichever is earlier; or
(v) If Tenant shall have abandoned or vacated the
Premises, which shall be conclusively presumed if Tenant leaves the
Premises closed or unoccupied by any individuals on the Premises
doing business on behalf of Tenant (as observed by Landlord)
continuously for twenty (20) days; or
(vi) If a court shall have made or entered any decree
or order other than under the bankruptcy laws of the United States
adjudging Tenant to be insolvent; or approving as properly filed a
petition seeking reorganization of Tenant; or directing a winding up
or liquidation of Tenant and such decree or order shall have
continued for a period of thirty (30) days; or
(vii) If Tenant shall have failed to comply with the
provisions of Paragraphs 20, 25 or 30; or
(viii) If Tenant shall have Sublet the Premises or a
portion thereof without Landlord's prior written consent; or
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(ix) If Tenant shall have created or maintained a
nuisance or hazard, or unsightly condition on the Premises or which
affects the Outside Areas, which continues unabated for more than 24
hours.
Any notice by Landlord under this Paragraph shall be sufficient if
it informs Tenant of the general nature of Tenant's failure to
perform Tenant's obligations hereunder. Any notice given by Landlord
pursuant to Paragraph 15.A(i) above which is served in compliance
with Paragraph 14 of this Lease shall be deemed to satisfy the
requirements of California Code of Civil Procedure Section 1161, and
under Code of Civil Procedure Section 1162 regarding the manner of
giving notice, and acknowledges that no further notice shall be
required prior to Landlord's exercise of the remedies specified in
Paragraph 15.B or any other remedies provided by law.
B. REMEDIES. Upon a default, Landlord shall have the
following remedies, in addition to all other rights and remedies
provided by law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative, and without
notice to Tenant where no cure period is, provided for Tenant's
breach:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as
long as Landlord does not terminate this Lease, and Landlord shall
have the right to collect Rent when due and enforce other
obligations of Tenant hereunder.
(ii) Landlord may terminate Tenant's right to
possession of the Premises at any time by giving written notice to
that effect, and relet the Premises or any part thereof. Tenant
shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises or any part thereof, including,
without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs.
Reletting may be for a period shorter or longer than the remaining
term of this Lease. No act by Landlord other than giving written
notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to
possession. On termination, Landlord has the right to remove all
Tenant's Personal Property and store same at Tenant's cost and to
recover from Tenant as damages:
(a) The worth at the time of award of unpaid
Rent and other sums due and payable which had been earned at the
time of termination; plus
(b) The worth at the time of award of the amount
by which the unpaid Rent and other sums due and payable which would
have been earned or payable after termination until the time of
award exceeds the amount of such Rent 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 and other sums due and payable for the
balance of the Term after the time of award exceeds the amount of
such Rent loss that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to
compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease,
or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking
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possession of the Premises; (ii) in maintaining, repairing,
preserving, restoring, replacing, cleaning, altering or
rehabilitating the Premises or any portion thereof, including such
acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to
relet the Premises; plus
(e) At Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from
time to time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 15.B.(ii)(a) and 15.B.(ii)(b) is computed by allowing
interest at the Interest Rate on the unpaid Rent and other sums due
and payable from the termination date through the date of award. The
"worth at the time of award" of the amount referred to in Paragraph
15.B.(ii)(c) is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%). Tenant waives redemption or relief
from forfeiture under California Code of Civil Procedure Sections
1174 and 1179, or under any other present or future law, in the
event Tenant is evicted or Landlord takes possession of the Premises
by reason of any default of Tenant hereunder.
(iii) Landlord may, with or without terminating this
Lease, re-enter the Premises and remove all persons and property
from the Premises; such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of
Tenant. No re-entry or taking possession of the Premises by Landlord
pursuant to this paragraph shall be construed as an election to
terminate this Lease unless a written notice of such intention is
given to Tenant. In addition to the above remedies, Landlord shall
have all rights under the Uniform Commercial Code of a secured party
with respect to Tenant's Personal Property in which a security
interest is granted.
C. LATE CHARGES. Tenant acknowledges that late payment by
Tenant to Landlord of Rent and other charges provided for under this
Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult or
impracticable to fix. Such costs include, but are not limited to,
processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and notes
secured by any encumbrance covering the Premises, or late charges
and penalties due to late payment of Real Property Taxes due on the
Premises. Therefore, if any installment of Rent or any other charge
due from Tenant is not received by Landlord within three (3) days of
the due date, Tenant shall pay to Landlord an additional sum equal
to five percent (5%) of the amount overdue as a late charge for
every month or portion thereof that the Rent or other charges remain
unpaid, whether or not Landlord has given Tenant written notice of
the non-receipt of the Rent or other charges or has exercised any
remedy herein provided for default by Tenant. The parties agree that
this late charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of the late payment by
Tenant. Acceptance of any late charge shall not constitute a waiver
of Tenant's default with respect to the overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies
available to Landlord.
D. LANDLORD'S DEFAULT. Landlord shall not be deemed to be
in default in the performance of any obligation required to be
performed by it hereunder unless and until it has failed to perform
such obligation within thirty (30) days after receipt of written
notice by Tenant to Landlord specifying the nature of such default;
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 to be in
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default if it shall commence such performance within such thirty
(30) day period and thereafter diligently prosecute the same to
completion.
SURRENDER 16. Upon the expiration or earlier termination of the term, Tenant
OF THE shall surrender the Premises to Landlord in its condition existing
PREMISES as of the Commencement Date, normal wear and tear and fire or other
casualty not caused by Tenant excepted, with all interior walls
repaired and repainted if marked or damaged, all carpets shampooed
and cleaned, and all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove from the Premises all
of Tenant's Alterations required to be removed pursuant to Paragraph
8 and all Tenant's Personal Property, and shall repair any damage
and perform any restoration work caused by such removal. If Tenant
is then in default, Tenant shall only remove such Alterations and
Tenant's Personal Property as specified in written notice from
Landlord to Tenant. If Tenant fails to remove such Alterations and
Tenant's Personal Property, and such failure continues after the
termination of this Lease or after Tenant has abandoned or
surrendered the Premises, Landlord may retain such property and, at
Landlord's option, may apply it toward the satisfaction of Tenant's
obligations under this Lease, and all rights of Tenant with respect
to the property shall cease, or Landlord may place all or any
portion of such property in public storage for Tenant's account.
Tenant shall be liable to Landlord for the reasonable costs of
removal of any such Alterations and Tenant's Personal Property and
storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest
Rate from the date of expenditure by Landlord. If the Premises are
not so surrendered at the termination of this Lease, Tenant shall
indemnify Landlord and its Agents against all loss or liability
resulting from delay by Tenant in so surrendering the Premises,
including, without limitation, any claims made by any succeeding
tenant, losses to Landlord due to lost opportunities to lease to
succeeding tenants, and attorneys' fees and costs.
ATTORNEYS' 17. If either party brings any action or legal proceeding for
FEES damages for an alleged breach of any provisions of this Lease, to
recover Rent, or other sums due, to terminate the tenancy of the
Premises or to enforce, protect or establish any term, condition or
covenant of this Lease or right of either party, the prevailing
party shall be entitled to recover as a part of such action or
proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
Notwithstanding the foregoing and in addition thereto,
Landlord shall be entitled to immediate receipt from Tenant for each
breach hereof of such reasonable attorneys' fees, but not less than
Fifty and no/100ths Dollars ($50.00), as may be incurred in
connection with each notice or demand delivered to Tenant pursuant
to Paragraph 15. Tenant agrees that such sums constitute
reimbursement to Landlord only of the reasonable costs to Landlord
of the preparation and delivery of each notice caused by Tenant's
breach hereunder.
LIENS 18. Tenant shall keep the Premises and the Project free from any
liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Tenant and hereby
indemnifies and holds Landlord and its Agents harmless from all
liability and cost, including attorneys' fees and costs, in
connection with or arising out of any such lien or claim of lien.
Tenant shall cause any such lien imposed to be released of record by
payment or posting of a proper bond acceptable to Landlord within
ten (10) days after the earlier of imposition of the lien or written
request by Landlord.
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RENTAL 19. As of the commencement of the second lease year measured from
ADJUST- the lease commencement date, the base Monthly Rental provided in
MENT Paragraph 4.A. hereof shall be adjusted annually by multiplying the
base monthly rental in effect immediately prior to such adjustment
by 1.05. The base rent in months 13-24 shall be $1.63/s.f.; months
25-36 shall be $1.71/s.f.; months 37-48 shall be $1.79/s.f.; months
49-60 shall be $1.88/s.f.; months 61-72 shall be $1.98/s.f.; and
months 73-84 shall be $2.08/s.f.
SUBORDI- 20. A. DOCUMENTATION. This Lease is subject and subordinate to all
NATION ground and underlying leases, mortgages and deeds of trust
(collectively "Encumbrances") which now or may hereafter affect the
Premises, to the CC&R's and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder")
shall require that this Lease be prior and superior thereto, within
ten (10) days of written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver any and all documents or
instruments, which Landlord or Holder reasonably deems necessary or
desirable for such purposes. Landlord shall have the right to cause
this Lease to be and become and remain subject and subordinate to
any and all Encumbrances which are now or may hereafter be executed
covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with
interest thereon and subject to all the terms and provisions
thereof; provided only, that in the event of termination of any such
ground or underlying lease or upon the foreclosure of any such
mortgage or deed of trust, so long as Tenant is not in default,
Holder shall agree not to disturb Tenant's tenancy as long as Tenant
shall pay the Rent and observe and perform all the provisions of
this Lease to be observed and performed by Tenant. Within ten (10)
days after Landlord's written request, Tenant shall execute any and
all documents required by Landlord or the Holder required to
effectuate such subordination to make this Lease subordinate to any
lien of the Encumbrance.
B. ATTORNMENT. Notwithstanding anything to the contrary set
forth in this paragraph, Tenant hereby attorns and agrees to attorn
to any entity purchasing or otherwise acquiring the Premises at any
sale or other proceeding or pursuant to the exercise of any other
rights, powers or remedies under such Encumbrance.
MORTGAGEE 21. In the event of any default on the part of Landlord, Tenant
PROTEC- will give written notice as provided in Paragraph 14 to any
TION beneficiary of a deed of trust or mortgagee of a mortgage covering
the Premises, and shall offer such beneficiary or mortgagee a
reasonable opportunity to cure the default, but in no event more
than ninety (90) days from the date of delivery of written notice
of such default from Tenant.
CONDEMNA- 22. A. TOTAL TAKING - TERMINATION. If title to all of the Premises
TION or so much thereof is taken for any public or quasi-public use under
any statute or by right of eminent domain so that reconstruction of
the Premises will not, in Landlord's reasonable opinion, result in
the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes permitted by this Lease, this
Lease shall terminate as of the date that possession of the Premises
or part thereof be taken.
B. PARTIAL TAKING. If any part of the Premises is taken and
the remaining part is reasonably suitable for Tenant's continued
occupancy for the purposes and uses permitted by this Lease, this
Lease shall, as to the part so taken, terminate as of the date that
possession of such part of the Premises is taken and the Rent and
other sums payable hereunder shall be reduced in the same proportion
that the floor area of the portion of the
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Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.
Landlord shall, at its own cost and expense, make all necessary
repairs or alterations to the Premises so as to make the portion of
the Premises not taken a complete architectural unit. Such work
shall not, however, exceed the scope of the work done by Landlord in
originally constructing the Premises, or require Landlord to expend
sums in excess of the net proceeds of such condemnation or taking.
Rent and other sums payable hereunder shall be temporarily abated
during such restoration proportionately in the degree to which
Tenant's use of the Premises is impaired. Each party hereby waives
the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the
Premises.
C. NO APPORTIONMENT OF AWARD. No award for any partial or
entire taking shall be apportioned. Tenant assigns to Landlord its
interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in
or to the same or any part thereof. Nothing contained herein shall
be deemed to give Landlord any interest in or require Tenant to
assign to Landlord any separate award made to Tenant for the taking
of Tenant's Personal Property, for the interruption of Tenant's
business, or its moving costs, or for the loss of its goodwill.
D. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to any abatement
of Rent. Any award made to Tenant by reason of such temporary taking
shall belong entirely to Tenant and Landlord shall not be entitled
to share therein. Each party agrees to execute and deliver to the
other all instruments that may be required to effectuate the
provisions of this paragraph.
E. SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord to
any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are
pending, shall be deemed a taking under the power of eminent domain
for all purposes of this paragraph.
HOLDING 23. If Tenant remains in possession of all or any part of the
OVER Premises after the expiration of the Term, with the express or
implied consent of Landlord, such tenancy shall be month-to-month
only and shall not constitute a renewal or extension for any further
term. In such event, Monthly Rent shall be increased to an amount
equal to one hundred fifty percent (150%) of the Monthly Rent
payable by Tenant prior to the expiration of the Term and any other
sums due hereunder shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be
subject to every other term, condition, and covenant contained
herein.
ENTRY BY 24. Tenant shall permit Landlord and its Agents to enter the
LANDLORD Premises at all reasonable times with reasonable notice, except for
emergencies in which case no notice shall be required, to inspect
the same, to post Notices of Nonresponsibility and similar notices
and "For Sale" signs, to show the! Premises to interested parties
such as prospective lenders and purchasers, to make necessary
Alterations or repairs, to discharge Tenant's obligations hereunder
when Tenant has failed to do so within a reasonable time (but no
less than the time period described in paragraph 15A(ii)) after
written notice from Landlord, and at any reasonable time within one
hundred and eighty (180) days prior to the expiration of the Term,
or at any time during the Term hereof if Tenant is in default
hereunder, to place upon the Premises ordinary "For Lease" signs and
to show the Premises to prospective tenants. The above rights are
subject to security regulations imposed upon Tenant by any
governmental agency, it being understood that Tenant will advise
Landlord in writing as
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to such security regulations, and to the requirement that Landlord
shall at all times act in a manner to avoid unreasonable
interference with Tenant's business. Landlord shall not be liable to
Tenant for any entry permitted hereunder unless the loss or damage
to Tenant therefrom is the direct result of the negligence or
willful misconduct of Landlord or Landlord's Agents, and provided
that in no case shall Landlord be responsible to Tenant for any lost
profits, damage to Tenant's business, or any other consequential
damages. Landlord's entry shall not be construed to be a forcible or
unlawful entry into, or a detainer of, the Premises.
ESTOPPEL 25. Tenant shall have ten (10) days following written request by
CERTIFI- Landlord to:
CATES
(i) Execute and deliver to Landlord any documents, including
estoppel certificates, in the form prepared by Landlord (a)
certifying that this Lease is unmodified and in full force and
effect or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and
effect and the date to which the Rent and other charges are paid in
advance, if any, and (b) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord,
or, if there are uncured defaults on the part of the Landlord,
stating the nature of such uncured defaults, and (c) certifying any
other matters pertaining to this Lease as to which Tenant has actual
knowledge and as may be reasonably required either by a lender
making a loan to Landlord to be secured by deed of trust or mortgage
covering the Premises or a purchaser of the Premises from Landlord.
Tenant's failure to deliver an estoppel certificate within ten
(10) days after delivery of Landlord's written request therefor
shall be conclusive upon Tenant (a) that this Lease is in full force
and effect, without modification except as may be represented by
Landlord, (b) that there are now no uncured defaults in Landlord's
performance and (c) that no Rent has been paid in advance.
(ii) Deliver to Landlord the most current financial
statements of Tenant, and financial statements of the two (2) years
prior to such current financial statements, including current and
past balance sheets and profit and loss statements, all prepared in
accordance with generally accepted accounting principles
consistently applied. If Tenant has any financial statements for
such periods as to which a certified public accountant has expressed
an opinion, Tenant shall provide such statements to Landlord.
TRANSFER 26. In the event of any conveyance of the Premises and assignment
OF THE by Landlord of this Lease, Landlord shall be and is hereby entirely
PREMISES released from all liability under any and all of its covenants and
BY obligations contained in or derived from this Lease occurring after
LANDLORD the date of such conveyance and assignment.
LAND- 27. If Tenant shall at any time fail to make any payment or
LORD'S perform any other act on its part to be made or performed under this
RIGHT TO Lease within any applicable cure period provided herein, Landlord
PERFORM may, but shall not be obligated to and without waiving or releasing
TENANT'S Tenant from any obligation of Tenant under this Lease, make such
COVENANTS payment or perform such other act to the extent Landlord may deem
desirable, and in connection therewith, pay reasonable expenses and
employ counsel. To compensate Landlord for its administrative and
direct expenses of such performance, Tenant shall pay 105% of all
sums so paid by Landlord and all penalties, interest and costs in
connection therewith, together with interest thereon at the Interest
Rate from the date of payment by Landlord to the date of payment
thereof by Tenant to Landlord, plus collection costs and attorneys'
fees, within
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twenty (20) days of request therefor by Landlord. Landlord shall
have the same rights and remedies for the nonpayment thereof as in
the case of default in the payment Of Rent.
TENANT'S 28. If Landlord shall fail to perform any covenant, term, or
REMEDY condition Of this Lease upon Landlord's part to be performed, Tenant
shall be required to deliver to Landlord written notice of the same.
If, as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out
of the proceeds of sale received upon execution of such judgment and
levied thereon against the right, title and interest of Landlord in
the Project and out of Rent or other income from such property
receivable by Landlord or out of consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Project, and neither Landlord nor
its Agents shall be liable for any deficiency.
SECURITY 29. Tenant has deposited with Landlord the sum of Sixteen Thousand
DEPOSIT One Hundred Forty-Six and 35/100ths Dollars ($16,146.35) as the
Security Deposit for the full and faithful performance of every
provision of this Lease to be performed by Tenant. Title to the
Security Deposit has been transferred to Landlord subject only to
Tenant's right to the return of the Security Deposit as set forth
below. If Tenant defaults with respect to any provision of this
Lease, Tenant's right to the return of the Security Deposit shall
terminate to the extent of any payments due hereunder, and Landlord
may apply all or any part of the Security Deposit for the payment of
any Rent or other sum in default, the repair of such damage to the
Premises or 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 other loss or damage which Landlord may
suffer by reason of Tenant's default to the full extent permitted by
law. If any portion of the Security Deposit is so applied, Tenant
shall, within ten (10) days after written demand therefor, deposit
cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to
keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If
Tenant is not otherwise in default, the Security Deposit or any
balance thereof shall be returned to Tenant at its last address
known to Landlord within thirty (30) days of termination of the
Lease.
FINANCIAL 30. Tenant represents and warrants that all financial information
COVENANTS provided by Tenant to Landlord prior to execution of this Lease is
true and complete and fairly represents the actual financial
condition of Tenant as of the date specified therein. Tenant agrees
that any misrepresentation to Landlord as to Tenant's financial
condition, or any failure to provide financial information required
to be provided by Tenant hereunder shall constitute a default under
this Lease. Tenant agrees that in the event that Tenant fails to
perform any obligation of Tenant hereunder, or if Tenant commits any
act or omission or is the subject of any information which, in the
judgment of Landlord, raises any reasonable question as to whether
Tenant's financial condition has materially changed for the worse
since the execution of this Lease or whether Tenant will have
sufficient financial resources to meet its obligations under this
Lease and its financial obligations generally, then Tenant shall
within ten (10) days after receipt of a written request from
Landlord furnish Landlord with any financial information requested
by Landlord and reasonably available to Tenant.
PARKING 31. Tenant shall be provided on a non-exclusive basis and at no
additional cost with forty-one (41) nonreserved automobile parking
spaces in the Project's parking facilities. Tenant agrees not to
overburden the parking facilities and to cooperate
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with Landlord and other tenants in the use of the parking
facilities. Landlord reserves the right in its absolute discretion
to determine whether the parking facilities are becoming crowded and
to allocate and assign parking spaces among Tenant and the other
tenants, or to impose validated parking restrictions or parking
charges.
QUIET 32. Landlord covenants that Tenant, upon performing the terms,
ENJOY- conditions and covenants of this Lease, shall have quiet and
MENT peaceful possession of the Premises as against any person claiming
the same by, through or under Landlord.
MODIFI- 33. If, in connection with obtaining financing for the Premises or
CATIONS any portion thereof, Landlord's lender shall request reasonable
FOR modification to this Lease as a condition to such financing, Tenant
LENDER shall not unreasonably withhold, delay or defer its consent thereto,
provided such modifications do not materially adversely affect
Tenant's rights hereunder, or increase the amount of Rent to be paid
by Tenant hereunder.
SIGNS 34. Landlord shall provide for Tenant an exterior Tenant
identification sign located on the Premises. Tenant shall not
maintain a Tenant identification sign in any other location in, on
or about the Premises and shall not display or erect any other
Tenant identification sign, display or other advertising material
that is visible from the exterior of the Building. The size, design,
color and other physical aspects of the Tenant identification sign
shall be subject to the Landlord's written approval prior to
installation, which shall not be unreasonably withheld or delayed,
giving due regard to the Building's architecture and color scheme,
the CC&R's, and any appropriate municipal or other governmental
approvals. The cost of the sign, its installation, maintenance and
removal expense shall be Tenant's sole expense. If Tenant fails to
maintain its sign, or if Tenant fails to remove its sign upon
termination of this Lease, Landlord may do so at Tenant's expense
and Tenant shall reimburse Landlord for such amounts as Additional
Rent. Such reimbursement shall include all sums disbursed, incurred
or deposited by Landlord including Landlord's costs, expenses and
reasonable attorneys' fees with interest thereon from the date of
such expenditure at the Interest Rate.
ACCEP- 35. Delivery of this Lease, duly executed by Tenant, together with
TANCE payment of the Monthly Rent for the first month of this Lease and
the Security Deposit required hereunder, constitutes an offer to
lease the Premises, and under no circumstances shall such delivery
and payment be deemed to create an option or reservation to lease
the Premises for the benefit of Tenant. This Lease shall only become
effective and binding upon full execution hereof by Landlord and
delivery of a signed copy to Tenant. If Landlord declines said
offer, any such payments shall be returned to Tenant.
RECORDING 36. Neither party shall record this Lease nor a short form
memorandum thereof.
QUITCLAIM 37. Upon any termination of this Lease, Tenant shall, at
Landlord's request, execute, have acknowledged and deliver to
Landlord a quitclaim deed of the Premises.
BROKERS 38. Except as disclosed in the Lease Summary attached hereto,
Landlord and Tenant represent and warrant to each other that it has
had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease and that it knows of no real
estate broker or agent who is or might be entitled to a commission
in connection with this Lease. Landlord and Tenant agree to
indemnify and hold harmless each other, and Landlord's Agents, from
and against any and all liabilities or expenses, including
reasonable attorneys' fees and costs, arising out of or
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in connection with claims made by any broker or individual for
commissions or fees resulting from the execution of this Lease.
GENERAL 39. A. CAPTIONS. The captions and headings used in this Lease
are for the purpose of convenience only and shall not be construed
to limit or extend the meaning of any part of this Lease.
B. EXECUTED COPY. Any fully executed copy of this Lease
shall be deemed an original for all purposes.
C. SEPARABILITY. In case any one or more of the provisions
contained herein, except for the payment of Rent, shall for any
reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had
not been contained herein.
D. CHOICE OF LAW. This Lease shall be construed and
enforced in accordance with the laws of the State of California. The
language in all parts of this Lease shall in all cases be construed
as a whole according to its fair meaning and not strictly for or
against either Landlord or Tenant.
E. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular
includes the plural.
F. BINDING EFFECT. The covenants and agreement contained in
this Lease shall be binding on the parties hereto and on their
respective successors and assigns to the extent this Lease is
assignable.
G. WAIVER. No covenant, term or condition of this Lease
shall be deemed to have been waived by Landlord unless such waiver
is in writing and signed by Landlord. The waiver by Landlord of any
breach of any term, condition or covenant of this Lease shall not be
deemed to be a waiver of such provision or any subsequent breach of
the same or any other term, condition or covenant of this Lease.
Landlord shall have the right to accept Monthly Rent and other
payments due from Tenant hereunder with knowledge of a preceding
breach of this Lease, and no such acceptance shall be deemed an
express or implied waiver of such breach unless such waiver is in
writing and signed by Landlord. No further reservation of rights
shall be required of Landlord under this Lease to reserve all rights
and remedies of Landlord arising with respect to such preceding
breach.
H. NON-LIABILITY OF LIMITED PARTNERS. Tenant acknowledges
that Landlord is a California limited partnership ("Partnership").
Tenant further acknowledges that it is aware that, under the
California Revised Limited Partnership Act, limited partners are not
liable for any obligations of the Partnership. Accordingly, Tenant
agrees to look only to the Partnership and its general partners for
the collection of any monies which may become due under it, and that
it will not assert any claim against the limited partners of the
Partnership by reason this Lease.
I. ENTIRE AGREEMENT. Except as set forth in the Letter
Agreements, (_____, ____). This Lease is the entire agreement
between the parties, and this Lease expressly supersedes all prior
negotiations, representations and agreements of the parties
respecting the Premises or the Project. Except as set forth in the
Letter Agreements, (_____, ____). There are no agreements or
representations between the parties except as expressed herein.
Except as set forth in the Letter Agreements, (_____, ____). Except
as otherwise provided herein, no subsequent change or addition to
this Lease shall be binding unless in writing and signed by the
parties hereto.
26
<PAGE> 31
J. AUTHORITY. If Tenant is a corporation or a partnership,
each individual executing this Lease on behalf of said corporation
or partnership, as the case may be, represents and warrants that he
is duly authorized to execute and deliver this Least on behalf of
said entity in accordance with its corporate bylaws, statement of
partnership or certificate of limited partnership, as the case may
be, and that this Lease is binding upon said entity in accordance
with its terms. Landlord, at its option, may require a copy of such
written authorization to enter into this Lease. The failure of
Tenant to deliver the same to Landlord within ten (10) business days
of Landlord's written request therefor shall be deemed a default
under this Lease. If Landlord is a corporation or a partnership,
each individual executing this Lease on behalf of said corporation
or partnership, as the case may be, represents and warrants that he
is duly authorized to execute and deliver this Lease on behalf of
said entity in accordance with its corporate bylaws, statement of
partnership or certificate of limited partnership, as the case may
be, and that this Lease is binding upon said entity in accordance
with its terms. Tenant, at its option, may require a copy of such
written authorization to enter into this Lease. The failure of
Landlord to deliver the same to Tenant within ten (10) business days
of Tenant's written request therefore shall be deemed a default
under this Lease.
K. EXHIBITS. All exhibits, amendments, riders and addenda
attached hereto are hereby incorporated herein and made a part
hereof.
L. LEASE SUMMARY. The Lease Summary attached to this Lease
is intended to provide general information only. In the event of any
inconsistency between the Lease Summary and the specific provisions
of this Lease, the specific provisions of this Lease shall prevail.
M. SURVIVAL. Landlord's and Tenant's covenants shall
survive termination of this Lease where reasonably appropriate to
accomplish the purpose thereof.
N. TIME. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
0. NO JURY TRIAL. Landlord and Tenant hereby waive their
respective right to trial by jury of any cause of action, claim,
counterclaim or cross-complaint in any action, proceeding and/or
hearing brought by either Landlord against Tenant or Tenant against
Landlord on any matter whatsoever arising out of, or in any way
connected with, this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any law, statute, or
regulation, emergency or otherwise, now or hereafter in effect.
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
Dated: 7/19/93 SIGNAL PHARMACEUTICALS, INC.,
----------------- a California corporation
By: /s/ MARK D. CARMAN
------------------------------------
Its: V.P. Operations
-------------------------------
By:
------------------------------------
Its:
-------------------------------
27
<PAGE> 32
LANDLORD:
Dated: 7/3/93 SORRENTO VALLEY BUSINESS PARK,
---------------- a California limited partnership
By: /s/ ROBERT COURSON
------------------------------------
Its: General Partners
-------------------------------
By:
------------------------------------
Its:
-------------------------------
28
<PAGE> 33
THE PREMISES
[MAP DIAGRAM]
EXHIBIT A
<PAGE> 34
THE PROJECT
[MAP DIAGRAM]
EXHIBIT B
<PAGE> 35
THE PROJECT
[MAP DIAGRAM]
EXHIBIT B
<PAGE> 36
EXHIBIT "C"
WORK LETTER AGREEMENT
1. Tenant's Work. Tenant at its cost (subject to Landlord's
contribution provided in Paragraph 3 below) shall perform tenant improvement
work for the Premises in accordance with plans and specifications approved by
Landlord and Tenant. Tenant's work shall include, without limitation, all design
and space planning work, all interior partitions, interior doors, corridor
entrance doors, cabinets, lock sets and latch sets, electrical outlets,
telephone outlets, light fixtures, heating ventilation and air conditioning
distribution ducting and heat pumps, plumbing, any fire protection system other
than Landlord's existing sprinkler system, any modifications to Landlord's
sprinkler system, floor coverings, perimeter and interior wall surfaces, and
Building Standard window coverings.
2. Standards for Tenant's Work. Tenant's work shall be completed
pursuant to the following provisions:
(a) Tenant shall prepare and submit to Landlord two (2) sets of
final plans and specifications showing the architectural design of the Premises,
including the basic mechanical system and electrical system within the Premises,
plumbing, partitions and doors, complete fixturing information, and material
selections and finishes. Within five (5) working days after receipt of such
final plans and specifications, Landlord shall approve or suggest modifications
to such final plans and specifications. Landlord shall not unreasonably refuse
or delay approval of Tenant's final plans and specifications. Tenant may object
to any of the suggested modifications by notice to Landlord within five (5)
working days after receipt of such suggested modifications, and unless Tenant so
objects such suggested modifications shall be deemed approved by Tenant. Tenant
shall also submit all proposed change orders in writing (with sufficient detail
to enable Landlord to understand the nature of the proposed change) to Landlord
for Landlord's prior written approval, which shall not be unreasonably refused
or delayed. Landlord's consent shall not be required for any change order for
work costing less than Five Thousand Dollars ($5,000.00), provided that there
are no more than five (5) such change orders in any thirty (30) day period. Any
proposed change order shall be deemed approved by Landlord unless Landlord
disapproves same within three (3) business days after the proposed change order
is received by Landlord, provided that Tenant's notice requesting approval of
such change order clearly notifies Landlord that the proposed change order shall
be deemed approved if not disapproved within such three (3) business day period.
The individuals to whom Tenant shall submit plans and specifications for
approval shall be Robert E. Courson, with a copy to Cindy Jacob, and the
individual to whom Landlord shall communicate regarding plans and specifications
shall be either Jackie Johnson or Bruce Birch. While Landlord has the right to
approve the plans and specifications, Landlord's sole interest in doing so is to
protect the Building and Landlord's interests. Accordingly, Tenant shall not
rely on Landlord's approvals and Landlord shall not be the guarantor of, nor in
any way responsible for, the accuracy or correctness of any such plans and
specifications, or the compliance thereof with applicable laws, and Landlord
shall incur no liability of any kind by reason of granting any such approvals.
(b) Tenant shall complete all work in accordance with the final
plans and specifications approved by Landlord. Tenant shall make no alterations,
additions, or reinforcements to the structure of the Building except as
specifically approved by Landlord in such final plans and specifications.
Tenant, at its expense, shall procure all building and other permits required
for completion of Tenant's work. Tenant agrees that all work done by Tenant and
its contractors and subcontractors shall be performed in full compliance with
all laws, rules, orders, permits, ordinances, directions, regulations and
requirements of all governmental agencies, offices, and departments having
jurisdiction, including without limitation applicable provisions pertaining to
use of hazardous or toxic materials during construction, and in full compliance
with rules, orders, directions, regulations and requirements of any insurance
underwriting
<PAGE> 37
board, inspection bureau or insurance carrier insuring the Premises or Building.
(c) At least thirty (30) days before commencement of construction,
Tenant shall submit to Landlord the names and addresses of the general,
mechanical, and electrical contractors which Tenant intends to engage for
construction of Tenant's improvements, the commencement date of construction,
and the estimated date of completion of construction. Landlord shall have the
right to enter the Premises at any time to post any notice of nonresponsibility
or other notice on the Premises during Tenant's construction. All contractors
and subcontractors retained by Tenant shall be subject to the approval of
Landlord, which shall not be unreasonably refused or delayed. Landlord hereby
consents that Tenant may employ David Begent & Co. as general contractor. All
contractors retained by Tenant shall be bondable, licensed contractors,
possessing good labor relations and capable of performing quality workmanship
and working in harmony with Landlord's general contractor and other contractors.
(d) During the course of construction, Tenant shall maintain
builder's risk insurance in form and content satisfactory to Landlord. Tenant's
insurance shall name Landlord as an additional insured and shall provide that it
may not be canceled or amended without twenty (20) days prior written notice to
Landlord. At least ten (10) days prior to commencement of construction, Tenant
shall provide Landlord with a certificate of such insurance and evidence of any
required bonds in form satisfactory to Landlord. Tenant or Tenant's contractor
shall provide to Landlord a surety bond issued by a company acceptable to
Landlord guaranteeing performance of its construction obligations and payment
for all work and materials to be provided to the job.
(e) Tenant's work shall be completed with reasonable diligence and
in such a manner as not to interfere with the use or enjoyment of other portions
of the Building or common areas by Landlord or other tenants. Tenant's
contractors shall provide and pay for all temporary power, water, and other
utility facilities as required in connection with the construction of Tenant's
improvements. Tenant's contractors shall provide their own, dumpster for
collection and disposition of construction debris, which shall be located at a
location approved by Landlord, and all construction debris from Tenant's
construction shall be disposed of in Tenant's contractor's dumpster and not in
trash facilities for the Project. Tenant's contractor's construction material,
tools, equipment, and debris shall be stored only within the Premises, or in
areas designated for that purpose by Landlord. Work space exterior to the
Premises shall be available only in the discretion of Landlord. Tenant's work
shall be subject to the inspection of Landlord and Landlord's architect and
general contractor during the course of construction.
(f) Tenant shall indemnify and hold harmless Landlord for any and
all claims arising from Tenant's work as provided in Paragraph 12.A and
Paragraph 18 of the Lease. Tenant's construction contracts shall include a
similar indemnification from its contractors for the benefit of Landlord. Tenant
shall pay for all damage to the Building, the Project, or appurtenant areas or
equipment, as well as all damage to tenants or occupants thereof or their
property caused by Tenant, its agents, employees, contractors, licensees, or
invitees. Tenant acknowledges that Tenant's obligation set forth in Paragraph 18
of the Lease to keep the Building and Premises free of all liens shall include,
but not be limited to, an obligation at Tenant's expense to obtain and record a
release bond as provided in Section 3143 of the California Civil Code or other
provision of law, as requested by Landlord.
(g) Tenant shall be solely responsible for the adequacy in all
respects of the final plans and specifications, including without limitation
compliance with all governmental requirements, compatibility with the Building
shell, and any special requirements of Tenant's proposed improvements, equipment
or machines with respect to ambient temperatures, electrical use or current,
water availability or otherwise. Tenant acknowledges that in connection with
obtaining Landlord's approval of the final plans and specifications, Tenant may
provide Landlord with certain information regarding its specific needs relating
to the Premises in
<PAGE> 38
developing plans and specifications for its improvements and that Tenant may
provide some of its own equipment for installation in the Premises. Tenant
further acknowledges that Landlord will make no independent review of any such
information and that Landlord does not warrant, either expressly or impliedly,
the adequacy of the plans and specifications for the said improvements, or the
adequacy of Tenant's improvements or Tenant's equipment for Tenant's intended
purpose.
(h) All improvements made pursuant hereto shall during the term of
this Lease, as it may be extended, constitute the property of Tenant. Upon
expiration or termination of this Lease, however, unless Landlord shall require
the removal or consent in writing to the removal thereof by Tenant, all such
improvements shall remain in place and the ownership thereof shall revert to
Landlord.
3. Landlord's Contribution. Landlord shall contribute to the cost of
Tenant's Work an improvement allowance ("Allowance") in an amount equal to Five
Hundred Thousand Dollars ($500,000). Any and all costs associated with Tenant's
Work in excess of such contribution shall be paid by Tenant. Landlord's
contribution shall be paid on behalf of Tenant directly to Tenant's architect or
Tenant's general contractor as the case may be. Payments by Landlord shall be
made not more often than monthly and shall be made on the basis of billings for
work completed which are approved by Tenant and submitted to Landlord together
with evidence reasonably satisfactory to Landlord of completion of the work for
which the billing is submitted. Payments to Tenant's general contractor shall be
made on a percentage of work completed basis (that is, for example, upon
completion of 20% of Tenant's total work Tenant shall be entitled to 20% of
Landlord's contribution to the cost of such work) pursuant to the standard
procedures for percentage of completion disbursements using forms adopted by the
American Institute of Architects or other procedures required by Landlord, each
payment to be made within twenty (20) days after presentation to Landlord of the
following:
(a) A certificate of Tenant's general contractor showing the
percentage of Tenant's work which has been completed pursuant to the approved
plans and specifications, or other evidence satisfactory to Landlord that the
specified percentage of the improvements have been completed pursuant to the
approved plans and specifications.
(b) Evidence of payment by Tenant of the portion, if any, of such
progress payment to be made by Tenant.
(c) Partial waivers to date of all mechanic's and materialmen's
liens of any kind (which may be conditional upon payment as to the work
currently invoiced but shall be unconditional as to all previously invoiced
work) in form and substance satisfactory to Landlord and Landlord's construction
lender.
(d) Any other documentation reasonably required by Landlord.
Before commencement of Tenant's construction, the total cost of
construction, and Landlord's contribution as a percentage of such total cost
("Landlord's Percentage"), shall be determined by Landlord, with the total job
cost as the denominator and Landlord's contribution as the numerator. In no
event shall any payment to Tenant's architect or any construction progress
payment by Landlord exceed Landlord's Percentage of the total progress billing
submitted by Tenant's contractor.
Landlord shall withhold ten percent of the Allowance until completion of
all of Tenant's work and the lien-free expiration of the time for the filing of
any mechanics' liens claimed or which might be filed on account of any work
ordered by Tenant or its contractors or subcontractors.
The cost of any change orders shall be paid by Tenant to the extent the
cost thereof is not included within the Allowance. If any change order
materially changes the total cost of construction, Landlord's Percentage shall
be redetermined by Landlord and Landlord's disbursements shall thereafter be
made in such amounts that the aggregate Landlord's disbursements do not exceed
the aggregate amount required under the
<PAGE> 39
foregoing procedure. Tenant shall be liable for that portion of all taxes levied
against its improvements.
4. Adjustment of Commencement Date. The Commencement Date shall be
delayed by one (1) business day for each business day of actual delay in the
design or construction of the tenant improvement work that is caused by any
Force Majeure Delay or Landlord Delay. "Force Majeure Delay" shall mean any
actual delay which is attributable to any: (i) actual, industry-wide strike,
lockout or other labor or industrial disturbance, civil disturbance, act of the
public enemy, war, riot, sabotage, blockade, or embargo; (ii) earthquake, fire,
hurricane, tornado, flood, explosion, or other casualty beyond the control of
the party for whom performance is required or of its contractors or other
representatives. No Force Majeure Delay shall be deemed to have occurred unless
and until the party claiming such Force Majeure Delay has provided written
notice to the other party specifying the action or inaction that such notifying
party contends constitutes a Force Majeure Delay. If such action or inaction is
not cured within two (2) business days after receipt of such notice, then a
Force Majeure Delay, as set forth in such notice, shall be deemed to have
occurred commencing as of the date after such notice was received and continuing
for the number of days the substantial completion of the Premises was in fact
delayed as a direct result of such action or inaction.
"Landlord Delay" as used in this Agreement shall mean actual delay in the
design or construction of the Tenant Improvement Work directly attributable to
Landlord's failure to approve or disapprove the tenant improvement plans within
the time periods provided in paragraph 2 (a) hereof. No Landlord Delay shall be
deemed to have occurred unless and until Tenant has given written notice to
Landlord specifying the action or inaction which Tenant contends constitutes a
Landlord delay. If such action or inaction is not cured within two (2) business
days after Landlord's receipt of such notice, then a Landlord Delay, as set
forth in such notice, shall be deemed to have occurred commencing as of the date
after Landlord receives such notice and continuing for the number of days
substantial completion of the Premises was in fact delayed as a direct result of
such action or inaction.
5. No Fee to Landlord. Except as otherwise provided herein, Landlord
shall receive no fee for supervision, profit, overhead or general conditions in
connection with the tenant improvements work.
6. No Miscellaneous Charges. Neither Tenant nor its contractor shall be
charged by Landlord for parking (to the extent parking is available) or for the
use of electricity, water or HVAC during the construction of the tenant
improvements.
<PAGE> 40
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
LANDLORD: SORRENTO VALLEY BUSINESS PARK, a limited partnership
TENANT: SIGNAL PHARMACEUTICALS, INC., a California corporation
LEASE DATE: April 30, 1993
PREMISES: 5555 Oberlin Drive, Suite 100
San Diego, California
Pursuant to Paragraph 3.C. of the above referenced Lease, the Commencement
Date is hereby established as ___________________________, 19___.
LANDLORD:
SORRENTO VALLEY BUSINESS PARK,
a California limited partnership
By: /s/ ROBERT COURSON
-------------------------------------
Its: General Partner
---------------------------------
By:
-------------------------------------
Its:
---------------------------------
TENANT:
SIGNAL PHARMACEUTICALS, INC.,
a California corporation
By: /s/ MARK D. CARMAN
-------------------------------------
Its: V.P. Operations
---------------------------------
By:
-------------------------------------
Its:
---------------------------------
<PAGE> 41
EXHIBIT "E"
TENANT IMPROVEMENT PLAN
[PRELIMINARY FLOOR PLAN]
<PAGE> 42
EXHIBIT F
[PREMISE MAP DIAGRAM]
<PAGE> 43
ADDENDUM TO LEASE
THIS IS AN ADDENDUM TO THAT CERTAIN LEASE ("LEASE") DATED APRIL 30, 1993,
BY AND BETWEEN SORRENTO VALLEY BUSINESS PARK, A CALIFORNIA LIMITED PARTNERSHIP
("LANDLORD"), AND SIGNAL PHARMACEUTICALS, INC., A CALIFORNIA CORPORATION
("TENANT"), WITH RESPECT TO THOSE CERTAIN PREMISES LOCATED AT 5555 OBERLIN
DRIVE, SUITE 100, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA.
The terms of this Addendum are hereby incorporated into and made a part of
the Lease, and shall supersede any inconsistent provisions of the Lease.
Capitalized terms not otherwise defined herein shall have the meanings
attributed thereto in the Lease.
1. Option to Extend. Landlord hereby grants to Tenant the option to
renew this lease for two (2) additional consecutive terms of three (3) years
each. The base monthly rent payable for each year of each option term exercised
shall be adjusted annually, commencing with the commencement of the first
extended term, by multiplying the base monthly rent payable for the last month
prior to such adjustment, by 1.05. All other terms and conditions of the
original Lease shall be the same, except that Tenant will not be provided any
tenant improvement dollars or free rent for extending the term of their Lease.
This extension is only valid provided that the Tenant is not in default under
the Lease at the time the option is exercised, and at any such time from
Tenant's exercise of the option to the commencement date of the option term.
This option must be exercised by written notice to Landlord, accompanied by a
payment of first month's rental for the extended term, no earlier than one
hundred eighty (180) days, and no later than one hundred twenty (120) days prior
to the expiration of the applicable term of the Lease. The option granted in
this paragraph shall be terminated and of no further force and effect if at any
time provided herein for the exercise of the option by Tenant, any federal,
state or local law or regulation invalidates or modifies any provision of the
option. Tenant shall have no right to extend the term of the lease beyond the
additional terms set forth above.
2. Right of First Refusal. Landlord hereby grants to Tenant a right of
first refusal, on the terms and conditions herein set forth, on the office area
in the Building adjacent to the Premises comprising approximately 4,585 rentable
square feet, and identified on Exhibit F hereto as the "First Refusal Area". If,
during the term of this Lease, Landlord reasonably expects that any portion of
the First Refusal Area shall become available for lease (as hereinafter defined)
, Landlord shall offer to lease such area to Tenant at the then prevailing
rental rate and terms and conditions then offered by Landlord for new leases of
comparable space within the Building, as follows: Landlord shall give Tenant
written notice describing the additional area available for lease ("Additional
Area" hereafter), and stating the terms and conditions (including anticipated
availability date) upon which the Additional Area is offered for lease to
Tenant. Within five (5) business days after such notice is given, Tenant may
accept such offer by written notice to Landlord accompanied by payment of one
month's rental. Office area subject to this paragraph shall be deemed to become
available upon expiration or other termination of a lease to another tenant
covering the First Refusal Area or any part of it, taking into account any
renewals or extensions of such lease or new lease of such office area to such
existing tenant, and vacation of such office area by such tenant.
Notwithstanding any provisions of this paragraph, it is understood and agreed
that the right of refusal to lease all or any part of First Refusal Area set
forth in this paragraph shall at Landlord's option terminate and be of no
further force or effect if:
A. Landlord gives Tenant a written notice of the availability of
all or any part of the First Refusal Area, and Tenant does not
notify Landlord, in writing, of Tenant's acceptance of such
area when and as hereinabove provided, time being of the
essence.
B. At any time that any portion of the First Refusal Area becomes
or is available until an "Amendment to Lease" is executed,
Tenant is in default in the performance of any of
<PAGE> 44
the covenants, conditions or agreements to be performed under
this Lease;
C. At any time provided herein for exercise of the right of
refusal by Tenant, any federal, state, or local law or
regulation invalidates or modifies any provision of the
foregoing right of first refusal. It is understood and agreed
that if Tenant fails to exercise its right of refusal as to
any area which becomes available to lease pursuant to this
paragraph, the right of refusal shall terminate completely as
to the entire First Refusal Area and this paragraph shall be
of no further force or effect. It is further understood and
agreed that if part, but not all, of the First Refusal Area
becomes available to lease under this paragraph, and Tenant
exercises its right to lease such area as herein provided, the
right of refusal granted herein shall remain in effect as to
the remainder of the First Refusal Area until such area
becomes available to lease as provided herein.
D. The original term of the Lease expires or is terminated.
3. Additional Security. As additional security for the performance of
Tenant's obligations under this Lease, in addition to the cash security deposit
provided by Tenant pursuant to Paragraph 29 of the Lease, Tenant shall upon
execution of this Lease deposit with Landlord an irrevocable standby letter of
credit ("Letter of Credit") in the face amount of One Hundred Fifty Thousand
Dollars ($150,000) issued by a financial institution reasonably acceptable to
Landlord in form acceptable to Landlord, which shall permit Landlord to draw any
amount necessary to compensate Landlord for a breach of Tenant on the sole
condition that Landlord deliver to such institution a signed statement by
Landlord certifying that Tenant has breached an obligation under this Lease. The
term of the Letter of Credit shall be renewed annually, and, subject to the
remaining provisions of this paragraph, Tenant shall deliver to Landlord at
least 30 business days before such Letter of Credit is scheduled to expire a
renewal or replacement thereof in terms and amount identical to the initial
Letter of Credit. Landlord shall be entitled to draw the entire amount of the
Letter of Credit if Tenant should fail to renew or replace the Letter of Credit
prior to its expiration. If Tenant shall have faithfully observed and performed
all of the terms and conditions of this Lease, then, at the end of the
twenty-fourth (24th) month of the Lease term, Tenant shall be entitled to
replace the existing Letter of Credit with a Letter of Credit in the face amount
of one Hundred Thousand Dollars ($100,000) and otherwise upon the same terms of
the initial Letter of Credit. Thereafter, and subject to the same condition that
Tenant shall have faithfully observed and performed under the Lease, Tenant may,
at the end of the thirty-sixth (36th) month of the Lease term, substitute a
Letter of Credit in the amount of Fifty Thousand Dollars ($50,000), and, ten
(10) business days after the end of the forty-eighth (48th) month of the Lease
term, subject to the same condition that Tenant shall have faithfully observed
and performed under the Lease, Tenant may permit the Letter of Credit to expire
without replacement.
4. Annual Cap on Controllable Outside Area Expenses. The amount payable
by Tenant under this Lease as Tenant's Project Percentage of controllable
Outside Area Expenses shall not increase by more than five percent (5%) per
annum during the Lease term.
5. Subordination, Non-Disturbance, Attornment Agreement. Landlord shall
use its commercially reasonable efforts to obtain and provide to Tenant prior to
occupancy of the Premises a Subordination, Non-Disturbance and Attornment
Agreement from Landlord's lender.
[SIG] [SIG]
- ------------------------------ -------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
<PAGE> 45
Letter Agreement
July 2, 1993
Mr. Robert Courson
2882 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Dear Bob:
As we have agreed, Signal will sign the lease that we have negotiated over
the past several weeks (a copy of which is attached as Exhibit A). As Dr.
Johnson has discussed with you, we have not yet closed on the total amount of
the A2 round. Accordingly, our financial position is temporarily impaired.
Signal will post its Letter of Credit upon closing the remainder of the A2
round; however, this will not occur for 60 days.
Based on your conversation with Dr. Johnson, the following interim plan
will serve as a basis for our ongoing relationship:
1. Signal Pharmaceuticals, Inc. will sign the Lease by and between
Sorrento Valley Business Park and Signal Pharmaceuticals for the 10,417 sq. ft.
premises at 5555 Oberlin Drive, San Diego, CA 92121 (a copy of which is attached
as Exhibit A) (the "Lease"). It is expressly understood and acknowledged by both
parties, however, that the terms of the Lease are subordinate to the further
terms set forth in this Letter Agreement.
2. Signal will assume all financial responsibility for the planning and
permitting process which will start immediately upon your signing the contract
with McGraw Baldwin Architectural Firm.
<PAGE> 46
Mr. Robert Courson Page 2.
July 2, 1993
3. During this 60 day period which will commence July 5, 1993, Signal
will be moving ahead with planning and permitting (at our expense) but will not
start any actual tenant improvements.
4. At the posting of the $150,000.00 Letter of Credit (the "Letter of
Credit"), the tenant improvements can begin. TI payments will be made as
detailed in the Lease with The Courson Company and Signal paying on a formula
based on $500,000.00 of TI money from Courson Co. and the remainder
(approximately $189,000.00) from Signal Pharmaceuticals.
5. Signal Pharmaceuticals expects to begin paying rent on December 1,
1993 as outlined in the Lease.
6. With respect to obligations incurred as a result of the signing of
the Lease, the total liability incurred by Signal Pharmaceuticals or those
associated with Signal over this interim 60 day period is the Security Deposit
of $16,146.35. This Security Deposit is enclosed. In the event that Signal is
for any reason unable to post the Letter of Credit within such interim 60 day
period, the parties will negotiate in good faith with respect to whether they
should continue their relationship under the Lease. In the event that the
parties are unable to reach agreement with respect thereto, the Lease and this
Letter Agreement will terminate and neither party shall have any further
liability or obligation with respect to the Lease or this Letter Agreement.
Thank you for your cooperation.
Sincerely,
SIGNAL PHARMACEUTICALS, INC.
/s/ LUKE EVNIN
------------------------------
Luke Evnin, President and
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
/s/ ROBERT COURSON
- ------------------------------
Mr. Robert Courson
Sorrento Valley Business Park
<PAGE> 47
[HOFFMAN, FINNEY & KLINEDINST LETTERHEAD]
July 7, 1993
VIA FEDERAL EXPRESS
Jacqueline Johnson, Ph.D.
Signal Pharmaceuticals, Inc.
11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
RE: Lease of Premises at 5555 Oberlin Drive, San Diego,
California 92121
Dear Dr. Johnson:
As we discussed this morning, enclosed please find four counterparts of
the Lease and Letter Agreement between Sorrento Valley Business Park and
Signal Pharmaceuticals, Inc. and one original of the Architect's Agreement
dated June 21, 1993, all of which have been signed by Sorrento Valley Business
Park.
As a follow-up to your discussions with Bob Courson, these documents are
executed and being delivered to you by the Landlord subject to the following
understanding:
1. Signal Pharmaceuticals is presently unable to post the required
letter of credit. You have advised the Landlord that you are now in
the process of finalizing a license agreement which will trigger the
release of financing that will enable you to post the $150,000.00
letter of credit as required under Paragraph 3 of the Addendum. You
mentioned to me this morning that you expect this process to take
less than the 60 day period ("Contingency Period") indicated
in the Letter Agreement.
2. References to "The Courson Company" are hereby deemed replaced with
"Sorrento Valley Business Park" in each place they occur in the
Letter Agreement.
3. Notwithstanding anything to the contrary in the Lease or Letter
Agreement, if for any reason Signal Pharmaceuticals fails to deliver
to Landlord the letter
<PAGE> 48
Jacqueline Johnson, Ph.D.
July 7, 1993
Page 2
of credit on or before September 5, 1993 then Landlord may retain the
Security Deposit, Signal will provide Landlord with all plans,
specifications and permits developed and obtained or in process, and,
at Landlord's option, Landlord may terminate the Lease with no
liability whatsoever to Signal, including, without limitation, any
liability or obligation respecting any amounts incurred by Signal in
connection with the Premises, for its tenant improvement costs, or
otherwise.
4. Notwithstanding anything to the contrary in Paragraph 4 of the Letter
Agreement, Signal Pharmaceuticals shall be responsible for all costs
associated with the improvement work in excess of the Allowance.
5. Notwithstanding Paragraph 5 of the Letter Agreement, rent shall be
paid starting with the earlier of December 1, 1993, or the date
Tenant begins to use the Premises for the conduct of its business, as
provided in the Lease.
6. Paragraph 6 of the Letter Agreement is hereby deemed deleted.
7. Notwithstanding execution of the Architect Agreement (Proposal for
Professional Services dated June 21, 1993, Project 93482) by
Landlord, if the Lease is terminated by Landlord pursuant to this
letter, the Architect Agreement shall thereupon be void and of no
further force and affect. All costs and expenses incurred in
connection therewith during the Contingency Period shall be Signal's
sole responsibility, and the Architect shall look solely to Signal
for payment thereof. Signal shall obtain the Architect's confirmation
of this provision, to be signified by the Architect's execution of
this letter in the space provided below.
Please countersign four counterparts of the enclosed photocopy of this
letter, obtain the Architect's signature below,
<PAGE> 49
Jacqueline Johnson, Ph.D.
July 7, 1993
Page 3
and return two original execution counterparts of the Lease, and the July 2 and
this letter agreement to my attention at your earliest convenience. Please call
me if you have any questions.
Very truly yours,
/s/ CHARLES P. SANDEL
----------------------
Charles P. Sandel
CPS/nlh
Enclosure
AGREED: Signal Pharmaceuticals, Inc.
By: [SIG]
-------------------------------
Its: Vice President Operations
-------------------------------
AGREED as to Paragraph 76 above:
McGraw/Baldwin Architects
By: [SIG]
-------------------------------
Its: Principal
-------------------------------
<PAGE> 50
[HOFFMAN, FINNEY & KLINEDINST LETTERHEAD]
July 19, 1993
Jacqueline Johnson, Ph.D.
Signal Pharmaceuticals, Inc.
11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
RE: LEASE OF PREMISES AT 5555 OBERLIN DRIVE
Dear Dr. Johnson:
I have not yet received countersigned copies of the Lease, and the July 2,
and July 7 letter agreements regarding the captioned Premises.
Please telephone me at your earliest convenience.
Very truly yours,
/s/ CHARLES P. SANDEL
--------------------------
Charles P. Sandel
CPS/psl
<PAGE> 51
[HOFFMAN, FINNEY & KLINEDINST LETTERHEAD]
July 7, 1993
VIA FEDERAL EXPRESS
Jacqueline Johnson, Ph.D.
Signal Pharmaceuticals, Inc.
11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
RE: LEASE OF PREMISES AT 5555 OBERLIN DRIVE, SAN DIEGO, CALIFORNIA 92121
Dear Dr. Johnson:
As we discussed this morning, enclosed please find four counterparts of
the Lease and Letter Agreement between Sorrento Valley Business Park and Signal
Pharmaceuticals, Inc. and one original of the Architect's Agreement dated June
21, 1993, all of which have been signed by Sorrento Valley Business Park.
As a follow-up to your discussions with Bob Courson, these documents are
executed and being delivered to you by the Landlord subject to the following
understanding:
1. Signal Pharmaceuticals is presently unable to post the required
letter of credit. You have advised the Landlord that you are now in
the process of finalizing a license agreement which will trigger the
release of financing that will enable you to post the $150,000.00
letter of credit as required under Paragraph 3 of the Addendum. You
mentioned to me this morning that you expect this process to take
less than the 60 day period ("Contingency Period") indicated in the
Letter Agreement.
2. References to "The Courson Company" are hereby deemed replaced with
"Sorrento Valley Business Park" in each place they occur in the
Letter Agreement.
3. Notwithstanding anything to the contrary in the Lease or Letter
Agreement, if for any reason Signal Pharmaceuticals fails to deliver
to Landlord the letter
<PAGE> 52
Jacqueline Johnson, Ph.D.
July 7, 1993
Page 2
of credit on or before August 15, 1993, then Landlord may retain the
Security Deposit, Signal will provide Landlord with all plans,
specifications and permits developed and obtained or in process,
and, at Landlord's option, Landlord may terminate the Lease with no
liability whatsoever to Signal, including, without limitation, any
liability or obligation respecting any amounts incurred by Signal in
connection with the Premises, for its tenant improvement costs, or
otherwise.
4. Notwithstanding anything to the contrary in Paragraph 4 of the
Letter Agreement, Signal Pharmaceuticals shall be responsible for
all costs associated with the improvement work in excess of the
Allowance.
5. Notwithstanding Paragraph 5 of the Letter Agreement, rent shall be
paid starting with the earlier of December 1, 1993, or the date
Tenant begins to use the Premises for the conduct of its business,
as provided in the Lease.
6. Paragraph 6 of the Letter Agreement is hereby deemed deleted.
7. Notwithstanding execution of the Architect Agreement (Proposal for
Professional Services dated June 21, 1993, Project 93482) by
Landlord, if the Lease is terminated by Landlord pursuant to this
letter, the Architect Agreement shall thereupon be void and of no
further force and effect. All costs and expenses incurred in
connection therewith during the Contingency Period shall be Signal's
sole responsibility, and the Architect shall look solely to Signal
for payment thereof. Signal shall obtain the Architect's
confirmation of this provision, to be signified by the Architect's
execution of this letter in the space provided below.
Please countersign four counterparts of the enclosed photocopy of this
letter, obtain the Architect's signature below,
<PAGE> 53
Jacqueline Johnson, Ph.D.
July 7, 1993
Page 3
and return two original execution counterparts of the Lease, and the July 2 and
this letter agreement to my attention at your earliest convenience. Please call
me if you have any questions.
Very truly yours,
/s/ CHARLES P. SANDEL
--------------------------
Charles P. Sandel
CPS/nlh
Enclosure
AGREED:
Signal Pharmaceuticals, Inc.
By: /s/ [SIG]
--------------------------------
Its: V.P. Operations
-------------------------------
AGREED as to Paragraph 7 above:
McGraw/Baldwin Architects
By: [SIG]
--------------------------------
Its: Principal
-------------------------------
<PAGE> 54
SIGNAL PHARMACEUTICALS INC.
11545 Sorrento Valley Rd. Ste. 315
San Diego, CA 92121
Charles P. Sandel
Hoffman, Finney & Klinedinst
Attorneys at Law
351 California St.
San Francisco, CA 94104
<PAGE> 55
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") dated as of November 4, 1994
is entered into by and between Sorrento Valley Business Park, a California
limited partnership ("Landlord") , and Signal Pharmaceuticals, Inc., a
California corporation ("Tenant"), and is made with reference to the following
facts:
Recitals
A. Landlord and Tenant previously entered into a Lease dated April 30,
1993 ("Lease") pursuant to which Tenant has leased from Landlord certain
premises consisting of approximately 10,417 rentable square feet and sometimes
referred to as Suite 100 ("Existing Premises"), located in a building at 5555
Oberlin Drive, San Diego, California 92121 ("Building"). Unless otherwise
indicated, capitalized terms herein shall have the same meanings as in the
Lease.
B. Tenant desires to lease additional space in the Building consisting
of approximately 4,341 rentable square feet, as updated (down from 4,585
rentable sq. ft.) and sometimes referred to as Suite 114 ("New Premises"),
pursuant to the right of first refusal set forth in paragraph 2 of the Addendum
to Lease also dated April 30, 1993 ("Addendum"). Unless otherwise expressly
indicated in this Amendment, any reference herein to the Lease shall be deemed
to refer to both the Lease and the Addendum.
C. Landlord and Tenant desire to amend the Lease to provide for the New
Premises, an extension of the Lease term and certain other matters, all as set
forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. New Premises and Its Term. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the New Premises, the location of which is
indicated on the diagram of the Building attached hereto as Exhibit 1. The term
of such lease of the New Premises shall be for a period of six (6) years
("6-Year Term"), commencing on the earlier to occur of (i) substantial
completion of the "Tenant Improvements" (described in paragraph 7 below) or (ii)
February 1, 1995 (which earlier date is hereinafter referred to as the
"Extension Commencement Date"). When the actual Extension Commencement Date is
determined, the parties shall execute a memorandum setting forth such date which
shall be attached to this Amendment at that time.
2. Extension of Term for Existing Premises. The expiration date of the
term for Tenant's lease of the Existing Premises shall be extended to coincide
with the expiration date of the term for the New Premises. Accordingly, the term
of the lease of the Existing Premises shall likewise expire at the end of the
6-Year Term.
3. Base Monthly Rent. Beginning on and as of the Extension Commencement
Date and continuing thereafter throughout the 6-Year Term, the Tenant shall pay
to Landlord as minimum Monthly Rent for the entire Premises (consisting of both
the Existing Premises and New Premises) for each calendar month, the amount of
$25,158.15 ($1.70 per square foot) per month, subject to adjustment as provided
below, in advance, on the first day of each calendar month during the 6-Year
Term. Such Monthly Rent for the entire Premises is calculated and allocated as
follows: (1) $16,953.66 Monthly Rent for the Existing Premises (10,417 rentable
sq. ft. @ $1.63); and (2) $8,204.49 Monthly Rent for the New Premises (4,341
rentable sq. ft. @ $1.89). Monthly Rent for any partial month shall be prorated
and paid in advance on the Extension Commencement Date.
4. Rental Adjustments for Existing Premises. The base Monthly Rent for
the Existing Premises shall continue to be adjusted during the 6-Year Term in
the same manner as provided in Paragraph 19 of the Lease. Accordingly, as of the
beginning of the second lease year measured from the Extension Commencement
Date, the base Monthly Rent for the Existing Premises shall be adjusted annually
by multiplying the base Monthly Rent (for the Existing Premises) in effect
immediately prior to such adjustment by 1.05. For example, the base Monthly Rent
for the Existing Premises for the second lease year of the 6-Year Term shall be
$17,801.34 ($16,953.66 x 1.05) per month.
- 1 -
<PAGE> 56
5. CPI Adjustment for New Premises. The base Monthly Rent for the New
Premises shall be adjusted upwards (but not downwards) at the beginning of each
lease year during the 6-Year Term commencing with the second lease year of the
6-Year Term (hereinafter called the "Adjustment Date"), based upon and in direct
proportion to any increase in the Consumer Price Index (1988 Revised CPI for
Urban Wage Earners and Clerical Workers - Los Angeles - Anaheim - Riverside All
Items - 1982-84 = 100) established by the United States Department of Labor,
Bureau of Labor Statistics, or any similar successor index established by any
other agency of the United States Government, measured by the difference between
the Index for the month in which the 6-Year Term begins and the Index for the
month of the Adjustment Date. The calculation of such increase in Monthly Rent
shall be made by multiplying the initial base Monthly Rent for the New Premises
($8,204.49) by a fraction whose denominator is the Index for the month in which
the 6-Year Term begins and whose numerator is the Index for the month of the
Adjustment Date. Following the publication of such Index for the month of the
Adjustment Date, Landlord shall calculate and notify Tenant of the amount of the
base Monthly Rent payable per month for the New Premises, as so adjusted
(hereinafter called the "Adjusted Rent") during said lease year. Pending receipt
by Tenant of such calculation and notice from Landlord, Tenant shall continue to
pay, in advance, the same base Monthly Rent per month as paid during the prior
lease year for the New Premises. Upon receipt of such calculation and notice,
Tenant shall commence to pay the Adjusted Rent per month, and shall also pay
such additional amount as may be necessary to increase the base Monthly Rent
payments already made during said period to the amount of the Adjusted Rent, so
that said increase shall be effective retroactively from the Adjustment Date.
Provided, however, in no event shall the percentage increase as determined
herein be less than 4% nor more than 6% from one lease year to the next.
6. Additional Rent. Any base Monthly Rents specified above are
exclusive of all further or additional rents for the 6-Year Term, which rents
the Tenant shall also be obligated to pay in accordance with the Lease and this
Amendment. Provided further, for the 6-Year Term, the percentages chargeable to
Tenant for "Additional Rent" (as referred to in the Lease) shall be as follows:
Tenant's Building Percentage - 64.54%
Tenant's Project Percentage - 14.12%
For the 6-Year Term, the amount payable by Tenant as Tenant's Project Percentage
(14.12%) of controllable Outside Area Expenses shall not increase by more than
5% per annum during the 6-Year Term.
7. Tenant Improvements for New Premises. The Landlord shall contribute
to the cost of the proposed tenant improvements in the New Premises as further
described on Exhibit 2 hereto ("Tenant Improvements") an allowance in the
aggregate sum of up to $284,034.89. Any and all costs associated with the Tenant
Improvements in excess of such contribution by Landlord shall be paid by Tenant.
Tenant shall promptly cause to be prepared plans and specifications for such
Tenant Improvements in accordance with the Work Letter Agreement attached hereto
as Exhibit 3 and incorporated by reference herein.
8. Letter of Credit. The $150,000 Letter of Credit referred to in
paragraph 3 of the Addendum shall remain on deposit with Landlord and shall
continue to be renewed annually by Tenant (at least 30 business days before any
expiration thereof) in the full face amount of $150,000 without any reduction,
except as otherwise provided immediately below. If Tenant shall have faithfully
observed and performed all of the terms and conditions of the Lease (including
this Amendment), then, at the end of the fifty-second (52nd) month of the 6-Year
Term, the Tenant shall be entitled to replace the existing Letter of Credit with
a Letter of Credit in the face amount of $100,000 and otherwise upon the same
terms as the initial Letter of Credit. Thereafter, and subject to the same
condition that Tenant shall have faithfully observed and performed under the
Lease (including this Amendment), Tenant may, at the end of the sixty-second
(62nd) month of the 6-Year Term, substitute a Letter of Credit in the amount of
$50,000 and otherwise upon the same terms as the initial Letter of Credit.
Additionally, when the existing Letter of Credit is next renewed, the incorrect
reference therein to "Lease Agreement dated July 19, 1993", shall be corrected
to read "Lease dated April 30, 1993". Except as otherwise
- 2 -
<PAGE> 57
provided in this paragraph 8, all provisions of paragraph 3 of the Addendum
shall continue to apply to the Letter of Credit, which may be drawn upon by
Landlord as provided in such paragraph of the Addendum. None of the provisions
of the Addendum have been modified or otherwise affected by this Amendment
except as specifically provided herein.
9. Right of First Offer On Additional Space (Suites 116 and 120).
Reference is made to certain additional space in the Building consisting of
approximately 8,341 rentable square feet sometimes referred to as Suite 116
(2,560 rentable sq. ft.) and Suite 120 (5,781 rentable sq. ft.) as further
indicated on the diagram attached as Exhibit 1 ("Additional Premises") . The
Additional Premises is leased by Landlord to Mizuho USA, Inc. ("Mizuho") who is
now in possession thereof. If prior to any termination or expiration of the
Lease the Landlord receives notice from Mizuho or otherwise itself reasonably
determines that Mizuho intends by a date certain to vacate the Additional
Premises, the Landlord shall promptly give written notice to Tenant specifying
the basic terms and conditions ("Landlord's Offer") under which Landlord would
then be willing to lease the Additional Premises to Tenant. Tenant may accept or
reject Landlord's Offer by giving written notice to Landlord at any time prior
to the expiration of thirty (30) days ("30-Day Period") immediately following
the date on which Landlord gives its written notice specifying the Landlord's
Offer. If Tenant does not so accept Landlord's Offer within the 30-Day Period
and/or if Tenant does not give any written notice to Landlord prior to the
expiration of the 30-Day Period, the Landlord's Offer shall be deemed withdrawn,
rejected and revoked. In such event, Landlord shall not have any further
obligation to Tenant of any kind relating to or concerning the Additional
Premises and Landlord may then or thereafter market or otherwise use the
Additional Premises in any manner as Landlord may desire in its sole and
absolute discretion.
10. Prior Exercise of Right of First Refusal for New Premises. Tenant
acknowledges that it has exercised its right of first refusal to lease the space
in the Building which is the New Premises. Accordingly, paragraph 2 of the
Addendum is hereby cancelled and shall be of no further force or effect.
11. Change of Landlord's Address. For the purpose of giving any notice or
demand to Landlord under the Lease (including this Amendment), the Landlord's
address is hereby changed to and designated as: Sorrento Valley Business Park,
c/o Pardee Brothers, 8530 Wilshire Boulevard, Suite 509, Beverly Hills,
California 90211, Attn: Hoyt S. Pardee.
12. Full Force and Effect. The Lease, as modified herein, shall be and
remain in full force and effect. All of the terms and provisions set forth in
the Lease shall apply to the New Premises except as otherwise indicated in this
Amendment. Without limiting the generality of the foregoing and except as
otherwise indicated herein, the term "Premises" as used in the Lease shall be
deemed to include both the Existing Premises and the New Premises.
13. Counterparts. This Amendment may be executed in counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date set forth above.
"Tenant": "Landlord":
SIGNAL PHARMACEUTICALS, INC., SORRENTO VALLEY BUSINESS PARK,
a California corporation a California limited partnership
By HSP Sorrento, Inc. a Cal. corp.
By /s/ BRADLEY B. GORDON General Partner
--------------------------
Title V.P. Finance, CFO By [SIG]
----------------------- ------------------------------------
Title President
----------------------------------
- 3 -
<PAGE> 58
[PREMISE MAP DIAGRAM]
EXHIBIT 1
<PAGE> 59
TENANT IMPROVEMENTS FOR NEW PREMISES (Suite 114)
Tenant Improvements per plans and specifications dated 10/13/94 prepared and
submitted by David Begent & Co. (DBC)
Tenant Improvements to be provided are outlined as follows:
<TABLE>
<S> <C>
Architecture & Engineering (DBC) $ 25,000 *
Fees & Permits 15,000 *
Base Construction Contract (DBC) 306,982
Lyline (millwork) 63,379
Protection One (fire-life safety) 3,990
-------
TOTAL TENANT IMPROVEMENTS $414,351
</TABLE>
* current estimates
EXHIBIT 2
<PAGE> 60
WORK LETTER AGREEMENT
1. Tenant's Work. Tenant at its cost (subject to Landlord's
contribution provided in Paragraph 3 below) shall perform tenant improvement
work for the New Premises in accordance with plans and specifications approved
by Landlord and Tenant. Tenant's work shall include, without limitation, all
design and space planning work, all interior partitions, interior doors,
corridor entrance doors, cabinets, lock sets and latch sets, electrical outlets,
telephone outlets, light fixtures, heating ventilation and air conditioning
distribution ducting and heat pumps, plumbing, any fire protection system other
than Landlord's existing sprinkler system, any modifications to Landlord's
sprinkler system, floor coverings, perimeter and interior wall surfaces, and
Building Standard window coverings.
2. Standards for Tenant's Work. Tenant's work shall be completed
pursuant to the following provisions:
(a) Tenant shall prepare and submit to Landlord two (2) sets of
final plans and specifications showing the architectural design of the New
Premises, including the basic mechanical system and electrical system within the
New Premises, plumbing, partitions and doors, complete fixturing information,
and material selections and finishes. Within five (5) working days after receipt
of such final plans and specifications, Landlord shall approve or suggest
modifications to such final plans and specifications. Landlord shall not
unreasonably refuse or delay approval of Tenant's final plans and
specifications. Tenant may object to any of the suggested modifications by
notice to Landlord within five (5) working days after receipt of such suggested
modifications, and unless Tenant so objects such suggested modifications shall
be deemed approved by Tenant. Tenant shall also submit all proposed change
orders in writing (with sufficient detail to enable Landlord to understand the
nature of the proposed change) to Landlord for Landlord's prior written
approval, which shall not be unreasonably refused or delayed. Landlord's consent
shall not be required for any change order for work costing less than Five
Thousand Dollars ($5,000), provided that there are no more than five (5) such
change orders in any thirty (30) day period. Any proposed change order shall be
deemed approved by Landlord unless Landlord disapproves same within three (3)
business days after the proposed change order is received by Landlord, provided
that Tenant's notice requesting approval of such change order clearly notifies
Landlord that the proposed change order shall be deemed approved if not
disapproved within such three (3) business day period. The individuals to whom
Tenant shall submit plans and specifications for approval shall be Elizabeth A.
Gallagher, with a copy to Hoyt S. Pardee, and the individual to whom Landlord
shall communicate regarding plans and specifications shall be either Jackie
Johnson or Bruce Birch. While Landlord has the right to approve the plans and
specifications, Landlord's sole interest in doing so is to protect the Building
and Landlord's interests. Accordingly, Tenant shall not rely on Landlord's
approvals and Landlord shall not be the guarantor of, nor in any way responsible
for, the accuracy or correctness of any such plans and specifications, or the
accuracy or correctness of any such plans and specifications, or the compliance
thereof with applicable laws, and Landlord shall incur no liability of any kind
by reason of granting any such approvals.
(b) Tenant shall complete all work in accordance with the final
plans and specifications approved by Landlord. Tenant shall make no alterations,
additions, or reinforcements to the structure of the Building except as
specifically approved by the Landlord in such final plans and specifications.
Tenant, at its expense, shall procure all building and other permits required
for completion of Tenant's work. Tenant agrees that all work done by Tenant and
its contractors and subcontractors shall be performed in full compliance with
all laws, rules, orders, permits, ordinances, directions, regulations and
requirements of all governmental agencies, offices and departments having
jurisdiction, including without limitation applicable provisions pertaining to
use of hazardous or toxic materials during construction, and in full compliance
with rules, orders, directions,
EXHIBIT 3
<PAGE> 61
regulations and requirements of any insurance underwriting board, inspection
bureau or insurance carrier insuring the New Premises or Building.
(c) Tenant shall immediately submit to Landlord the names and
addresses of the general, mechanical, and electrical contractors which Tenant
intends to engage for construction of Tenant's improvements, the commencement
date of construction, and the estimated date of completion of construction.
Landlord shall have the right to enter the New Premises at any time to post any
notice of nonresponsibility or other notice on the New Premises during Tenant's
construction. All contractors and subcontractors retained by Tenant shall be
subject to the approval of Landlord, which shall not be unreasonably refused or
delayed. Landlord hereby consents that Tenant may employ David Begent & Co. as
general contractor. All contractors retained by Tenant shall be bondable,
licensed contractors, possessing good labor relations and capable of performing
quality workmanship and working in harmony with Landlord's general contractor
and other contractors.
(d) During the course of construction, Tenant shall maintain
builder's risk insurance in form and content satisfactory to Landlord. Tenant's
insurance shall name Landlord as an additional insured and shall provide that it
may not be canceled or amended without twenty (20) days prior written notice to
Landlord. Prior to commencement of construction, Tenant shall provide Landlord
with a certificate of such insurance and evidence of any required bonds in form
satisfactory to Landlord.
(e) Tenant's work shall be completed with reasonable diligence
and in such a manner as not to interfere with the use or enjoyment of other
portions of the Building or common areas by Landlord or other tenants. Tenant's
contractors shall provide and pay for all temporary power, water, and other
utility facilities as required in connection with the construction of Tenant's
improvements. Tenant's contractors shall provide their own dumpster for
collection and disposition of construction debris, which shall be located at a
location approved by Landlord, and all construction debris from Tenant's
construction shall be disposed of in Tenant's contractor's dumpster and not in
trash facilities for the Project. Tenant's contractor's construction material,
tools, equipment, and debris shall be stored only within the New Premises, or in
areas designated for that purpose by Landlord. Work space exterior to the New
Premises shall be available only in the discretion of Landlord. Tenant's work
shall be subject to the inspection of Landlord and Landlord's architect and
general contractor during the course of construction.
(f) Tenant shall indemnify and hold harmless Landlord for any and
all claims arising from Tenant's work as provided in Paragraph 12.A and
Paragraph 18 of the Lease. Tenant's construction contracts shall include a
similar indemnification from its contractors for the benefit of Landlord. Tenant
shall pay for all damage to the Building, the Project, or appurtenant areas or
equipment, as well as all damage to tenants or occupants thereof or their
property caused by Tenant, its agents, employees, contractors, licensees, or
invitees. Tenant acknowledges that Tenant's obligation set forth in Paragraph 18
of the Lease to keep the Building and Premises (including the New Premises) free
of all liens shall include, but not be limited to, an obligation at Tenant's
expense to obtain and record a release bond as provided in Section 3143 of the
California Civil Code or other provision of law, as requested by Landlord.
(g) Tenant shall be solely responsible for the adequacy in all
respects of the final plans and specifications, including without limitation
compliance with all governmental requirements, compatibility with the Building
shell, and any special requirements of Tenant's proposed improvements, equipment
or machines with respect to ambient temperatures, electrical use or current,
water availability or otherwise. Tenant acknowledges that in connection with
obtaining Landlord's approval of the final plans and specifications, Tenant may
provide Landlord with certain information regarding its specific needs relating
to the New Premises in developing plans and specifications for its improvements
and that Tenant may Provide some of its own equipment for installation in the
New Premises. Tenant further acknowledges that Landlord will make no independent
review of any such information and that Landlord does not warrant, either
expressly or impliedly, the adequacy of the plans and specifications for the
said
- 2 -
<PAGE> 62
improvements, or the adequacy of Tenant's improvements or Tenant's equipment for
Tenant's intended purpose.
(h) All improvements made pursuant hereto shall during the term of
this Lease, as it may be extended, constitute the property of Tenant. Upon
expiration or termination of this Lease, however, unless Landlord shall require
the removal or consent in writing to the removal thereof by Tenant, all such
improvements shall remain in place and the ownership thereof shall revert to
Landlord.
(i) Tenant shall provide Landlord with a complete copy of "as
built" construction drawings at the completion of the tenant improvement work.
3. Landlord's Contribution. Landlord shall contribute to the cost of
Tenant's work for the New Premises an improvement allowance ("Allowance") in an
amount equal to $284,034.89. Any and all costs associated with Tenant's work in
excess of such Allowance shall be paid by Tenant. The Allowance shall be paid
directly to Tenant as reimbursement to it for such costs actually paid by
Tenant, as further specified below. Payments by Landlord shall be made not more
often than monthly and shall be made on the basis of billings for work completed
which are approved and paid by Tenant and submitted to Landlord together with
evidence reasonably satisfactory to Landlord of completion of the work for which
the billing is submitted and Tenant's prior payment thereof. For each such
billing Landlord shall pay to Tenant as reimbursement to it an amount equal to
sixty-nine and one-tenth percent (69.1%) of the full amount of such billing
previously paid by Tenant (but in no event more than the aggregate sum of
$284,034.89 as and for the Allowance), each payment to be made within twenty
(20) days after presentation to Landlord of the following:
(a) A certificate of Tenant's general contractor showing the
portion of Tenant's work which has theretofore been completed pursuant to the
approved plans and specifications or other evidence satisfactory to Landlord
specifying the portion of the improvements theretofore completed pursuant to the
approved plans and specifications.
(b) Evidence of prior payment by Tenant of the full amount of such
billing.
(c) Partial waivers to date of all mechanic's and materialmen's
liens of any kind (which may be conditional upon payment as to the work
currently invoiced but shall be unconditional as to all previously invoiced
work) in form and substance satisfactory to Landlord.
(d) Any other documentation reasonably required by Landlord.
Landlord shall withhold ten percent of the Allowance until completion of
all of Tenant's work and the lien-free expiration of the time for the filing of
any mechanics' liens claimed or which might be filed on account of any work
ordered by Tenant or its contractors or subcontractors. The cost of any change
orders shall be paid by Tenant without any reimbursement to the extent the cost
thereof is not included within the Allowance. Tenant shall be liable for that
portion of all taxes levied against its improvements.
4. Adjustment of Extension Commencement Date. The Extension
Commencement Date shall be delayed by one (1) business day for each business day
of actual delay in the design or construction of the tenant improvement work for
the New Premises that is caused by any Force Majeure Delay. "Force Majeure
Delay" shall mean any actual delay which is attributable to any: (i) actual,
industry-wide strike, lockout or other labor or industrial disturbance, civil
disturbance, act of the public enemy, war, riot, sabotage, blockade, or embargo;
(ii) earthquake, fire, hurricane, tornado, flood, explosion, or other casualty
beyond the control of the party for whom performance is required or of its
contractors or other representatives. No Force Majeure Delay shall be deemed to
have occurred unless and until the party claiming such Force Majeure Delay has
provided written notice to the other party specifying the action or inaction
that such notifying party contends constitutes a Force Majeure Delay. If such
action or inaction is not cured within two (2) business days after receipt of
such notice, then a Force Majeure Delay, as set forth in such notice, shall be
deemed to have
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occurred commencing as of the date after such notice was received and continuing
for the number of days the substantial completion of the tenant improvement work
for the New Premises was in fact delayed as a direct result of such action or
inaction.
5. No Fee to Landlord. Except as otherwise provided herein, Landlord
shall receive no fee for supervision, profit, overhead or general conditions in
connection with the tenant improvement work.
6. No Miscellaneous Charges. Neither Tenant nor its contractor shall be
charged by Landlord for parking (to the extent parking is available) or for the
use of electricity, water or HVAC during construction of the tenant improvements
for the New Premises.
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SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment") dated as of May 31, 1996 is
entered into by and between Sorrento Valley Business Park, a California limited
partnership ("Landlord") , and Signal Pharmaceuticals, Inc., a California
corporation ("Tenant") , and is made with reference to the following facts:
Recitals
A. Landlord and Tenant previously entered into a Lease dated April 30,
1993 ("Lease") pursuant to which Tenant has leased from Landlord certain
premises consisting of approximately 10,417 rentable square feet and sometimes
referred to as Suite 100 ("Existing Premises"), located in a building at 5555
Oberlin Drive, San Diego, California 92121 ("Building") . Landlord and Tenant
previously executed the First Amendment to Lease dated November 4, 1994,
pursuant to which Tenant has leased from Landlord approximately 4,341 square
feet and sometimes referred to as Suite 114 ("New Premises") . Unless otherwise
indicated, capitalized terms herein shall have the same meanings as in the
Lease.
B. Tenant desires to lease additional space in the Building consisting
of approximately 8,341 rentable square feet, and sometimes referred to as Suites
116 and 120 ("Additional Premises"), pursuant to the right of first offer set
forth in paragraph 9 of the First Amendment to Lease dated November 4, 1994.
Unless otherwise expressly indicated in this Amendment, any reference herein to
the Lease shall be deemed to refer to both the Lease and the First Amendment to
Lease.
C. Landlord and Tenant desire to amend the Lease to provide for the
Additional Premises.
NOW, THEREFORE, the parties hereby agree as follows:
1. Additional Premises and Its Term. Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord the Additional Premises, the location of
which is indicated on the diagram of the Building attached hereto as Exhibit 1.
The term of such lease of the Additional Premises shall be for a period of
fifty-six (56) months, commencing June 1, 1996 and ending January 31, 2001 (the
"56-Month Term").
2. Base Monthly Rent for Additional Premises. Tenant shall pay to
Landlord as minimum Monthly Rent including all annual rental adjustments for the
Additional Premises for each calendar month, payable monthly in advance, the
following:
a. Except as hereinafter provided, no base rent shall be payable
during the period commencing June 1, 1996 through September 30 , 1996.
b. $4,170.50 ($0.50 NNN per square foot) per month commencing
October 1, 1996 through December 31, 1996.
c. $13,429.01 ($1.61 NNN per square foot) per month commencing
January 1, 1997 through December 31, 1997.
d. $13,929.47 ($1.67 NNN per square foot) per month commencing
January 1, 1998 through December 31, 1998.
e. $14,513.34 ($1.74 NNN per square foot) per month commencing
January 1, 1999 through December 1999.
f. $15,097.21 ($1.81 NNN per square foot) per month commencing
January 1, 2000 through December 31, 2000.
g. $15,681.08 ($1.88 NNN per square foot) for the month
commencing January 1, 2001 through January 31, 2001.
3. Additional Rent. Any base Monthly Rents specified above are
exclusive of all further or additional rents for the 56-month Term, which rents
the Tenant shall also be obligated to pay in accordance with the Lease and this
Amendment. Provided further, for the 56-month Term, the percentages chargeable
to Tenant for "Additional Rent" (as referred to in the Lease) for the Additional
Premises shall be as follows:
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<PAGE> 65
Tenant's Building Percentage - 100%
Tenant's Project Percentage - 22.13%
For the 56-month Term, the amount payable by Tenant as Tenant's Project
Percentage (22.13%) of controllable Outside Area Expenses shall not increase by
more than 5% per annum during the 56-month Term.
4. Tenant Improvements for New Premises. After September 30, 1996, the
Landlord shall contribute to the cost of the proposed tenant improvements in the
Additional Premises ("Tenant Improvements") an allowance in the aggregate sum of
up to $300,000.00. Any and all costs associated with the Tenant Improvements in
excess of such contribution by Landlord shall be paid by Tenant. Tenant shall
cause to be prepared plans and specifications for such Tenant Improvements in
accordance with the Work Letter Agreement attached hereto as Exhibit 2 and
incorporated by reference herein.
5. Letter of Credit. The $150,000 Letter of Credit on deposit with
Landlord shall secure Tenant's obligations under this Second Amendment to Lease.
6. Prior Exercise of Right of First Refusal for Additional Premises.
Tenant acknowledges that it has exercised its right of first refusal to lease
the space in the Building which is the Additional Premises. Accordingly,
paragraph 9 of the First Amendment to Lease is hereby canceled and shall be of
no further force or effect.
7. Right to Terminate. Notwithstanding anything herein contained to the
contrary, Tenant shall have the right to cancel and terminate the Lease as to
the Additional Premises only on or before September 30, 1996 in the event, and
only in the event, that Tenant's second strategic partnership in inflammation
(the "Strategic Partnership") is not consummated by said date. Such right of
termination shall be exercised, if at all, by notice in writing to Landlord,
which notice shall be certified by an officer of Tenant that the Strategic
Partnership has not been consummated. If such written notice is not received by
Landlord on or before September 30, 1996, this right to terminate shall be
deemed to have been waived, and Tenant shall be bound by the provisions of this
Amendment.
In the event that Tenant exercises such right of termination,
Tenant shall vacate the Additional Premises within thirty (30) days of the date
of such notice, and Tenant shall pay to Landlord as rent for the Additional
Premises the sum of $5,922.11 ($.71 NNN per square foot) per month commencing
June 1, 1996 to the date that Tenant vacates the Additional Premises. Rent for
any partial month shall be prorated.
8. Full Force and Effect. The Lease, as modified herein, shall be and
remain in full force and effect. All of the terms and provisions set forth in
the Lease shall apply to the Additional Premises except as otherwise indicated
in this Amendment. Without limiting the generality of the foregoing and except
as otherwise indicated herein, the term "Premises" as used in the Lease shall be
deemed to include both the Existing Premises, the New Premises, and the
Additional Premises.
9. Counterparts. This Amendment may be executed in counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same agreement.
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<PAGE> 66
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date set forth above.
"Tenant": "Landlord":
SIGNAL PHARMACEUTICALS, INC., SORRENTO VALLEY BUSINESS PARK,
a California corporation a California limited partnership
By HSP Sorrento, Inc. a Cal. corp.
By /s/ BRADLEY B. GORDON 6-17-96 General Partner
------------------------------
Title V.P. Finance, CFO By [SIG]
--------------------------- --------------------------------
Title Vice President
-----------------------------
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<PAGE> 67
[PREMISE MAP DIAGRAM]
<PAGE> 68
WORK LETTER AGREEMENT
1. Tenant's Work. Tenant at its cost (subject to Landlord's
contribution provided in Paragraph 3 below) shall perform tenant improvement
work for the New Premises in accordance with plans and specifications approved
by Landlord and Tenant. Tenant's work shall include, without limitation, all
design and space planning work, all interior partitions, interior doors,
corridor entrance doors, cabinets, lock sets and latch sets, electrical outlets,
telephone outlets, light fixtures, heating ventilation and air conditioning
distribution ducting and heat pumps, plumbing, any fire protection system other
than Landlord's existing sprinkler system, any modifications to Landlord's
sprinkler system, floor coverings, perimeter and interior wall surfaces, and
Building Standard window coverings.
2. Standards for Tenant's Work. Tenant's work shall be completed
pursuant to the following provisions:
(a) Tenant shall prepare and submit to Landlord two (2) sets of
final plans and specifications showing the architectural design of the New
Premises, including the basic mechanical system and electrical system within the
New Premises, plumbing, partitions and doors, complete fixturing information,
and material selections and finishes. Within five (5) working days after receipt
of such final plans and specifications, Landlord shall approve or suggest
modifications to such final plans and specifications. Landlord shall not
unreasonably refuse or delay approval of Tenant's final plans and
specifications. Tenant may object to any of the suggested modifications by
notice to Landlord within five (5) working days after receipt of such suggested
modifications, and unless Tenant so objects such suggested modifications shall
be deemed approved by Tenant. Tenant shall also submit all proposed change
orders in writing (with sufficient detail to enable Landlord to understand the
nature of the proposed change) to Landlord for Landlord's prior written
approval, which shall not be unreasonably refused or delayed. Landlord's consent
shall not be required for any change order for work costing less than Five
Thousand Dollars ($5,000), provided that there are no more than five (5) such
change orders in any thirty (30) day period. Any proposed change order shall be
deemed approved by Landlord unless Landlord disapproves same within three (3)
business days after the proposed change order is received by Landlord, provided
that Tenant's notice requesting approval of such change order clearly notifies
Landlord that the proposed change order shall be deemed approved if not
disapproved within such three (3) business day period. The individuals to whom
Tenant shall submit plans and specifications for approval shall be Elizabeth A.
Gallagher, with a copy to Hoyt S. Pardee, and the individual to whom Landlord
shall communicate regarding plans and specifications shall be either Jackie
Johnson or Bruce Birch. While Landlord has the right to approve the plans and
specifications, Landlord's sole interest in doing so is to protect the Building
and Landlord's interests. Accordingly, Tenant shall not rely on Landlord's
approvals and Landlord shall not be the guarantor of, nor in any way responsible
for, the accuracy or correctness of any such plans and specifications, or the
accuracy or correctness of any such plans and specifications, or the compliance
thereof with applicable laws, and Landlord shall incur no liability of any kind
by reason of granting any such approvals.
(b) Tenant shall complete all work in accordance with the final
plans and specifications approved by Landlord. Tenant shall make no alterations,
additions, or reinforcements to the structure of the Building except as
specifically approved by the Landlord in such final plans and specifications.
Tenant, at its expense, shall procure all building and other permits required
for completion of Tenant's work. Tenant agrees that all work done by Tenant and
its contractors and subcontractors shall be performed in full compliance with
all laws, rules, orders, permits, ordinances, directions, regulations and
requirements of all governmental agencies, offices and departments having
jurisdiction, including without limitation applicable provisions pertaining to
use of hazardous or toxic materials during construction, and in full compliance
with rules, orders, directions,
EXHIBIT 2
<PAGE> 69
regulations and requirements of any insurance underwriting board, inspection
bureau or insurance carrier insuring the New Premises or Building.
(c) Tenant shall immediately submit to Landlord the names and
addresses of the general, mechanical, and electrical contractors which Tenant
intends to engage for construction of Tenant's improvements, the commencement
date of construction, and the estimated date of completion of construction.
Landlord shall have the right to enter the New Premises at any time to post any
notice of nonresponsibility or other notice on the New Premises during Tenant's
construction. All contractors and subcontractors retained by Tenant shall be
subject to the approval of Landlord, which shall not be unreasonably refused or
delayed. Landlord hereby consents that Tenant may employ David Begent & Co. as
general contractor. All contractors retained by Tenant shall be bondable,
licensed contractors, possessing good labor relations and capable of performing
quality workmanship and working in harmony with Landlord's general contractor
and other contractors.
(d) During the course of construction, Tenant shall maintain
builder's risk insurance in form and content satisfactory to Landlord. Tenant's
insurance shall name Landlord as an additional insured and shall provide that it
may not be canceled or amended without twenty (20) days prior written notice to
Landlord. Prior to commencement of construction, Tenant shall provide Landlord
with a certificate of such insurance and evidence of any required bonds in form
satisfactory to Landlord.
(e) Tenant's work shall be completed with reasonable diligence and
in such a manner as not to interfere with the use or enjoyment of other portions
of the Building or common areas by Landlord or other tenants. Tenant's
contractors shall provide and pay for all temporary power, water, and other
utility facilities as required in connection with the construction of Tenant's
improvements. Tenant's contractors shall provide their own dumpster for
collection and disposition of construction debris, which shall be located at a
location approved by Landlord, and all construction debris from Tenant's
construction shall be disposed of in Tenant's contractor's dumpster and not in
trash facilities for the Project. Tenant's contractor's construction material,
tools, equipment, and debris shall be stored only within the New Premises, or in
areas designated for that purpose by Landlord. Work space exterior to the New
Premises shall be available only in the discretion of Landlord. Tenant's work
shall be subject to the inspection of Landlord and Landlord's architect and
general contractor during the course of construction.
(f) Tenant shall indemnify and hold harmless Landlord for any and
all claims arising from Tenant's work as provided in Paragraph 12.A and
Paragraph 18 of the Lease. Tenant's construction contracts shall include a
similar indemnification from its contractors for the benefit of Landlord. Tenant
shall pay for all damage to the Building, the Project, or appurtenant areas or
equipment, as well as all damage to tenants or occupants thereof or their
property caused by Tenant, its agents, employees, contractors, licensees, or
invitees. Tenant acknowledges that Tenant's obligation set forth in Paragraph 18
of the Lease to keep the Building and Premises (including the New Premises) free
of all liens shall include, but not be limited to, an obligation at Tenant's
expense to obtain and record a release bond as provided in Section 3143 of the
California Civil Code or other provision of law, as requested by Landlord.
(g) Tenant shall be solely responsible for the adequacy in all
respects of the final plans and specifications, including without limitation
compliance with all governmental requirements, compatibility with the Building
shell, and any special requirements of Tenant's proposed improvements, equipment
or machines with respect to ambient temperatures, electrical use or current,
water availability or otherwise. Tenant acknowledges that in connection with
obtaining Landlord's approval of the final plans and specifications, Tenant may
provide Landlord with certain information regarding its specific needs relating
to the New Premises in developing plans and specifications for its improvements
and that Tenant may provide some of its own equipment for installation in the
New Premises. Tenant further acknowledges that Landlord will make no independent
review of any such information and that Landlord does not warrant, either
expressly or impliedly, the adequacy of the plans and specifications for the
said
2
<PAGE> 70
improvements, or the adequacy of Tenant's improvements or Tenant's equipment for
Tenant's intended purpose.
(h) All improvements made pursuant hereto shall during the term of
this Lease, as it may be extended, constitute the property of Tenant. Upon
expiration or termination of this Lease, however, unless Landlord shall require
the removal or consent in writing to the removal thereof by Tenant, all such
improvements shall remain in place and the ownership thereof shall revert to
Landlord.
(i) Tenant shall provide Landlord with a complete copy of "as
built" construction drawings at the completion of the tenant improvement work.
3. Landlord's Contribution. Landlord shall contribute to the cost of
Tenant's work for the New Premises an improvement allowance ("Allowance") in an
amount equal to $300,000.00. Any and all costs associated with Tenant's work in
excess of such Allowance shall be paid by Tenant. The Allowance shall be paid
directly to Tenant as reimbursement to it for such costs actually paid by
Tenant, as further specified below. Payments by Landlord shall be made not more
often than monthly and shall be made on the basis of billings for work completed
which are approved and paid by Tenant and submitted to Landlord together with
evidence reasonably satisfactory to Landlord of completion of the work for which
the billing is submitted and Tenant's prior payment thereof. For each such
billing, Landlord shall pay to Tenant as reimbursement to it a fraction of the
full amount of such billing previously paid by Tenant of which $300,000.00 is
the denominator and the total cost of the Tenant Improvements is the numerator
(but in no event more than the aggregate sum of $300,000.00 as and for the
Allowance) , each payment to be made within twenty (20) days after presentation
to Landlord of the following
(a) A certificate of Tenant's general contractor showing the
portion of Tenant's work which has theretofore been completed pursuant to the
approved plans and specifications or other evidence satisfactory to Landlord
specifying the portion of the improvements theretofore completed pursuant to the
approved plans and specifications.
(b) Evidence of prior payment by Tenant of the full amount of such
billing.
(c) Partial waivers to date of all mechanic's and materialmen's
liens of any kind (which may be conditional upon payment as to the work
currently invoiced but shall be unconditional as to all previously invoiced
work) in form and substance satisfactory to Landlord.
(d) Any other documentation reasonably required by Landlord.
Landlord shall withhold ten percent of the Allowance until completion of
all of Tenant's work and the lien-free expiration of the time for the filing of
any mechanics' liens claimed or which might be filed on account of any work
ordered by Tenant or its contractors or subcontractors. The cost of any change
orders shall be paid by Tenant without any reimbursement to the extent the cost
thereof is not included within the Allowance. Tenant shall be liable for that
portion of all taxes levied against its improvements.
4. No Fee to Landlord. Except as otherwise provided herein, Landlord
shall receive no fee for supervision, profit, overhead or general conditions in
connection with the tenant improvement work.
5. No Miscellaneous Charges. Neither Tenant nor its contractor shall be
charged by Landlord for parking (to the extent parking is available) or for the
use of electricity, water or HVAC during construction of the tenant improvements
for the New Premises.
3
<PAGE> 1
EXHIBIT 10.23
[DUPONT LOGO]
MASTER LEASE AGREEMENT
Dated and effective as of July 8, 1993 ("Effective Date"), this MASTER LEASE
AGREEMENT ("Agreement") is entered into by and between E.I. Dupont de Nemours &
Co., a Delaware corporation with offices at Barley Mill Plaza 24-2224,
Wilmington, Delaware 19880-0024, (together with any successor or assignee,
"Lessor") and the Lessee indicated below (together with any successor or
permitted assignee, "Lessee").
LESSEE: LEGAL NAME: Signal Pharmaceuticals, Inc.
TRADE NAME (if any):
ADDRESS: 5555 Oberlin Dr
San Diego, CA 92121
CONTACT AND TELEPHONE: Mark Carman 619-558-7500
LEGAL ENTITY Type: Corporation
State of Organization: CA
Date of Establishment: 7-24-92
LEASE TERMS AND CONDITIONS:
1. LEASING. Subject to the terms of this Agreement, Lessor agrees to
lease to Lessee and Lessee agrees to lease from Lessor the equipment
(collectively, the "Equipment" and individually a "unit of Equipment")
described in any equipment schedule (a "Schedule") signed by Lessee and
approved by Lessor. Each Schedule will incorporate all the terms of this
Agreement and will constitute a separate agreement for lease of the Equipment
(each, a "Lease"). With respect to each Lease, capitalized terms not defined in
this Agreement will have the meanings stated in the applicable Schedule. Unless
it purchases the Equipment under Section 14 ("Options"), Lessee does not have
any right or interest in the Equipment except as a lessee. This Agreement is
effective from the Effective Date, and will continue until all Leases have
terminated or expired.
2. NET LEASE. EACH LEASE IS A NET LEASE. LESSEE IS UNCONDITIONALLY
OBLIGATED TO PAY MONTHLY RENT AND OTHER AMOUNTS DUE UNDER SUCH LEASE REGARDLESS
OF ANY DEFECT OR DAMAGE TO EQUIPMENT, OR LOSS OF POSSESSION, USE OR DESTRUCTION
FROM ANY CAUSE WHATSOEVER. LESSEE'S OBLIGATIONS CONTINUE UNTIL SPECIFICALLY
TERMINATED AS PROVIDED IN SUCH LEASE. LESSEE IS NOT ENTITLED TO ANY ABATEMENT,
REDUCTION, RECOUPMENT, DEFENSE, OR SET-OFF AGAINST MONTHLY RENT OR OTHER
AMOUNTS DUE TO LESSOR OR ITS ASSIGNEE, WHETHER ARISING OUT OF SUCH LEASE OR OUT
OF LESSOR'S STRICT LIABILITY OR NEGLIGENCE, FROM ANY THIRD PARTY, OR OTHERWISE.
3. PURCHASE OF EQUIPMENT. Lessor is not obligated to purchase or lease a
unit of Equipment unless before the Last Funding Date: (i) Lessor receives from
Lessee a fully signed and completed Agreement, a Schedule, and such other
documents as Lessor may require; (ii) Lessor has received from Supplier clear
and unencumbered title to the Equipment; and (iii) there is no Default (Section
13). Provided no Default has occurred, Lessor appoints Lessee as its agent to
inspect and accept the Equipment from Supplier simultaneously with acceptance
of the Equipment for lease hereunder. Unless Lessee advises Lessor in writing
to the contrary within ten (10) days after the date of installation, the
Equipment shall be considered to have been irrevocably accepted by Lessee for
all purposes as of the date of installation. For each Schedule, Lessee
irrevocably authorizes Lessor to adjust the Equipment Price and Total Price by
no more than fifteen percent (15%) to account for equipment change orders or
returns, invoicing errors and similar matters, and agrees to any resulting
adjustments in the TRANSACTION TERMS stated in the applicable Schedule. Lessor
will send Lessee a written notice stating the final Equipment Price, Total
Price and TRANSACTION TERMS, if different from those stated in the applicable
Schedule.
4. TERM AND RENT. (a) The Initial Term begins on the acceptance by the
Lessee of the Equipment (a "Lease Commencement Date"), and continues for the
Initial Term stated in the applicable Schedule. The Monthly Rent accrues from
the Lease Commencement Date. Monthly Rent is payable on the same day of each
month as the Lease Commencement Date. If Monthly Rent is not paid within ten
(10) days of its due date, Lessee agrees to pay a late charge of ten cents
(10 cents) per dollar on, and in addition to, such Monthly Rent, but not
exceeding the lawful maximum, if any. Advance Rent, if any, is applied to the
first Monthly Rent due and then to the final Monthly Rents or, at Lessor's
option, to the payment of any overdue obligation of Lessee. Lessor is not
required to: (i) refund any Advance Rent or Monthly Rent; (ii) pay any interest
on Advance Rent; or (iii) keep Advance Rent in a separate account.
(b) Lessee agrees that the Monthly Rent and Advance Rent have been
calculated on the assumption that the effective corporate income tax rate
(exclusive of any minimum tax rate) for Lessor will be 35%. If Lessor is not
taxed at such tax rate during the Initial Term because of Congressional
enactment of any law, Lessor has the right to increase the Monthly Rent and
Advance Rent and adjust the Casualty Value (Section 8) in such a manner as will
both (i) take into account that such assumption is no longer correct and (ii)
preserve Lessor's after tax economic yields and cash flows. A change in the
Monthly Rent, Advance Rent, or Casualty Value is effective on the effective
date of such law.
(c) At the end of the term of a Lease, or in the event of a Default, until
Lessee has complied with Section 6(d) ("Use, Operation, Return of Equipment")
or has purchased the Equipment pursuant to Section 14 ("Option"), Lessee shall
pay Lessor Monthly Rent, as liquidated damages for lost rentals and not as a
penalty, such payment to be computed on a daily basis (with one day's rent
being 1/30th of the Monthly Rent) until the Equipment is returned or purchased.
Lessee's obligations and all other provisions of this Lease continue until such
time.
(d) Notwithstanding anything to the contrary contained herein, during the
first thirty (30) days from and after the Lease Commencement Date (the
"Satisfaction Guaranteed Period"), Lessee may terminate the Lease for any
reason, provided that: (i) Lessor receives written notice of Lessee's intent to
terminate the lease prior to the end of the Satisfaction Guaranteed Period, and
(ii) Lessee makes the Equipment available to Lessor no later than five (5) days
after the date of such notice in the condition required by Section 6(d)(i).
Upon Lessee's compliance with these conditions, Lessor shall refund any Monthly
Rent previously paid by Lessee and Lessee shall have no further obligation as
to the Equipment.
5. TAXES. Lessee agrees to pay promptly as additional rent all license
and registration fees and all taxes (excluding taxes on Lessor's net income)
together with penalties and interest (collectively, "Taxes") assessed against
Lessor, Lessee, the applicable Lease, the Equipment, the purchase (including
purchase by Lessee), sale, ownership, delivery, leasing, possession, use,
operation or return of the Equipment or its proceeds (such additional rent,
together with Monthly Rent and Advance Rent is hereinafter collectively
referred to as "Rent"). Where permitted by applicable law, except for Type A
Leases, Lessee will report all Taxes. Lessee will reimburse Lessor on demand
for any Taxes paid by Lessor.
Lessee Initials [SIG]
--------
1
<PAGE> 2
6. USE, OPERATION, RETURN OF EQUIPMENT. (a) Lessee agrees at its own
expense to: (i) maintain the Equipment in condition suitable for certification
by the manufacturer (if certification is available) and in any event in good
operating condition; (ii) use the Equipment solely for business purposes, in
the manner for which it was intended and in compliance with all applicable
laws and manufacturer requirements or recommendations; (iii) pay all expenses,
fines, and penalties related to the use, operation, condition or maintenance of
the Equipment; and (iv) comply with all license and copyright requirements of
any software ("Software") used in connection with the Equipment.
(b) Lessee agrees not to attach to the Equipment any accessory, equipment
or device not leased from Lessor unless it is easily removable without
damaging the Equipment. Lessee agrees to pay all costs for parts, alterations,
and additions to the Equipment (including those required by law), all of which
will become the property of Lessor. lessee agrees not to install any Equipment
or Software, if any, inside any other personal property. Lessor and Lessee
intend that the Equipment is to remain personal property of Lessor.
(c) Provided that there is no Default (Section 13), Lessee is authorized
on behalf of Lessor to enforce in its own name (and at its own expense) any
warranty, indemnity or right to damages related to the Equipment which Lessor
has against the Supplier.
(d) At the end of the term of a Lease, or in the event of a Default,
Lessee agrees, at its own expense and risk, (i) to pay for any repairs required
to place the Equipment in the same condition as when received by Lessee,
reasonable wear and tear excepted; (ii) without unreasonable delay, to cause
the Equipment to be disassembled, deinstalled, inspected, tested and crated in
accordance with manufacturer recommendations, if any; and (iii) to deliver the
Equipment, freight prepaid, to a carrier selected by Lessor for shipment to a
location selected by Lessor.
7. DISCLAIMER. LESSEE AGREES THAT: (1) LESSOR'S ASSIGNEE IS NOT THE
MANUFACTURER OR SUPPLIER OF THE EQUIPMENT OR THE REPRESENTATIVE OF EITHER; (2)
LESSOR'S ASSIGNEE IS NOT REQUIRED TO ENFORCE ANY MANUFACTURER'S WARRANTIES ON
BEHALF OF ITSELF OR OF LESSEE; (3) LESSOR'S ASSIGNEE IS NOT OBLIGATED TO INSPECT
THE EQUIPMENT (4) OTHER THAN AS EXPRESSLY DELIVERED TO LESSEE, LESSOR AND
LESSOR'S ASSIGNEE DO NOT MAKE, AND HAS NOT MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS,
OPERATION OR CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP
AS TO THE EQUIPMENT; (5) LESSOR AND LESSOR'S ASSIGNEE DO NOT MAKE ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR AS TO TITLE TO,
OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT. LESSEE FURTHER AGREES THAT NEITHER LESSOR NOR LESSOR'S ASSIGNEE SHALL
BE LIABLE FOR ANY LIABILITY, LOSS OR DAMAGE CAUSED DIRECTLY OR INDIRECTLY BY THE
EQUIPMENT OR BY ITS INADEQUACY OR BY ANY EQUIPMENT DEFECT, OR ANY FAILURE TO
PROVIDE MAINTENANCE SERVICES, WHETHER OR NOT LESSOR OR ITS ASSIGNEE HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH LIABILITY, LOSS OR DAMAGE. NEITHER LESSOR NOR
LESSOR'S ASSIGNEE SHALL HAVE ANY LIABILITY TO LESSEE OR ANY OTHER PERSON WITH
RESPECT TO ANY OF THE FOLLOWING, REGARDLESS OF ANY NEGLIGENCE OF LESSOR: (1) THE
USE, OPERATION OR PERFORMANCE OF THE EQUIPMENT; (2) ANY INTERRUPTION OF SERVICE,
LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; OR (3) THE
DELIVERY, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE
EQUIPMENT.
8. LOSS OR DAMAGE; CASUALTY VALUE. Lessee assumes the risk of any
disappearance of or damage to any part of the Equipment from any cause
whatsoever. Within ten (10) days of learning of any condemnation or other
circumstance where the Equipment is, in Lessee's reasonable opinion,
irreparably damaged or permanently unfit for use ("Casualty") Lessee will
provide Lessor full details of the Casualty and will pay Lessor an amount equal
to (i) the sum of all future Monthly Rents payable for the Equipment under the
applicable Lease, with each such payment discounted to its net present value at
a simple interest rate equal to six percent (6%) per annum (or if not permitted
by applicable law, the lowest permitted rate) from the due date of each such
payment to the Monthly Rate payment date immediately preceding the date of the
Casualty; plus an amount equal to the Casualty Value Percentage of the Total
Price of the Equipment ("Casualty Value"); plus (ii) any other amounts due
under the applicable Lease. Monthly Rent will continue to accrue without
abatement until Lessor receives the Casualty Value and all other amounts
(including Monthly Rent payments) then due under the applicable Lease, at which
time the Lease will terminate. At Lessor's request, Lessee agrees to sell the
Equipment on an "AS IS, WHERE IS" basis without representation or warranty, and
to remit to Lessor any sales or insurance proceeds received (less any sums paid
by Lessee as Casualty Value).
9. INSURANCE. Lessee agrees, at its own expense, to keep the Equipment
insured with companies acceptable to Lessor and to maintain primary coverage
consisting of (i) actual cash value all risk insurance on the Equipment, naming
Lessor as loss payee and (ii) single limit public liability and property damage
insurance of not less than $300,000 per occurrence (or such other amounts as
Lessor may require by notice to Lessee) naming Lessee as insured and Lessor as
additional insured. The insurance will provide for not less than thirty (30)
days notice to Lessor of material changes in or cancellation of the policy.
Premiums for all such insurance will be prepaid. Lessee will deliver evidence
of such insurance to Lessor upon request, and will promptly provide to Lessor
all information pertinent to any occurrence which may become the basis of a
claim. Lessee will not make claim adjustments with insurers except with
Lessor's prior written consent.
10. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants to Lessor that as of the date of each Lease and of each Certificate of
Acceptance:
(a) Lessee has adequate power and capacity to enter into the Lease, any
documents relative to the purchase of the Equipment leased under such Lease and
any other documents required to be delivered in connection with this Lease
(collectively, the "Documents"); the Documents have been duly authorized,
executed and delivered by Lessee and constitute valid, legal and binding
agreements, enforceable in accordance with their terms; there are no
proceedings presently pending or threatened against Lessee which will impair
its ability to perform under the Lease; and all information supplied to Lessor
is accurate and complete.
(b) Lessee's entering into the Lease and leasing the Equipment does not
and will not: (i) violate any judgment, order, or law applicable to the Lease,
Lessee or Lessee's certificate of incorporation or by-laws (if Lessee is a
corporation) or Lessee's partnership agreement (if Lessee is a partnership); or
(ii) result in the creation of any lien, security interest or other encumbrance
upon the Equipment.
(c) All financial data of Lessee or of any consolidated group of
companies of which Lessee is a member ("Lessee Group"), delivered to Lessor
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with prior periods and fairly present the
financial position and results from operations of Lessee, or of the Lessee
Group, as of the stated date and period(s). Since the date of the most recently
delivered financial data, there has been no material adverse change in the
financial or operating condition of Lessee or of the Lessee Group.
(d) If Lessee is a corporation or partnership, it is and will be validly
existing and in good standing under laws of the state of its incorporation or
organization; the persons signing the Lease are acting with the full authority
of its board of directors or partners (if Lessee is a partnership) and hold the
offices indicated below their signatures, which are genuine.
11. LESSEE'S AGREEMENTS. (a) LESSEE AGREES THAT IT WILL KEEP THE EQUIPMENT
FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES AND WILL NOT ASSIGN,
SUBLET, OR GRANT A SECURITY INTEREST IN THE EQUIPMENT OR IN THIS LEASE WITHOUT
LESSOR'S PRIOR WRITTEN CONSENT. If and to the extent that the lease is deemed a
security agreement under the Uniform Commercial Code, and otherwise for
precautionary purposes only, Lessee grants Lessor a first priority security
interest in its interest in the Equipment and in all Equipment leased pursuant
to any schedule. Such security interest shall secure lessee's obligations with
respect to all schedules, leases and agreements between Lessee and Lessor.
Lessee will notify Lessor in writing, with full particulars, within ten (10)
days after it learns of the attachment of any lien to any Equipment and of the
Equipment's location.
(b) Lessee will not relocate any unit of Equipment from the Equipment
Location stated on a Schedule without the prior written approval of Lessor
(which shall not be unreasonably withheld). Lessee agrees to notify Lessor
immediately in writing of any change in Lessee's corporate or business name or
in the location of its chief executive office.
(c) If this is a Type A Lease, Lessee will not take or fail to take any
action which Lessor determines will result in the disqualification of any
Equipment for, or the recapture of, all or any portion of the accelerated cost
recovery deductions permitted by the Internal Revenue Code of 1986, as amended.
Lessee will indemnify Lessor for any loss in Lessor's after tax economic yields
and cash flows caused by Lessee's acts or failures to act.
2
<PAGE> 3
(d) Lessor may inspect the Equipment during normal business hours. At
Lessor's request, Lessee will attach identifying labels supplied by Lessor
showing Lessor's ownership in a prominent position on each unit of Equipment.
(e) Within one hundred twenty (120) days of the close of each fiscal year
of Lessee, Lessee will deliver to lessor Lessee's balance sheet and profit and
loss statement, certified by a recognized firm of certified public accountants.
Upon request, Lessee will deliver to Lessor duplicate copies of Lessee's most
recent quarterly financial report.
12. INDEMNIFICATION. Lessee agrees to indemnify, defend and keep harmless
Lessor, its agents, successors and assigns, from and against any all losses,
damages, penalties, claims and actions, including legal expenses, arising out
of or in connection with (1) the selection, manufacture, purchase, acceptance
or rejection of Equipment, the ownership of Equipment during the term of a
Lease, and the delivery, lease, possession, maintenance, use, condition, return
or operation of equipment or (ii) the condition of Equipment sold or disposed
of after or as a result of use by Lessee or any permitted sublessee of Lessee.
13. DEFAULT. (a) Lessor may declare a Lease in default (a "Default") if,
with respect to such Lease: (i) Lessor has not received Monthly Rent or any
other Rent (Sections 5 and 15) within ten (10) days after its due date; or (ii)
lessee or any guarantor violates any other term of a lease or any term of a
guaranty and fails to correct such violation within ten (10) days after
written notice from Lessor; or (iii) Lessee violates the terms of any license
or agreement for Software; or (iv) Lessee or any guarantor becomes insolvent,
is liquidated or dissolved, stops doing business or assigns its rights or
property for the benefit of creditors; or (v) a petition is filed by or against
Lessee or any guarantor under Title 11 of the United States Code or any
successor or similar law; or (vi) (for individuals) Lessee or any guarantor
dies or a guardian is appointed for Lessee's or guarantor's person; or (vii)
Lessee (or any affiliate) is in default of or fails to fulfill the terms of any
other agreement between Lessee and Lessor or any affiliate of either.
(b) At any time after a Default, Lessor may declare a default under any
other Lease or agreement between Lessee (and any affiliate) and Lessor or its
affiliate. Lessor may also enter, with or without legal process, any premises
and take possession of the Equipment. Immediately after a Default, Lessee will
pay to Lessor, as liquidated damages for loss of a bargain and not as a
penalty, an amount equal to the sum of (i) all Rents, including Monthly Rent,
and other sums (e.g. late charges, indemnification, liens) then due under each
Lease; plus (ii) the Casualty Value of the Equipment, calculated as of the
Monthly Rent payment date immediately preceding the Default; together with
interest on such sum accruing to the date of payment at the Overdue Rate
(Section 15). After a Default, at the request of Lessor, Lessee will return the
Equipment as required by Section 6. Lessor may, but is not required to, sell or
lease the Equipment in bulk or in individual pieces. If the Lessor intends to
sell the Equipment, it may do so in a public or private sale and is not
required to give notice of such sale. The Equipment need not be displayed at
the sale. Lessor may, without paying rent or providing insurance, use the
Equipment Location to store the Equipment or conduct any sale. The proceeds of
any sale or lease will be applied in the following order of priorities: (1) to
pay all of Lessor's expenses in taking, removing, holding, repairing and
disposing of Equipment; then (2) to pay any late charges and interest accrued
at the Overdue Rate; then (3) to pay accrued but unpaid Monthly Rent together
with any unpaid Casualty Value, Rent, interest and all other due but unpaid
sums (including any indemnification and sums due under other Leases or
agreements in default). Any remaining proceeds will reimburse Lessee for
payments which it made to reduce the amounts owed to Lessor in the preceding
sentence. Lessor will keep any excess. If the proceeds of any sale or lease are
not enough to pay the amounts owed to Lessor under this Section. Lessee will
pay the deficiency.
(c) Lessor's remedies for Default may be exercised instead of or in
addition to each other or any other legal or equitable remedies. Lessor has the
right to set-off any sums received from any source (including insurance
proceeds) against Lessee's obligations under each Lease. Lessee waives its
right to object to the notice of the time or place of sale or lease and to the
manner and place of any advertising. Lessee waives any defense based on
statutes of limitations or laches in actions for damages. Lessor's waiver of
any Default is not a waiver of its rights with respect to a different or later
Default.
14. OPTION. (a) LEASE TYPE A ONLY: So long as no Default has occurred,
Lessee has the option (i) to purchase all but not less than all of the
equipment under a Lease at the end of the Initial Term on an AS-IS-WHERE-IS
basis without representation or warranty, for a cash purchase price equal to
the Equipment's Fair Market Value (plus any applicable sales taxes) determined
as of the end of the Initial Term; or (ii) to extend the Initial Term of a
Lease at the then Fair Market Rental of the Equipment. Lessee must give
irrevocable written notice at least sixty (60) days before the end of the
Initial Term to Lessor that it will purchase the Equipment or extend the
Initial Term. If the Lease is renewed, the Lessee's obligations (other than the
amount of Monthly Rent to be paid) will remain unchanged. "Fair Market Value"
or "Fair Market Rental" means the price or rental which a willing buyer or
lessee (who is neither a lessee in possession nor a used equipment dealer)
would pay for the Equipment in an arm's length transaction to a willing seller
or lessor who is under no compulsion to sell or lease the Equipment. In
determining "Fair Market Value" or "Fair Market Rental": (i) the Equipment is
assumed to have been maintained and returned as required by the Lease; (ii) in
the case of any installed equipment, the Equipment will be valued on an
installed basis; and (iii) cost of removal from the equipment's current
location will not be included.
(b) LEASE TYPE B ONLY: So long as no Default has occurred, Lessee may
purchase all but not less than all the Equipment under a Lease on a "AS IS,
WHERE IS" basis, without representation or warranty, at the end of the Initial
Term for a price equal to the Option Price (plus applicable sales tax) stated
on a Schedule. Unless the Option Price is $1.00, Lessee must give Lessor
irrevocable written notice at least thirty (30) days before the end of the
Initial Term that it will purchase the Equipment.
15. ASSIGNMENT. Lessor may, without notice to Lessee, assign its interest
in this Lease, its right to receive Monthly Rent and other sums due hereunder
and its rights in the Equipment. If requested, Lessee agrees to acknowledge, in
writing, any assignment. LESSEE AGREES TO SUCH ASSIGNMENT, AND FURTHER AGREES
THAT, BY SUCH ASSIGNMENT: (1) THE ASSIGNEE SHALL NOT BE CHARGEABLE WITH OR
ASSUME ANY OF THE OBLIGATIONS OR LIABILITIES OF LESSOR, AND (2) THE ASSIGNEE
SHALL HAVE ALL THE RIGHTS AND DISCRETIONS OF LESSOR UNDER THE LEASE, INCLUDING
BUT NOT LIMITED TO THE RIGHT TO ISSUE OR RECEIVE ALL NOTICES OR REPORTS, TO
GIVE ALL CONSENTS, TO RECEIVE TITLE TO THE EQUIPMENT AND TO EXERCISE ALL
REMEDIES THEREUNDER, AND (3) LESSEE SHALL, IN ACCORDANCE WITH THE TERMS OF THIS
LEASE AND ON INSTRUCTION FROM LESSOR, PAY ASSIGNEE ALL RENTS AND OTHER AMOUNTS
DUE UNDER THIS LEASE AS AND WHEN DUE, WITHOUT DEDUCTION OR OFFSET,
NOTWITHSTANDING ANY CLAIM LESSEE MAY HAVE AGAINST LESSOR, OR RELATIVE TO THE
EQUIPMENT, OR ANY OTHER CLAIM OF LESSEE ARISING PRIOR TO THE ASSIGNMENT, AND
(4) LESSEE WILL NOT ASSERT THE ASSIGNEE ANY DEFENSE, CLAIM, COUNTERCLAIM, OR
SET-OFF ON ACCOUNT OF BREACH OF WARRANTY, BREACH OF SERVICE AGREEMENT OR
OTHERWISE IN ANY ACTION FOR RENT OR POSSESSION BROUGHT BY LESSOR'S ASSIGNEE,
AND WILL SETTLE ALL WARRANTY, MECHANICAL, SERVICE, OR OTHER CLAIMS WITH RESPECT
TO THE EQUIPMENT DIRECTLY WITH THE LESSOR AND THAT ASSIGNEE SHALL NOT BE LIABLE
FOR SUCH SERVICE OR OTHER CLAIMS. Lessee may assign this Lese only with the
prior written consent of Lessor or its assignee.
16. MISCELLANEOUS. (a) LEASE TYPE B ONLY: Lessee agrees that for income
tax purposes only, Lessor is treating Lessee as owner of the Equipment and that
Lessee has not received tax advice from Lessor or the Supplier. By signing this
Lease, Lessee agrees to pay a lease charge and lease charge rate. The total
lease charge is equal to (i) the Monthly Rent multiplied by the number of
months in the Initial Term, plus (ii) the Option Price, minus (iii) the Total
Price. The lease charge portion of the Monthly Rent payments may be determined
by applying to the Total Price of the Equipment the rate which will amortize
such Total Price (adjusting for any Advance Rent) down to the Option Price at a
constant rate over the Initial Term by payment of the Monthly Rent. The lease
charge rate is the constant rate referred to in the preceding sentence. If this
transaction were re-characterized as a financing, no lease charge, late charge,
or post maturity interest charge is intended to exceed the maximum amount of
time price differential or interest, as applicable, permitted to be charged or
collected by applicable law. If this transaction were re-characterized as a
financing and one or more of such charges exceed such maximum, then such
charges will be reduced to the legally permitted maximum charge and any excess
charge will be used to reduce the initial value of the Equipment or refunded.
(b) Time is of the essence of each Lease. Lessor's failure at any time to
require that Lessee strictly perform its obligations under any Lease will not
prevent Lessor from later requiring such performance. Lessee agrees, upon
Lessor's request, to sign any document presented by Lessor from time to time to
protect Lessor's rights in the Equipment. LESSEE AND LESSOR EACH WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM OR RELATED TO A
<PAGE> 4
LEASE. Lessee also agrees to pay Lessor's attorneys' fees and out-of-pocket
expenses in protecting or enforcing its rights under a Lease. Lessee will pay
attorney's fees and costs of collection, up to the amount permitted by law.
Lessor and Lessee agree that legal fees and costs up to twenty percent (20%) of
the amount then due under this Lease are reasonable.
(c) All required notices will be considered to have been given if sent by
registered or certified mail or overnight courier service to the Lessor at the
address stated above and to the Lessee at its address stated in the Lease, or
at such other place as such addressee may have designated in writing.
(d) Each Lease constitutes the entire agreement of the parties with
respect to the lease of the Equipment and supersedes and incorporates all
prior oral or written agreements or statements. So long as there is no Default,
Lessor shall not interfere with Lessee's quiet enjoyment of Equipment. If a
provision of a Lease is declared invalid under law, the affected provision will
be considered omitted or modified to conform to applicable law. All other
provisions will remain in full force and effect.
(e) If Lessee fails to comply with any provision of a Lease, Lessor has
the right, but is not obligated, to have such provision brought into
compliance. This right is in addition to the Lessor's right to declare a
Default. All expenses incurred by Lessor in bringing about such compliance will
be considered Rent which is due to Lessor within five (5) days after the date
Lessor sends to Lessee a written request for payment.
(f) All overdue payments will bear interest at the Overdue Rate, which is
the lower of twenty percent (20%) per annum or the maximum rate allowed by law.
Interest will accrue daily until payment in full is received.
(g) All of Lessor's rights (including indemnity rights) under a Lease
survive the Lease's expiration or termination, and are enforceable by Lessor,
its successors and assigns.
THIS AGREEMENT AND ANY SCHEDULE AND ANNEXES THERETO CONSTITUTE THE ENTIRE
AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. THIS
AGREEMENT IS EFFECTIVE AS OF THE EFFECTIVE DATE UPON SIGNING BY BOTH LESSOR AND
LESSEE. A LEASE MAY NOT BE CHANGED EXCEPT BY WRITTEN AGREEMENT SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE PARTY AGAINST WHOM IT IS TO BE ENFORCED.
LESSEE IRREVOCABLY AUTHORIZES LESSOR TO PREPARE AND SIGN ON BEHALF OF LESSEE
ANY INSTRUMENT NECESSARY OR EXPEDIENT FOR FILING, RECORDING OR PERFECTING THE
INTEREST OF LESSOR IN EACH LEASE, THE RELATED EQUIPMENT AND THE PROCEEDS OF
BOTH.
LESSOR: LESSEE:
E.I. Dupont de Nemours & Co. Signal Pharmaceuticals, Inc.
By: /s/ KIMBERLY FOX By: /s/ MARK D. CARMAN
-------------------------------- ---------------------------------
Kimberly Fox Mark D. Carman
- ------------------------------------ ------------------------------------
(Print or Type Name) (Print or Type Name)
Senior Program Admin. V.P. Operations
- ------------------------------------ ------------------------------------
(Print or Type Title) (Print or Type Title)
Date of Execution: 12-27-93 Date of Execution: 12-15-93
----------------- -----------------
SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NO: EIN: 94-3174286
<PAGE> 5
[DUPONT LOGO]
Schedule No. 001
MASTER LEASE AGREEMENT EFFECTIVE DATE: JULY 8, 1993
THIS SCHEDULE ("Schedule") incorporates all of the terms of the above
Master Lease Agreement ("Agreement"). This Schedule and the Agreement as it
relates to this Schedule constitutes a lease ("Lease") for the equipment
described below ("Equipment") between E.I. Dupont de Nemours & Co., ("Lessor")
and the Lessee indicated below. All terms used and not defined in this Schedule
have the definitions stated in the Agreement.
<TABLE>
<S> <C> <C>
A. LESSEE: LEGAL NAME: Signal Pharmaceuticals, Inc.
TRADE NAME (if any):
ADDRESS: 11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
LEGAL ENTITY - Type: Corporation
State of Organization: CA
Date of Establishment: 7-24-92
B. SUPPLIER: E. I. DUPONT DE NEMOURS & CO.
MEDICAL PRODUCTS DEPT.
BARLEY MILL PLAZA
WILMINGTON DE 19880
C. EQUIPMENT LOCATION:
Street Address: 11545 Sorrento Valley Road, Suite 315
County:
City, State Zip: San Diego, CA 92121
D. DESCRIPTION OF EQUIPMENT: Medical Equipment
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT TYPE/MODEL NUMBER OF
SERIAL/ID NUMBERS UNITS Cost
- -------------------- --------- ----
<S> <C> <C>
Ultra Centrifuge 1 $73,576.40
Superspeed Centrifuge 1
Clinical Centrifuge 1
Equipment Price: $73,576.40
----------
Sales Tax: $ 5,702.17
----------
Freight: $
----------
Installation: $
----------
Other _____________________: $
----------
Total Price: $79,278.57
----------
E. TRANSACTION TERMS:
Lease Type (check one): _____ A (Tax Lease, ______-year property; all Sections other than 14(b) and 16(a) apply)
X B (Lease Purchase all Sections other than 4(b), 11(c) and 14(a) apply).
-----
Monthly Rent: $ See Section F Advance Rent: $
Sales Tax: $ Sales Tax: $
Total Monthly Rent: $ Total Advance Rent: $
Initial Term (No. of Months): 060 Casualty Value Percentage: $ 0%
Last Funding Date: 12-31-93 Lease Type B Option Price: $ 1.00
</TABLE>
<PAGE> 6
F. ADDITIONAL TERMS (IF ANY): 24 payments @ $947.54, 36 payments @ $2,316.12
-------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LESSOR: E.I. DUPONT DE NEMOURS & CO. LESSEE: SIGNAL PHARMACEUTICALS, INC.
By: /s/ KIMBERLY FOX By: /s/ MARK D. CARMAN
--------------------------------- ------------------------------------
Kimberly Fox Mark D. Carman
- ------------------------------------- ----------------------------------------
(Print or Type Name) (Print or Type Name)
Senior Program Admin. V.P. Operations
- ------------------------------------- ----------------------------------------
(Print or Type Title) (Print or Type Title)
Date of Approval: 12/27/93 Date of Execution: 12/15/93
- ------------------------------------- ----------------------------------------
SOCIAL SECURITY or TAXPAYER
IDENTIFICATION NO.: EIN: 94-3174286
-------------------
<PAGE> 1
EXHIBIT 10.24
MASTER EQUIPMENT LEASE
Under this Master Equipment Lease (the "Lease"), dated as of September 1, 1993,
Phoenix Leasing Incorporated ("Lessor") hereby leases to Signal Pharmaceuticals,
Inc. ("Lessee"), and Lessee hereby leases from Lessor, the equipment (herein
called "Equipment") which is described on the schedule attached hereto or any
subsequently-executed schedule entered into by Lessor and Lessee and which
incorporates this Lease by reference. Any such schedules shall hereinafter
individually be referred to as a "Schedule" and collectively be referred to as
the "Schedules." Lessor hereby leases the Equipment to Lessee upon the following
terms and conditions:
1. TERM OF AGREEMENT. The term of this Lease begins on the date set
forth above and shall continue thereafter and be in effect so long as and at any
time any Schedule entered into pursuant to this Lease is in effect. The Initial
Term and rent payable with respect to each leased item of Equipment shall be as
set forth in and as stated in the respective Schedule(s). The terms of each
Schedule hereto are subject to all conditions and provisions of this Lease as
may at any time be amended.
2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be
cancelled or terminated except as expressly provided herein. This Lease
(including all Schedules to this Lease) constitutes a net lease and Lessee
agrees that its obligations to pay all rent and other sums payable hereunder
(and under any Schedule) and the rights of Lessor and assignee in and to such
rent and other sums, are absolute and unconditional and are not subject to any
abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged
to be due to, or by reason of, any past, present or future claims which Lessee
may have against Lessor, any assignee, the manufacturer or seller of the
Equipment, or against any person for any reason whatsoever.
3. LESSOR COMMITMENT. So long as no Event of Default or event which
with the giving of notice or passage of time, or both, could become an Event of
Default has occurred or is continuing, Lessor agrees to lease to Lessee the
groups of Equipment described on each Schedule, subject to the following
conditions: (i) that in no event shall Lessor be obligated to lease Equipment to
Lessee hereunder where the aggregate purchase price of all Equipment leased to
Lessee hereunder would exceed $1,000,000 no more than $100,000 of which may be
non-standard equipment and soft costs (such non-standard equipment and soft
costs may not, at any time, constitute greater than 10% of the then aggregate
funding amounts); (ii) the amount of Equipment purchased by Lessor at any one
time shall be at least equal to $50,000 except for a final advance which may be
less than $50,000; (iii) Lessor shall not be obligated to purchase Equipment
hereunder after May 1, 1994; (iv) all Lease documentation required by Lessor has
been executed by Lessee or provided by Lessee no later than October 1, 1993; (v)
the equipment described on the Schedule is acceptable to Lessor; (vi) with
respect to each funding Lessee has provided to Lessor each of the closing
documents described in Exhibit A hereto (which documents shall be in form and
substance acceptable to Lessor) and which list may be modified for each
subsequent funding; (vii) there is no material adverse change in Lessee's
condition, financial or otherwise and Lessee so certifies, from (yy) the date of
the most recent financial statements delivered by Lessee to Lessor prior to
execution of this Lease, to (zz) the date of the proposed lease of the
Equipment; (viii) Lessee is performing according to its business plan dated July
20, 1993 ("Business Plan"), as may be amended from time to time in form and
substance acceptable to Lessor; (ix) Lessor or its agent has inspected and
placed identification labels on the Equipment; (x) Lessee shall offer to Lessor
all lease transactions for Equipment contemplated by Lessee during the
commitment period of this Lease; however if Lessor declines to finance any such
transaction or Lessee and Lessor cannot agree upon terms, then Lessee shall be
free to seek such financing from
-1-
<PAGE> 2
any other third party; and (xi) Lessor has received in form and substance
acceptable to Lessor: (a) Lessee's interim financial statements signed by a
financial officer of Lessee; (b) evidence of Lessee's receipt of $2,100,000
equity; and (c) evidence of Lessee's $699,500 cash position as of July 31, 1993.
4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to
purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE
EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor or is
unsatisfactory for any reason, Lessee shall make any claim on account thereof
solely against Vendor and shall, nevertheless, pay Lessor all rent payable under
this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor
hereby agrees to assign to Lessee solely for the purpose of making and
prosecuting any said claim, to the extent assignable, all of the rights which
Lessor has against Vendor for breach of warranty or other representation
respecting the Equipment. Lessor shall have no responsibility for delay or
failure to fill the order. (c) Lessee understands and agrees that neither the
Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No
salesman or agent of Vendor is authorized to waive or alter any term or
condition of this Lease, and no representations as to the Equipment or any other
matter by the Vendor shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this Lease. (d) Lessee hereby
requests Lessor to purchase Equipment from Vendor and to lease Equipment to
Lessee on the terms and conditions of the Lease set forth herein. (e) Lessee
hereby authorizes Lessor to insert in this Lease and each Schedule hereto the
serial numbers and other identification data of the Equipment when determined by
Lessor.
5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that (a) it is a corporation in good standing under the laws of the
state of its incorporation, and duly qualified to do business in each state
where the Equipment will be located; (b) it has full authority to execute and
deliver this Lease and perform the terms hereof, and this Lease has been duly
authorized and constitutes valid and binding obligations of Lessee enforceable
in accordance with its terms; (c) this Lease will not contravene any law,
regulation or judgment affecting Lessee or result in any breach of any agreement
or other instrument binding on Lessee; (d) no consent of Lessee's shareholders
or holder of any indebtedness, or filing with, or approval of, any governmental
agency or commission, is a condition to the performance of the terms hereof; (e)
there is no action or proceeding pending or threatened against Lessee before any
court or administrative agency which might have a materially adverse effect on
the business, financial condition or operations of Lessee; (f) no deed of trust,
mortgage or third party interest arising through Lessee will attach to the
Equipment or the Lease; (g) the Equipment will remain at all times under
applicable law, removable personal property, free and clear of any lien or
encumbrance in favor of Lessee or any other person, notwithstanding the manner
in which the Equipment may be attached to any real property; and (h) all credit,
financial and any other information submitted to Lessor herewith or any other
time is true and correct.
6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can be
accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify
and hold Lessor harmless from any claims,
-2-
<PAGE> 3
liabilities, costs and expenses, including reasonable attorneys' fees, incurred
by Lessor arising out of any purchase orders or assignments executed by Lessor
with respect to any Equipment or services relating thereto.
7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and
dated Acceptance Notice attached to each Schedule hereto (a) acknowledging the
Equipment has been received, installed and is ready for use and (b) accepting it
as satisfactory in all respects for the purposes of this Lease. Lessor is
authorized to fill in the Rent Start Date on each Schedule in accordance with
the foregoing.
8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without Lessor's prior written consent. Lessor shall have the right to inspect
Equipment at any reasonable time. Lessee shall be responsible for all labor,
material and freight charges incurred in connection with any removal or
relocation of such Equipment which is requested by the Lessee and consented to
by Lessor, as well as for any charges due to the installation or moving of the
Equipment. The rental payments shall continue during any period in which the
Equipment is in transit during a relocation. Lessor or its agent shall mark and
label Equipment, which labels shall state Equipment is owned by Lessor, and
Lessee shall keep such labels on the Equipment as labeled by Lessor or its
agent.
9. EQUIPMENT MAINTENANCE. (a) General. Lessee will locate or base each
item of Equipment where designated in an Acceptance Notice and will reasonably
permit Lessor to inspect such item of Equipment and its maintenance records.
Lessee will at its sole expense comply with all applicable laws, rules,
regulations, requirements and orders with respect to the use, maintenance,
repair, condition, storage and operation of each item of Equipment. Except as
required herein, Lessee will not make any addition or improvement to any item of
Equipment that is not readily removable without causing material damage to any
item or impairing its original value or utility. Any addition or improvement
that is so required or cannot be so removed will immediately become the property
of Lessor. (b) Service and Repair. With respect to computer equipment, Lessee
has entered into, and will maintain in effect, Vendor's standard maintenance
contract or another contract satisfactory to Lessor for a period equal to the
term of each Schedule and extensions thereto which provides for the maintenance
of the Equipment and repairs and replacement parts thereof in good condition and
working order, all in accordance with the terms of such maintenance contract.
Lessee shall have the Equipment certified for the Vendor's standard maintenance
agreement prior to delivery to Lessor upon expiration of this Lease. With
respect to any other Equipment, Lessee will, at its sole expense, maintain and
service, and repair any damage to, each item of Equipment in a manner consistent
with prudent industry practice and Lessee's own practice so that such item of
Equipment is at all times (i) in the same condition as when delivered to Lessee,
except for ordinary wear and tear, (ii) in good operating order for the function
intended by its manufacturer's warranties and recommendations.
10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage or
destruction of the Equipment, any such occurrence being hereinafter called a
"Casualty Occurrence." On the first rental payment date following such Casualty
Occurrence, or, if there is no such rental payment date, thirty (30) days after
such Casualty Occurrence, Lessee shall (i) repair the Equipment, returning it to
good operating condition or (ii) replace the Equipment with identical equipment
in good condition and repair, the title to which shall vest in Lessor and which
thereafter shall be subject to the terms of this Lease; or (iii) pay to Lessor
(a) any
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<PAGE> 4
unpaid amounts relating to such Equipment due Lessor under this Lease up to the
date of the Casualty Occurrence, and (b) a sum equal to the Casualty Value as
set forth in the Casualty Value table attached to each Schedule hereto for such
Equipment. Upon the making of such payment, the term of this Lease as to each
unit of Equipment with respect to which the Casualty Value was paid shall
terminate.
11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless
Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses, imposed upon or incurred by or
asserted against Lessor or any assignee of Lessor by Lessee or any third party
by reason of the occurrence or existence (or alleged occurrence or existence) of
any act or event relating to or caused by the Equipment, including but not
limited to, consequential or special damages of any kind, or any failure on the
part of Lessee to perform or comply with any of the terms of this Lease. In the
event that any action, suit or proceeding is brought against Lessor by reason of
any such occurrence, Lessee, upon request of Lessor, will at Lessee's expense
resist and defend such action, suit or proceeding or cause the same to be
resisted and defended by counsel designated and approved by Lessor. Lessee's
obligations under this Section 11 shall survive the expiration of this Lease
with respect to acts or events occurring or alleged to have occurred prior to
the return of the Equipment to Lessor at the end of the Lease term.
12. INSURANCE. Lessee at its expense shall keep the Equipment insured
for the entire term and any extensions of this Lease against all risks for the
value of the Equipment and in no event for less than the Casualty Value of such
Equipment as specified on Exhibit C. Such insurance shall contain insurer's
agreement to give thirty (30) days written notice to Lessor before cancellation
or material change of any policy of insurance, and shall provide for (a) loss
payable endorsement to Lessor or any assignee of Lessor, and (b) public
liability and property damage insurance in an amount not less than $1,000,000,
naming Lessor as additional insured. Lessee will provide Lessor and any assignee
of Lessor with a certificate of insurance from the insurer evidencing Lessor's
or such assignee's interest in the policy of insurance. Such insurance shall
cover any Casualty Occurrence to any unit of Equipment. Notwithstanding anything
in Section 10 or this Section 12 to the contrary, this Lease and Lessee's
obligations hereunder and under each Schedule shall remain in full force and
effect with respect to any unit of Equipment which is not subject to a Casualty
Occurrence. If Lessee fails to provide or maintain insurance as required herein,
Lessor shall have the right, but shall not be obligated to obtain such
insurance. In that event, Lessee shall pay to Lessor the cost thereof.
13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if
instructed by Lessor), and agrees to indemnify and hold Lessor harmless from,
all fees (including, but not limited to, license, documentation, recording and
registration fees), and all sales, use, gross receipts, personal property,
occupational, value added or other taxes, levies, imposts, duties, assessments,
charges, or withholdings of any nature whatsoever, together with any penalties,
fines, additions, to tax, or interest thereon (all of the foregoing being
hereafter referred to as "Impositions") except same as may be attributable to
Lessor's income, arising at any time prior to or during the term of this Lease,
or upon termination or early termination of this Lease and levied or imposed
upon Lessor directly or otherwise by any Federal, state or local government in
the United States or by any foreign country or foreign or international taxing
authority upon or with respect to (i) the Equipment, (ii) the exportation,
importation, registration, purchase, ownership, delivery, leasing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (iii) the rentals, receipts, or earnings arising
from the Equipment, or any disposition of the rights to such rentals, receipts,
or earnings, (iv) any payment pursuant to this Lease, and (v) this Lease or the
transaction
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<PAGE> 5
or any part thereof. Lessee's obligations under this Section 13 shall survive
the expiration of this Lease with respect to acts or events occurring or alleged
to have occurred prior to the return of the Equipment to Lessor at the end of
the Lease term.
14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or
perform any act required hereunder, then Lessor may, but shall not be required
to, after such notice to Lessee as is reasonable under the circumstances, make
such payment or perform such act with the same effect as if made or performed by
Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all costs
and expenses incurred in connection with the performance of any such act.
15. SURRENDER OF EQUIPMENT. Upon termination or expiration of this
Lease, with respect to each group of Equipment, Lessee will forthwith surrender
the Equipment to Lessor delivered in as good order and condition as originally
delivered, reasonable wear and tear excepted. Lessor may, at its sole option,
arrange for removal and transportation of the Equipment provided that Lessee's
obligations under Sections 10, 11 and 12 shall not be released. Lessee shall
bear all expenses of returning (which include, but are not limited to, the
de-installation, insurance, packaging and transportation of) the Equipment to
Lessor's location or other location within the continental United States as
Lessor may request. In the event Lessee fails to return the Equipment as
directed above, all obligations of Lessee under this Lease, including rental
payments, shall remain in full force and effect until Lessee returns the
Equipment to Lessor.
16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT
(a) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE,
EQUIPMENT, OR ANY INTEREST THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT
TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES. LESSOR MAY ASSIGN
THIS LEASE OR GRANT A SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR BOTH, IN
WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
LESSEE. If Lessee is given notice of such assignment it agrees to acknowledge
receipt thereof in writing and Lessee shall execute such additional
documentation as Lessor's assignee shall require. Each such assignee and/or
secured party shall have all of the rights, but none of the obligations, of
Lessor under this Lease, unless such assignee or secured party expressly agrees
to assume such obligations in writing. Lessee shall not assert against any
assignee and/or secured party any defense, counterclaim or offset that Lessee
may have against Lessor. Notwithstanding any such assignment, and providing no
Event of Default has occurred and is continuing, Lessor, or its assignees,
secured parties, or their agents or assigns, shall not interfere with Lessee's
right to quietly enjoy use of Equipment subject to the terms and conditions of
this Lease. Subject to the foregoing, this Lease inures to the benefit of and is
binding upon the successors and assignees of the parties hereto.
17. DEFAULT. (a) Event of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Lessee's
failure to pay any monies due to Lessor hereunder or under any Schedule beyond
the tenth (10th) business day after the same is due; (ii) Lessee's failure to
materially comply with its obligations under Section 12 or Section 16; (iii)
Lessee's failure to comply with or perform any term, covenant, condition,
warranty or representation of this Lease or any Schedule hereto or under any
other agreement between Lessee and Lessor if such failure to comply or perform
is not cured by Lessee within ten (10) days of receipt of notice thereof; (iv)
seizure of the Equipment under legal process; (v) the filing by or against
Lessee of a petition for reorganization or liquidation under the Bankruptcy Code
or any amendment thereto or under any other insolvency law providing for the
relief of debtors; (vi) the voluntary or involuntary making of an assignment of
a substantial portion of its assets by Lessee, or any guarantor under any
guaranty executed in connection with this Lease ("Guaranty"), for
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<PAGE> 6
the benefit of its creditors, the appointment of a receiver or trustee for
Lessee or any Guarantor for any of Lessee's or Guarantor's assets, the
institution by or against Lessee or any Guarantor of any formal or informal
proceeding for dissolution, liquidation, settlement of claims against or winding
up of the affairs of Lessee or any Guarantor; or (vii) the making by Lessee or
any Guarantor of a transfer of all or a material portion of Lessee's or
Guarantor's assets or inventory not in the ordinary course of business. (b)
Remedies. If any Event of Default shall have occurred:
(i) Lessor may proceed by appropriate court action or actions either at
law or in equity to enforce performance by Lessee, of the applicable covenants
of this Lease, or to recover damages therefor; or
(ii) Lessee will on the next rent payment date following the Event of
Default, pay to Lessor as liquidated damages which the parties agree are fair
and reasonable under the circumstances existing at the time this Lease is
entered into, and not as a penalty, an amount equal to the Casualty Value of
the Equipment set forth in Exhibit C together with any rent or other amounts
past due and owing by Lessee hereunder; or
(iii) Lessor may, without notice to or demand upon Lessee;
(a) Take possession of the Equipment and lease the same or any
portion thereof, for such period, amount, and to such entity as Lessor shall
elect. The proceeds of such lease will be applied by Lessor (A) first, to pay
all costs and expenses, including reasonable legal fees and disbursements,
incurred by Lessor as a result of the default and the exercise of its remedies
with respect thereto, (B) second, to pay Lessor an amount equal to any unpaid
rent or other amounts past due and payable plus the Casualty Value, to the
extent not previously paid by Lessee, and (C) third, to reimburse Lessee for the
Casualty Value to the extent previously paid. Any surplus remaining thereafter
will be retained by Lessor.
(b) Take possession of the Equipment and sell the same or any
portion thereof at public or private sale and without demand or notice of
intention to sell. The proceeds of such sale will be applied by Lessor (A)
first, to pay all costs and expenses, including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the exercise of
its remedies with respect thereto, (B) second, to pay Lessor an amount equal to
any unpaid rent or other amounts past due and payable plus the Casualty Value,
to the extent not previously paid by Lessee, and (C) third, to reimburse Lessee
for the Casualty Value to the extent previously paid by Lessee. Any surplus
remaining thereafter will be retained by Lessor.
(c) Take possession of the Equipment and hold and keep idle the
same or any portion thereof.
Lessee agrees to pay reasonable internal and out-of-pocket costs of
Lessor related to the exercise of its remedies, including direct costs of its
in-house counsel and out-of-pocket legal fees and expenses. At Lessor's request,
Lessee shall assemble the Equipment and make it available to Lessor at such
location in the continental United States as Lessor may designate. Lessee waives
any right it may have to redeem the Equipment.
Repossession of any or all Equipment shall not terminate this
Lease or any Schedule unless Lessor notifies Lessee in writing. Any amount
required to be paid but not paid under this Section shall be increased by a
service charge of 1.5% per month, or
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<PAGE> 7
the highest rate of interest permitted by applicable law, whichever is less,
accruing from the date the Casualty Value or other amounts are payable hereunder
until such amounts are paid.
Except as otherwise set forth in this Agreement, none of the
above remedies is intended to be exclusive, but each is cumulative and in
addition to any other remedy available to Lessor, and all may be enforced
separately or concurrently.
In addition to the foregoing remedies, if an Event of Default
hereunder shall have occurred and be continuing for a period of 10 business days
without cure, Lessee shall promptly provide Lessor with copies of the minutes of
each meeting of Lessee's board of directors or any committee thereof and copies
of each written consent taken by the board or such committees.
18. LATE PAYMENTS. A service charge of 1.5% per month, or the highest
service charge permitted by applicable law, whichever is less, shall be paid by
Lessee to Lessor on all funds owed Lessor by Lessee. If such funds have not been
received by Lessor at Lessor's place of business or by Lessor's designated agent
by the date such funds are due under this Lease, Lessor shall bill Lessee for
such charges. Lessee acknowledges that invoices for rentals due hereunder are
sent by Lessor for Lessee's convenience only. Lessee's non-receipt of an invoice
will not relieve Lessee of its obligation to make rent payments hereunder.
19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses
including reasonable attorney's fees and the fees of the collection agencies,
incurred by Lessor in enforcing any of the terms, conditions or provisions
hereof.
20. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease, notwithstanding
the manner in which it may be attached or affixed to real property, and upon
termination or expiration of the Lease term, Lessee shall have the duty and
Lessor shall have the right to remove the Equipment from the premises where the
same be located whether or not affixed or attached to the real property or any
building, at the cost and expense of Lessee.
21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Equipment without Lessor's prior written consent, which shall not be
given for changes that will affect the reliability and utility of the Equipment
or which cannot be removed without damage to the Equipment, or which in any way
affect the value of the Equipment for purposes of resale or re-lease.
22. FINANCING STATEMENT. Lessee will execute financing statements
pursuant to the Uniform Commercial Code.
23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such corporate
resolutions, financial statements, opinions of counsel and other documents as
Lessor shall request from time to time. (b) Lessee represents that the Equipment
is being leased hereunder for business purposes. (c) Time is of the essence with
respect to this Lease. (d) Lessee shall keep its books and records in accordance
with generally accepted accounting principles and practices consistently applied
and shall deliver to Lessor its annual audited financial statements, unaudited
monthly financial statements to include any financial information given to
Lessee's Board of Directors, and signed by an officer of Lessee and such other
unaudited financial statements as may be reasonably requested by
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<PAGE> 8
Lessor. (e) Any action by Lessee against Lessor for any default by Lessor under
this Lease, including breach of warranty or indemnity, shall be commenced within
one (1) year after any such cause of action accrues.
24. NOTICES. All notices hereunder shall be in writing, by registered
mail, and shall be directed, as the case may be, to Lessor at 2401 Kerner
Boulevard, San Rafael, California 94901, Attention: Lease Administration and to
Lessee at 11545 Sorrento Valley Road, Suite 315, San Diego, California 92121,
Attention: President.
25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this
Lease, understands it and agrees to be bound by its terms, and further agrees
that it and each Schedule constitute the entire agreement between Lessor and
Lessee with respect to the subject matter hereof and supersedes all previous
agreements, promises, or representations. The terms and conditions hereof shall
prevail notwithstanding any variance with the terms of any purchase order
submitted by the Lessee with respect to any Equipment covered hereby.
26. AMENDMENT. This Lease may not be changed, altered or modified except
by an instrument in writing signed by an officer of the Lessor and the Lessee.
27. WAIVER. Any failure of Lessor to require strict performance by
Lessee or any waiver by Lessor of any provision herein shall not be construed as
a consent or waiver of any other breach of the same or any other provision.
28. SEVERABILITY. If any provision of this Lease is held invalid, such
invalidity shall not affect any other provisions hereof.
29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be governed
by and construed under the laws of the State of California. It is agreed that
exclusive jurisdiction and venue for any legal action between the parties
arising out of this Lease shall be in the Superior Court for Marin County,
California, or, in cases where Federal diversity jurisdiction is available, in
the United States District Court for the Northern District of California.
LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY
JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR
ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
30. NATURE OF TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
31. SECURITY INTEREST. (a) One executed copy of the Lease will be marked
"Original" and all other counterparts will be duplicates. To the extent, if any,
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in the lease may be created in any documents other than the "Original."
(b) There shall be only one original of each Schedule and it shall be marked
"Original," and all other counterparts will be duplicates. To the extent, if
any, that any Schedule(s) to this Lease constitutes chattel paper (or as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in any Schedule(s) may be created in any
documents other than the "Original."
32. SUSPENSION OF OBLIGATIONS. The obligations of Lessor hereunder will
be suspended to the extent that it is hindered or prevented from complying
therewith because of labor disturbances, including but not limited to strikes
and lockouts, acts of God,
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<PAGE> 9
fires, storms, accidents, failure of the manufacturer to deliver any item of
Equipment, governmental regulations or interference, or any cause whatsoever not
within the sole and exclusive control of Lessor.
33. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee")
of $10,000. The Fee shall be applied by Lessor first to reimburse Lessor for all
out-of-pocket UCC search costs incurred by Lessor, and then proportionally to
the first and second months' rent for each Schedule hereunder in the proportion
that the purchase price of the Equipment leased pursuant to the Schedule bears
to Lessor's entire commitment. However, the portion of the Fee which is not
applied to rental shall be non-refundable except if Lessor defaults in its
obligations pursuant to Section 3.
37. FINANCE LEASE. The parties agree that this lease is a "Finance
Lease" as defined by section 10-103(a)(7) of the California Commercial Code
(Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal.Com.C. Section
10-103(a)(25)) covering Equipment purchased from the "Supplier" (as defined by
Cal.Com.C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that Lessor
has informed or advised Lessee, in writing, either previously or by this Lease
of the following: (i) the identity of the Supplier; (ii) that the Lessee may
have rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights Lessee may have under the Supply
Contract. Lessee hereby waives any rights and remedies Lessee may have under
Cal.Com.C. Sections 10-508 through 522.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
PHOENIX LEASING INCORPORATED SIGNAL PHARMACEUTICAL, INC.
By: [SIG] By: /s/ MARK D. CARMAN
----------------------------- -------------------------------------
Title: V.P. Title: V.P. Operations & Corp. Develop.
-------------------------- ----------------------------------
Exhibit A - Closing Memorandum
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<PAGE> 10
Exhibit A
to MASTER EQUIPMENT LEASE
Dated September 1, 1993
CLOSING MEMORANDUM
1. Duly Executed Equipment Lease marked "Original."
2. Duly Executed Schedule marked "Original."
3. Duly Executed Certificate of Acceptance.
5. Insurance Certificates.
6. Resolutions of Lessee's Board of Directors/Incumbency Certificate.
7. Consent to Removal of Personal Property.
8. Purchase Agreement Assignment (if applicable).
9. UCC Financing Statements.
10. Bill of Sale (for Sale-Leaseback Equipment) (if applicable).
11. UCC search.
12. Equipment List, in form and substance satisfactory to Lessor.
13. Certificate of Chief Financial Officer as to the existence of no defaults
and as to there being no material adverse change in the condition,
financial or otherwise, of the Lessee.
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<PAGE> 11
ACCEPTANCE NOTICE
SCHEDULE 1
Reference is made to the Master Equipment Lease dated as of September 1, 1993
between Phoenix Leasing Incorporated as Lessor and Signal Pharmaceuticals, Inc.
as Lessee (the "Lease").
Lessee confirms that the following Equipment has been received, installed and
is ready for use by Lessee. The Equipment is satisfactory in all respects for
the purposes of this Lease as of the date Lessee executes this Notice below.
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Mfr./
and serial number) Price Rent Vendor Location
- ------------------ -------- ---- ------ --------
<S> <C> <C> <C> <C>
Total: $ $
</TABLE>
THE LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE OF
LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of
November 1, 1993.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ Mark D. Carman
------------------------------------
Name: MARK D. CARMAN
----------------------------------
Title: V.P. OPERATIONS
---------------------------------
<PAGE> 1
EXHIBIT 10.25
CUSTOMER NO. 1093
MASTER LEASE AGREEMENT
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
RIVERWAY II
WEST OFFICE TOWER
WEST HIGGINS
ROSEMONT, ILLINOIS 60018
Lessee: SIGNAL PHARMACEUTICALS, INC.
5555 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
The lessor pursuant to this Master Lease Agreement ("Agreement") dated as of
January 1, 1998, is Transamerica Business Credit Corporation ("Lessor"). All
equipment, together with all present and future additions, parts, accessories,
attachments, substitutions, repairs, improvements, and replacements thereof or
thereto, which are the subject of a Lease (as defined in the next sentence)
shall be referred to as "Equipment." Simultaneous with the execution and
delivery of this Agreement, the parties are entering into one or more Lease
Schedules (each, a "Schedule") which refer to and incorporate by reference this
Agreement, each of which constitutes a lease (each, a "Lease") for the Equipment
specified therein. Additional details pertaining to each Lease are specified in
the applicable Schedule. Each Schedule that the parties hereafter enter into
shall constitute a Lease. Lessor and Lessee have no obligation to enter into any
additional leases with, or extend any future financing to, the other party.
1. LEASE. Subject to and upon all of the terms and conditions of this
Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and Lessee
hereby agrees to lease from Lessor the Equipment for the Term (as defined in
Paragraph 2 below) thereof. The timing and financial scope of Lessor's
obligation to enter into Leases hereunder are limited as set forth in the
Commitment Letter executed by Lessor and Lessee, dated as of November 14, 1997
and attached hereto as Exhibit A (the "Commitment Letter").
2. TERM. Each Lease shall be effective and the term of each Lease ("Term")
shall commence on the commencement date specified in the applicable Schedule
and, unless sooner terminated (as hereinafter provided), shall expire at the end
of the term specified in such Schedule; provided, however, that obligations due
to be performed by Lessee during the Term shall continue until they have been
performed in full. Schedules will only be executed after the delivery of the
Equipment to Lessee or upon completion of deliveries of items of such Equipment
with aggregate cost of not less than $50,000.
3. RENT. Lessee shall pay as rent to Lessor, for use of the Equipment
during the Term or Renewal Term (as defined in Paragraph 8), rental payments
equal to the sum of all rental payments including, without limitation, security
deposits, advance rents, and interim rents payable in the amounts and on the
dates specified in the applicable Schedule ("Rent"). If any Rent or other amount
payable by Lessee is not paid within five days after the day on which it becomes
payable, Lessee will pay on demand, as a late charge, an amount equal to 5% of
such unpaid Rent or other amount but only to the extent permitted by applicable
law. All payments provided for herein shall be payable to Lessor at its address
specified above, or at any other place designated by Lessor.
4. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease may be
canceled or terminated except as expressly provided herein. Upon receipt of
funding from Lessor, Lessee's obligation to pay all Rent due or to become due
hereunder shall be absolute and unconditional and shall not be subject to any
delay, reduction, set-off, defense, counterclaim, or recoupment for any reason
whatsoever, including any failure of the Equipment or any representations by the
manufacturer or the vendor thereof. If the Equipment is unsatisfactory for any
reason, Lessee shall make any claim solely against the manufacturer or the
vendor thereof and shall, nevertheless, pay Lessor all Rent payable hereunder.
<PAGE> 2
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be
responsible for the selection and use of, and results obtained from, the
Equipment and any other associated equipment or services.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN
OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY, QUALITY, OR
FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH WARRANTY. LESSEE
SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR FOR BREACH OF ANY
WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT "AS IS." IN NO EVENT SHALL
LESSOR HAVE ANY LIABILITY, NOR SHALL LESSEE HAVE ANY REMEDY AGAINST LESSOR, FOR
ANY LIABILITY, CLAIM, LOSS, DAMAGE, OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY
THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR THE OPERATION, MAINTENANCE,
OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS THAT TERM IS USED IN SECTION
2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE, AS AMENDED FROM TIME TO TIME
("UCC"). Lessor grants to Lessee the benefits of any and all warranties made
available by the manufacturer or the vendor of the Equipment to the extent
assignable.
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for the sole
and limited purpose of accepting delivery of the Equipment from each vendor
thereof. Lessee shall pay any and all delivery and installation charges. Lessor
shall not be liable to Lessee for any delay in, or failure of, delivery of the
Equipment.
8. RENEWAL. So long as no Event of Default or event which, with the giving
of notice, the passage of time, or both, would constitute an Event of Default,
shall have occurred and be continuing, or the Lessee shall not have exercised
its purchase option under Paragraph 9 hereof, each Lease will automatically
renew for a term specified in the applicable Schedule (the "Renewal Term") on
the terms and conditions of this Agreement or as set forth in such Schedule;
provided, however, that Obligations due to be performed by the Lessee during the
Renewal Term shall continue until they have been performed in full.
9. PURCHASE OPTION. So long as no Event of Default or event which, with the
giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, Lessee may, upon written notice
to Lessor received at least sixty days before the expiration of a Term, purchase
all, but not less than all, the Equipment covered by the applicable Lease on the
date specified therefor in the applicable Schedule ("Purchase Date"). The
purchase price for such Equipment shall be its fair market value as set forth in
the applicable Schedule determined on an "In-place, In-use" basis, as mutually
agreed by Lessor and Lessee, or, if they cannot agree, as determined by an
independent appraiser selected by Lessor and approved by Lessee, which approval
will not be unreasonably delayed or withheld. Lessee shall pay the cost of any
such appraisal. So long as no Event of Default or event which, with the giving
of notice, the passage of time, or both, would constitute an Event of Default
shall have occurred and be continuing, Lessee may, upon written notice to Lessor
received at least sixty days prior to the expiration of the Renewal Term,
purchase all, but not less than all, the Equipment covered by the applicable
Schedule by the last date of the Renewal Term (the "Alternative Purchase Date")
at a purchase price equal to its then fair market value on an "In-place, In-use"
basis. On the Purchase Date or the Alternative Purchase Date, as the case may
be, for any Equipment, Lessee shall pay to Lessor the purchase price, together
with all sales and other taxes applicable to the transfer of the Equipment and
any other amount payable and arising hereunder, in immediately available funds,
whereupon Lessor shall transfer to Lessee, without recourse or warranty of any
kind, express or implied, all of Lessor's right, title, and interest in and to
such Equipment on an "As Is, Where Is" basis.
10. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee shall
affix to the Equipment any labels supplied by Lessor and reasonably acceptable
to Lessee indicating ownership of such Equipment. The Equipment is and shall be
the sole property of Lessor. Lessee shall have no right, title, or interest
therein, except as lessee under a Lease. The Equipment is and shall at all times
be and remain personal property and shall not become a fixture. Lessee shall
obtain and record such instruments and take such steps as may be necessary to
prevent any person from acquiring any rights in the Equipment by reason of the
Equipment being claimed or deemed to be real property. Upon request by Lessor,
Lessee shall obtain and deliver to Lessor valid and effective waivers, in
recordable form, by the owners, landlords, and mortgagees of the real property
upon which the Equipment is located or certificates of Lessee that it is the
owner of such real property or that such real property is
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neither leased nor mortgaged. Lessee shall make the Equipment and its
maintenance records available for inspection by Lessor at reasonable times and
upon reasonable notice. Lessee shall execute and deliver to Lessor for filing
any UCC financing statements or similar documents Lessor may reasonably request.
11. EQUIPMENT USE. Lessee agrees that the Equipment will be operated by
competent, qualified personnel in connection with Lessee's business for the
purpose for which the Equipment was designed and in accordance with applicable
operating instructions, laws, and government regulations, and that Lessee shall
use reasonable precautions to prevent loss or damage to the Equipment from fire
and other hazards. Lessee shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery, installation, use, and operation of the Equipment.
12. MAINTENANCE. Lessee, at its sole cost and expense, shall keep the
Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent, shall meet all recertification requirements, and
shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the reasonable request of Lessor, Lessee
shall furnish all proof of maintenance.
13. ALTERATION; MODIFICATIONS; PARTS. Lessee may materially alter or modify
the Equipment only with the prior written consent of Lessor. Any alteration
shall be removed and the Equipment restored to its normal, unaltered condition
at Lessee's expense (without damaging the Equipment's originally intended
function or its value) prior to its return to Lessor. Any part installed in
connection with warranty or maintenance service or which cannot be removed in
accordance with the preceding sentence shall be the property of Lessor.
14. RETURN OF EQUIPMENT. Except for Equipment that has suffered a Casualty
Loss (as defined in Paragraph 15 below) and is not required to be repaired
pursuant to Paragraph 15 below or Equipment purchased by Lessee pursuant to
Paragraph 9 above, upon the expiration of the Renewal Term of a Lease, or upon
demand by Lessor pursuant to Paragraph 22 below, Lessee shall contact Lessor for
shipping instructions and, at Lessee's own risk, immediately return the
Equipment, freight prepaid, to a location in the continental United States
specified by Lessor. At the time of such return to Lessor, the Equipment shall
(i) be in the operating order, repair, and condition as required by or specified
in the original specifications and warranties of each manufacturer and vendor
thereof, ordinary wear and tear excepted, (ii) meet applicable recertification
requirements, and (iii) be capable of being promptly assembled and operated by a
third party purchaser or third party lessee without further repair, replacement,
alterations, or improvements, and in accordance and compliance with any and all
statutes, laws, ordinances, rules, and regulations of any governmental authority
or any political subdivision thereof applicable to the use and operation of the
Equipment. Except as otherwise provided under Paragraph 9 hereof, at least sixty
days before the expiration of the Renewal Term, Lessee shall give Lessor notice
of its intent to return the Equipment at the end of such Renewal Term. During
the sixty-day period prior to the end of a Term or the Renewal Term, Lessor and
its prospective purchasers or lessees shall have, upon not less than two
business days' prior notice to Lessee and during normal business hours, or at
any time and without prior notice upon the occurrence and continuance of an
Event of Default, the right of access to the premises on which the Equipment is
located to inspect the Equipment, and Lessee shall cooperate in all other
respects with Lessor's remarketing of the Equipment. The provisions of this
Paragraph 14 are of the essence of the Lease, and upon application to any court
of equity having jurisdiction in the premises, Lessor shall be entitled to a
decree against Lessee requiring specific performance of the covenants of Lessee
set forth in this Paragraph 14. If Lessee fails to return the Equipment when
required, the terms and conditions of the Lease shall continue to be applicable
and Lessee shall continue to pay Rent until the Equipment is received by Lessor.
15. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at its own
expense, liability and property damage insurance relating to the Equipment,
insuring against such risks as are customarily insured against on the type of
equipment leased hereunder by businesses in which Lessee is engaged in such
amounts, in such form, and with insurers satisfactory to Lessor; provided,
however, that the amount of insurance against damage or loss shall not be less
than the greater of (a) the replacement value of the Equipment and (b) the
stipulated loss value of the Equipment specified in the applicable Schedule
("Stipulated Loss Value"). Each liability insurance policy shall provide
coverage (including, without limitation, personal injury coverage) of not less
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than $1,000,000 for each occurrence, and shall name Lessor as an additional
insured; and each property damage policy shall, with respect to the Equipment,
name Lessor as sole loss payee and all policies shall contain a clause requiring
the insurer to give Lessor at least thirty days' prior written notice of any
alteration in the terms or cancellation of the policy. Lessee shall furnish to
Lessor a copy of each insurance policy (with endorsements) or other evidence
satisfactory to Lessor that the required insurance coverage is in effect;
provided, however, Lessor shall have no duty to ascertain the existence of or to
examine the insurance policies to advise Lessee if the insurance coverage does
not comply with the requirements of this Paragraph. If Lessee fails to insure
the Equipment as required, Lessor shall have the right but not the obligation to
obtain such insurance, and the cost of the insurance shall be for the account of
Lessee due as part of the next due Rent. Lessee consents to Lessor's release,
upon its failure to obtain appropriate insurance coverage, of any and all
information necessary to obtain insurance with respect to the Equipment or
Lessor's interest therein.
Until the Equipment is returned to and received by Lessor as provided in
Paragraph 14 above, Lessee shall bear the entire risk of theft or destruction
of, or damage to, the Equipment including, without limitation, any condemnation,
seizure, or requisition of title or use ("Casualty Loss"). No Casualty Loss
shall relieve Lessee from its obligations to pay Rent except as provided in
clause (b) below. When any Casualty Loss occurs, Lessee shall immediately notify
Lessor and, at the option of Lessee, shall promptly (a) place such Equipment in
good repair and working order; or (b) pay Lessor an amount equal to the
Stipulated Loss Value of such Equipment and all other amounts (excluding Rent)
payable by Lessee hereunder, together with any applicable late charge on such
amounts at a rate per annum equal to the rate imputed in the Rent payments
hereunder (as reasonably determined by Lessor) from the date of the Casualty
Loss through the date of payment of such amounts, whereupon Lessor shall
transfer to Lessee, without recourse or warranty (express or implied), all of
Lessor's interest, if any, in and to such Equipment on an "AS IS, WHERE IS"
basis. The proceeds of any insurance payable with respect to the Equipment shall
be applied, at the option of Lessee, either towards (i) repair of the Equipment
or (ii) payment of any of Lessee's obligations hereunder. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make claim for, receive payment of, and
execute and endorse all documents, checks or drafts issued with respect to any
Casualty Loss under any insurance policy relating to the Equipment.
16. TAXES. Lessee shall pay when due, and indemnify and hold Lessor
harmless from, all sales, use, excise, and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, licensing, registration, titling, personal property, stamp and
interest equalization taxes, levies, imposts, duties, charges, or withholdings
of any nature), and any fines, penalties, or interest thereon, imposed or levied
by any governmental body, agency, or tax authority upon or in connection with
the Equipment, its purchase, ownership, delivery, leasing, possession, use, or
relocation of the Equipment or otherwise in connection with the transactions
contemplated by each Lease or the Rent thereunder, excluding taxes on or
measured by the net income of Lessor, except where such charges result directly
from Lessor's gross negligence or willful misconduct. Upon request, Lessee will
provide proof of payment. Unless Lessor elects otherwise, Lessee will pay all
property taxes on the Equipment. Lessee shall timely prepare and file all
reports and returns which are required to be made with respect to any obligation
of Lessee under this Paragraph 16. Lessee shall, to the extent permitted by law,
cause all billings of such fees, taxes, levies, imposts, duties, withholdings,
and governmental charges to be made to Lessor in care of Lessee. Upon request,
Lessee will provide Lessor with copies of all such billings.
17. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under
Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the right,
after notice, to substitute performance, in which case Lessee shall immediately
reimburse Lessor therefor.
18. GENERAL INDEMNITY. Each Lease is a net lease. Therefore, Lessee shall
indemnify Lessor and its successors and assigns against, and hold Lessor and its
successors and assigns harmless from, any and all claims, actions, damages,
obligations, liabilities, and all costs and expenses, including, without
limitation, legal fees incurred by Lessor or its successors and assigns arising
out of each Lease including, without limitation, the purchase, ownership,
delivery, lease, possession, maintenance, condition, use, or return of the
Equipment, or arising by operation of law, except that Lessee shall not be
liable for any claims, actions, damages, obligations, and costs and expenses
determined by an order of a court of competent jurisdiction to have occurred as
a result of the gross negligence or willful misconduct of Lessor or its
successors and assigns. Lessee agrees that upon written notice by Lessor of the
assertion of any claim, action, damage, obligation, liability, or lien, Lessee
shall assume full responsibility for the defense thereof, provided that Lessor's
failure to give such notice shall not
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limit or otherwise affect its rights hereunder. Any payment pursuant to this
Paragraph (except for any payment of Rent) shall be of such amount as shall be
necessary so that, after payment of any taxes required to be paid thereon by
Lessor, including taxes on or measured by the net income of Lessor, the balance
will equal the amount due hereunder. The provisions of this Paragraph with
regard to matters arising during a Lease shall survive the expiration or
termination of such Lease.
19. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior written
consent of Lessor, (a) assign, transfer, pledge, or otherwise dispose of any
Lease or Equipment, or any interest therein; (b) sublease or lend any Equipment
or permit it to be used by anyone other than Lessee and its employees; or (c)
move any Equipment from the location specified for it in the applicable
Schedule, except that Lessee may move Equipment to another location within the
United States provided that Lessee has delivered to Lessor (A) prior written
notice thereof and (B) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to Lessor) necessary or,
in the opinion of the Lessor, desirable to protect Lessor's interest in such
Equipment. Notwithstanding anything to the contrary in the immediately preceding
sentence, Lessee may keep any Equipment consisting of motor vehicles or rolling
stock at any location in the United States.
20. ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant a
security interest in any Lease and the Equipment individually or together, in
whole or in part. If Lessee is given written notice of any such assignment, it
shall immediately make all payments of Rent and other amounts hereunder directly
to such assignee. Each such assignee shall have all of the rights of Lessor
under each Lease assigned to it. Lessee shall not assert against any such
assignee any set-off, defense, or counterclaim that Lessee may have against
Lessor or any other person.
21. DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of the
obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay within two
business days after notice of failure to pay when due any amount required to be
paid by Lessee under or in connection with any Lease; (b) any of the Lease
Parties fails to perform any other provision under or in connection with a Lease
or violates any of the covenants or agreements of such Lease Party under or in
connection with a Lease; (c) any representation made or financial information
delivered or furnished by any of the Lease Parties under or in connection with a
Lease shall prove to have been inaccurate in any material respect when made; (d)
any of the Lease Parties makes an assignment for the benefit of creditors,
whether voluntary or involuntary, or consents to the appointment of a trustee or
receiver, or if either shall be appointed for any of the Lease Parties or for a
substantial part of its property without its consent and, in the case of any
such involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof; (e) any petition or
proceeding is filed by or against any of the Lease Parties under any Federal or
State bankruptcy or insolvency code or similar law and, in the case of any such
involuntary petition or proceeding, such petition or proceeding remains
undismissed or unstayed for forty-five days following the filing or commencement
thereof, or any of the Lease Parties takes any action authorizing any such
petition or proceeding; (f) any of the Lease Parties fails to pay when due any
indebtedness for borrowed money or under conditional sales or installment sales
contracts or similar agreements, leases, or obligations evidenced by bonds,
debentures, notes, or other similar agreements or instruments to any creditor
(including Lessor under any other agreement) after any and all applicable cure
periods therefor shall have elapsed; (g) any judgment rendered by a court of
competent jurisdiction shall be rendered against any of the Lease Parties which
shall remain unpaid or unstayed for a period of sixty days; (h) any of the Lease
Parties shall dissolve, liquidate, wind up or cease its business, sell or
otherwise dispose of all or substantially all of its assets, or make any
material change in its basic lines of business; (i) any of the Lease Parties
shall amend or modify its name, unless such Lease Party delivers to Lessor,
within thirty days after any such proposed amendment or modification, written
notice of such amendment or modification and within ten days before such
amendment or modification delivers executed financing statements (in form and
substance satisfactory to the Lessor); (j) any of the Lease Parties shall merge
or consolidate with any other entity or make any material change in its capital
structure, in each case without Lessor's prior written consent, which shall not
be unreasonably withheld; (k) any of the Lease Parties shall suffer any loss or
suspension of any material license, permit, or other right or asset necessary to
the profitable conduct of its business, fail generally to pay its debts as they
mature, or call a meeting for purposes of compromising its debts; (l) any of the
Lease Parties shall deny or disaffirm its obligations hereunder or under any of
the documents delivered in connection herewith; (m) there is a change, which
change does not result from the sale of newly issued securities
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to investors, in more than 35% of the ownership of any equity interests of any
of the Lease Parties on the date hereof or more than 35% of such interests
become subject to any contractual, judicial or statutory lien, charge, security
interest, or encumbrance; or (n) any of the Lease Parties suffers a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise).
22. REMEDIES. Upon the occurrence and continuation of an Event of Default,
Lessor shall have the right, in its sole discretion, to exercise any one or more
of the following remedies: (a) terminate each Lease; (b) declare any and all
Rent and other amounts then due and any and all Rent and other amounts to become
due under each Lease (collectively, the "Lease Obligations") immediately due and
payable; (c) take possession of any or all items of Equipment, wherever located,
without demand, notice, court order, or other process of law, and without
liability for entry to Lessee's premises, for damage to Lessee's property, or
otherwise; (d) demand that Lessee immediately return any or all Equipment to
Lessor in accordance with Paragraph 14 above, and, for each day that Lessee
shall fail to return any item of Equipment, Lessor may demand an amount equal to
the Rent payable for such Equipment in accordance with Paragraph 14 above; (e)
lease, sell, or otherwise dispose of the Equipment in a commercially reasonable
manner, with or without notice and on public or private bid; (f) recover the
following amounts from the Lessee (as damages, including reimbursement of costs
and expenses, liquidated for all purposes and not as a penalty): (i) all costs
and expenses of Lessor reimbursable to it hereunder, including, without
limitation, expenses of disposition of the Equipment, legal fees, and all other
amounts specified in Paragraph 23 below; (ii) an amount equal to the sum of (A)
any accrued and unpaid Rent through the later of (1) the date of the applicable
default, (2) the date that Lessor has obtained possession of the Equipment, or
(3) such other date as Lessee has made an effective tender of possession of the
Equipment to Lessor (the "Default Date") and (B) if Lessor resells or re-lets
the Equipment, Rent at the periodic rate provided for in each Lease for the
additional period that it takes Lessor to resell or re-let all of the Equipment;
(iii) the present value of all future Rent reserved in the Leases and contracted
to be paid over the unexpired Term of the Leases discounted at five percent
compound interest; (iv) the reversionary value of the Equipment as of the
expiration of the Term of the applicable Lease as set forth on the applicable
Schedule, discounted at five percent compound interest; and (v) any indebtedness
for Lessee's indemnity under Paragraph 18 above, plus a late charge at the rate
specified in Paragraph 3 above, less the amount received by Lessor, if any, upon
sale or re-let of the Equipment; and (g) exercise any other right or remedy to
recover damages or enforce the terms of the Leases. Upon the occurrence and
continuance of an Event of Default or an event which with the giving of notice
or the passage of time, or both, would result in an Event of Default, Lessor
shall have the right, whether or not Lessor has made any demand or the
obligations of Lessee hereunder have matured, to appropriate and apply to the
payment of the obligations of Lessee hereunder all security deposits and other
deposits (general or special, time or demand, provisional or final) now or
hereafter held by and other indebtedness or property now or hereafter owing by
Lessor to Lessee. Lessor may pursue any other rights or remedies available at
law or in equity, including, without limitation, rights or remedies seeking
damages, specific performance, and injunctive relief. Any failure of Lessor to
require strict performance by Lessee, or any waiver by Lessor of any provision
hereunder or under any Schedule, shall not be construed as a consent or waiver
of any other breach of the same or of any other provision. Any amendment or
waiver of any provision hereof or under any Schedule or consent to any departure
by Lessee herefrom or therefrom shall be in writing and signed by Lessor.
No right or remedy is exclusive of any other provided herein or permitted
by law or equity. All such rights and remedies shall be cumulative and may be
enforced concurrently or individually from time to time.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all costs and
expenses (including legal fees and expenses) incurred in connection with the
preparation, execution and delivery of this Agreement and any other agreements
and transactions contemplated hereby, which expenses shall not exceed $2,500
without the written consent of Lessee and all costs and expenses in protecting
and enforcing Lessor's rights and interests in each Lease and the equipment,
including, without limitation, legal, collection, and remarketing fees and
expenses incured by Lessor in enforcing the terms, conditions, or provisions of
each Lease or upon the occurrence and continuation of an Event of Default.
24. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a lessee by
Sections 2A-508 through 2A-522 of the UCC. To the extent permitted by applicable
law, Lessee also hereby waives any rights now or hereafter conferred by statute
or otherwise which may require Lessor to sell, lease, or otherwise use any
Equipment in mitigation of Lessor's damages as set forth in Paragraph 22 above
or which may otherwise limit or modify any of Lessor's rights
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or remedies under Paragraph 22. Any action by Lessee against Lessor for any
default by Lessor under any Lease shall be commenced within one year after any
such cause of action accrues.
25. NOTICES; ADMINISTRATION. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to Lessor, then to Transamerica Technology Finance Division,
76 Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to Lessor at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department, if to Lessee, then to Signal Pharmaceuticals, Inc., 5555 Oberlin
Drive, San Diego, California 92121, Attention: Vice President Finance or such
other address as shall be designated by Lessee or Lessor to the other party. All
such notices and correspondence shall be effective when received.
26. REPRESENTATIONS. Lessee represents and warrants to Lessor that (a)
Lessee is duly organized, validly existing, and in good standing under the laws
of the State of its incorporation; (b) the execution, delivery, and performance
by Lessee of this Agreement are within Lessee's powers, have been duly
authorized by all necessary action, and do not and will not contravene (i)
Lessee's organizational documents or (ii) any law, regulation, rule, or
contractual restriction binding on or affecting Lessee; (c) no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery, and
performance by Lessee of this Agreement; (d) each Lease constitutes the legal,
valid, and binding obligations of Lessee enforceable against Lessee in
accordance with its terms; (e) the cost of each item of Equipment does not
exceed the fair and usual price for such type of equipment purchased in like
quantity and reflects all discounts, rebates, and allowances for the Equipment
(including, without limitation, discounts for advertising, prompt payment,
testing, or other services) given to the Lessee by the manufacturer, supplier,
or any other person; and (f) all information supplied by Lessee to Lessor in
connection herewith is correct and does not omit any material statement
necessary to insure that the information supplied is not misleading.
27. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will execute,
acknowledge, record, or file, as the case may be, such further documents and do
such further acts as may be reasonably necessary, desirable, or proper to carry
out more effectively the purposes of this Agreement. Lessee hereby appoints
Lessor as its attorney-in-fact to execute on behalf of Lessee and authorizes
Lessor to file without Lessee's signature any UCC financing statements and
amendments Lessor deems advisable.
28. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as soon as
available, but not later than 120 days after the end of each fiscal year of
Lessee and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for Lessee and
its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the unaudited Financial Statements for such
fiscal quarter, together with a certification duly executed by a responsible
officer of Lessee that such Financial Statements have been prepared in
accordance with generally accepted accounting principles and are fairly stated
in all material respects (subject to normal year-end audit adjustments). Lessee
shall also deliver to Lessor as soon as available copies of all press releases
and other similar communications issued by Lessee.
29. CONSENT TO JURISDICTION. Lessee irrevocably submits to the jurisdiction
of any Illinois state or federal court sitting in Illinois for any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, and Lessee irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in such Illinois state
or federal court.
30. WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
31. FINANCE LEASE. Lessee and Lessor agree that each Lease is a "Finance
Lease" as
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defined by Section 2A-103(g) of the UCC. Lessee acknowledges that Lessee has
reviewed and approved each written Supply Contract (as defined by UCC 2A-103(y))
covering Equipment purchased from each "Supplier" (as defined by UCC 2A-103(x))
thereof.
32. NO AGENCY. Lessee acknowledges and agrees that neither the manufacturer
or supplier, nor any salesman, representative, or other agent of the
manufacturer or supplier, is an agent of Lessor. No salesman, representative, or
agent of the manufacturer or supplier is authorized to waive or alter any term
or condition of this Agreement or any Schedule and no representation as to the
Equipment or any other matter by the manufacturer or supplier shall in any way
affect Lessee's duty to pay Rent and perform its other obligations as set forth
in this Agreement or any Schedule.
33. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. IF ANY PROVISION SHALL BE HELD TO BE INVALID OR UNENFORCEABLE, THE
VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL NOT IN ANY WAY BE
AFFECTED OR IMPAIRED.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER,
LESSEE AND LESSOR AGREE THAT THIS AGREEMENT, THE SCHEDULES DELIVERED IN
CONNECTION HEREWITH FROM TIME TO TIME, AND THE COMMITMENT LETTER ARE THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF. SHOULD
THERE EXIST ANY INCONSISTENCY BETWEEN THE TERMS OF THE COMMITMENT LETTER AND
THIS AGREEMENT, THE TERMS OF THIS AGREEMENT SHALL PREVAIL.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed by their duly authorized officers as of the date
first written above.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ BRADLEY B. GORDON
---------------------------------
Name: Bradley E. Gordon
---------------------------------
Title:
Federal Tax ID: 94-3174286
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MORO
---------------------------------
Name: Gary P. Moro
---------------------------------
Title: Vice President
8
<PAGE> 1
EXHIBIT 10.26
SORRENTO VALLEY BUSINESS PARK
LEASE
SUITE 100
From
HUB PROPERTIES TRUST
a Maryland Real Estate Investment Trust
To
SIGNAL PHARMACEUTICALS, INC.
a California Corporation
5626 Oberlin Drive
San Diego, California 92121
<PAGE> 2
Table of Contents.
<TABLE>
<S> <C> <C>
ARTICLE 1 Reference Data....................................................................1
1.1 Introduction and Subjects Referred To.........................................1
ARTICLE 2 Premises and Term.................................................................2
2.1 Premises......................................................................2
2.2 Term..........................................................................3
2.3 Termination Option............................................................3
ARTICLE 3 Commencement and Condition .......................................................3
3.1 Commencement Date...............................................................3
3.2 Condition of Premises...........................................................3
ARTICLE 4 Rent and Other Charges............................................................4
4.1 The Annual Fixed Rent...........................................................4
4.2 Additional Rent.................................................................4
4.3 Real Estate Taxes.............................................................5
4.4 Personal Property Taxes.........................................................6
4.5 Operating Costs.................................................................6
4.6 Insurance.......................................................................9
4.7 Utilities......................................................................11
4.8 Late Payment of Rent...........................................................12
4.9 Security Deposit...............................................................12
ARTICLE 5 Landlord's Covenants.............................................................14
5.1 Heat and Air-Conditioning......................................................14
5.2 Water..........................................................................14
5.3 Cleaning.......................................................................14
5.4 Lighting.......................................................................15
5.5 Repairs........................................................................15
5.6 Repair Cost Waiver.............................................................16
5.7 Interruption...................................................................16
5.8 Outside Services...............................................................16
5.9 Access to Building.............................................................17
5.10 Insurance.....................................................................17
ARTICLE 6 Tenant's Additional Covenants....................................................17
6.1 Perform Obligations............................................................17
6.2 Use............................................................................17
6.3 Repair and Maintenance.........................................................18
6.4 Compliance with Law............................................................18
6.5 Indemnification................................................................19
6.6 Landlord's Right to Enter......................................................19
6.7 Personal Property at Tenant's Risk.............................................20
6.8 Payment of Landlord's Cost of Enforcement......................................20
6.9 Yield Up.......................................................................20
6.10 Rules and Regulations.........................................................21
6.11 Estoppel Certificate..........................................................21
6.12 Landlord's Expenses Re Consents...............................................21
6.13 Financial Information.........................................................21
6.14 Assignment and Subletting.....................................................22
6.15 Nuisance....................................................................25
6.16 Equipment; Floor Load.........................................................26
</TABLE>
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<TABLE>
<S> <C> <C>
6.17 Electricity...................................................................26
6.18 Installations, Alterations or Additions.......................................26
6.19 Signs.........................................................................28
6.20 Hazardous Materials...........................................................28
ARTICLE 7 Casualty or Taking...............................................................30
7.1 Termination....................................................................30
7.2 Restoration....................................................................31
7.3 Award..........................................................................31
7.4 Termination Waiver.............................................................32
ARTICLE 8 Defaults.........................................................................32
8.1 Default of Tenant..............................................................32
8.2 Remedies.......................................................................33
8.3 Remedies Cumulative............................................................35
8.4 Landlord's Right to Cure Defaults..............................................35
8.5 Holding Over...................................................................36
8.6 Effect of Waivers of Default...................................................36
8.7 No Waiver, etc.................................................................36
8.8 No Accord and Satisfaction.....................................................36
ARTICLE 9 Rights of Holders................................................................37
9.1 Rights of Mortgagees or Ground Lessors.........................................37
9.2 Modifications..................................................................38
ARTICLE 10 Miscellaneous Provisions........................................................38
10.1 Notices.......................................................................38
10.2 Quiet Enjoyment; Landlord's Right to Make Alterations,
Etc...................................................................39
10.3 Lease Not to be Recorded......................................................40
10.4 Assignment of Rents and Transfer of Title; Limitation
of Landlord's Liability...............................................40
10.5 Landlord's Default............................................................41
10.6 Notice to Mortgagee and Ground Lessor.........................................41
10.7 Building or Complex Name Change...............................................42
10.8 Parking.......................................................................42
10.9 Brokerage.....................................................................42
10.10 Applicable Law and Construction..............................................42
The Exhibits listed below are incorporated in this Lease by reference
and are to be construed as a part of this Lease.
EXHIBIT A. Plan showing the Premises.
EXHIBIT B. Rules and Regulations.
EXHIBIT C. Alterations Requirements.
EXHIBIT D. Contractor's Insurance Requirements.
EXHIBIT E. Clerk's Certificate.
</TABLE>
<PAGE> 4
ARTICLE 1
Reference Data
1.1 Introduction and Subjects Referred To
This is a lease (this "Lease") entered into by and between HUB
PROPERTIES TRUST, a Maryland real estate investment trust ("Landlord") and
SIGNAL PHARMACEUTICALS, INC., a California corporation ("Tenant").
Each reference in this Lease to any of the following terms or phrases
shall be construed to incorporate the corresponding definition stated in this
Section 1.1.
Date of
this Lease: January __, 1998
Complex: The four (4) buildings (the "Buildings") of
the Sorrento Valley Business Park and the
parking facilities and all other
appurtenances, and the land parcels on which
they are located and the sidewalks adjacent
thereto, hereinafter referred to collectively
as the "Complex".
Building: That certain building in the Complex, known
as 5626 Oberlin Drive, San Diego, California
92121 (the "Building").
Premises: A portion of the first (1st) floor of the
Building substantially as shown on Exhibit A
hereto and known as Suite 100.
Commencement
Date: January 1, 1998.
Original Term: Six (6) years, commencing as of the
Commencement Date and expiring December 31,
2003.
Annual
Fixed Rent:
<TABLE>
<CAPTION>
Annual Monthly
Lease Year Fixed Rent Payment
---------- ---------- -------
<S> <C> <C>
1 $117,590.40 $ 9,799.20
2 $256,085.76 $21,340.48
3 $261,312.00 $21,776.00
4 $267,844.80 $22,320.40
5 $280,910.40 $23,409.20
6 $287,443.20 $23,953.60
</TABLE>
Lease Year: The twelve (12) month period commencing on
the Commencement Date and ending on the day
immediately preceding the first anniversary
of the Commencement Date and each succeeding
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twelve (12) month period thereafter during
the term of this Lease.
Tenant's
Percentage: Ten and 41/100 percent (10.41%).
Other Lease: That certain lease between Sorrento Valley
Business Park, a California limited partnership and
Tenant dated as of April 30, 1993, as amended by
First Amendment to Lease dated November 4, 1994,
Second Amendment to Lease dated May 31, 1996 and
letter agreement dated the Date of this Lease.
Permitted
Uses: Offices and laboratories for biotechnology
research and development, subject to the
provisions of Section 6.2.
Commercial General
Liability Insurance
Limits: $4,000,000 per occurrence (combined single
limit) for property damage, bodily and
personal injury and death.
Original
Address of
Landlord: c/o M&P Partners Limited Partnership
400 Centre Street
Newton, MA 02158
Attn: John Mannix
Telephone #: (617) 928-1300
Original
Address of
Tenant: 5555 Oberlin Drive
San Diego, CA 92121
Security
Deposit: $21,340.48.
ARTICLE 2
Premises and Term
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises, excluding exterior faces
of exterior walls, the common lobbies, hallways, stairways, stairwells, elevator
shafts and other common areas, and the escalators, elevators, pipes, ducts,
conduits, wires and appurtenant fixtures and other common
<PAGE> 6
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facilities serving the common areas, the Premises and the
premises of other tenants in the Building.
Tenant shall have, as appurtenant to the Premises, rights to use, in
common with others, subject to reasonable rules of general applicability to
tenants of the Building from time to time made by Landlord of which Tenant is
given notice: (a) the common lobbies, hallways and stairways of the Building,
(b) the common escalators, elevators, pipes, ducts, conduits, wires and
appurtenant fixtures and other common facilities serving the Premises, (c)
common walkways and driveways (if any) necessary for access to the Building, and
(d) if the Premises include less than all of the rentable area of any floor of
the Building, the common toilets and other common facilities located on such
floor.
2.2 Term. The term of this Lease shall be for a period beginning on the
Commencement Date (as hereinafter defined) and continuing for the Original Term
and any extension thereof in accordance with the provision of this Lease, unless
sooner terminated as hereinafter provided. The Original Term and any extension
thereof in accordance with the provisions of this Lease is hereinafter referred
to as the "term".
2.3 Termination Option. Provided there shall exist no Default of Tenant,
Tenant may elect to terminate the term of this Lease effective as of December
31, 1998 by giving notice to Landlord of such election, which notice shall be
accompanied by (i) Tenant's check to the order of Landlord in the amount of
$52,500.00 (the "Termination Payment") and (ii) any plans and specifications
Tenant may have relating to the Premises, on or at any time prior to November
30, 1998 (the "Election Date"). If Tenant shall fail to give such notice or to
have paid the Termination Payment or to have delivered such plans and
specifications by the Election Date, however, this Lease shall continue in full
force and effect and Tenant shall have no further option to terminate this Lease
under this Section 2.3, it being agreed that time is of the essence with respect
to the exercise of Tenant's rights hereunder.
ARTICLE 3
Commencement and Condition
3.1 Commencement Date. The Commencement Date shall be January 1, 1998.
3.2 Condition of Premises. The Premises are leased in "as
is" condition, Tenant acknowledging that it has fully
investigated and become fully familiar with the condition of the
Premises and that Landlord has made no warranties or
representations as to the condition of the Premises. Landlord
<PAGE> 7
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shall, however, comply with its obligations under Section 5.6 hereof.
ARTICLE 4
Rent and Other Charges
4.1 The Annual Fixed Rent. Tenant agrees to pay to Landlord's Agent, or
as otherwise directed by Landlord, commencing on the Commencement Date, without
offset, abatement (except as provided in Article 7), deduction or demand, the
Annual Fixed Rent. Such Annual Fixed Rent shall be payable in equal monthly
installments, in advance, on the first day of each and every calendar month
during the term of this Lease, at the Original Address of Landlord, or at such
other place as Landlord shall from time to time designate by notice, by check
drawn on a domestic bank.
Annual Fixed Rent for any partial month shall be prorated on a daily
basis, and if Annual Fixed Rent commences on a day other than the first day of a
calendar month, the first payment which Tenant shall make to Landlord shall be
payable on the date Annual Fixed Rent commences and shall be equal to a
proportionate part of the monthly installment of Annual Fixed Rent for the
partial month in which Annual Fixed Rent commences plus the installment of
Annual Fixed Rent for the succeeding calendar month.
"Index" shall mean the Consumer Price Index for Urban Wage Earners and
Clerical Workers, Los Angeles-Anaheim-Riverside, All Items, 1982-1984=100, (or
the Consumer Price Index for the smallest geographic area for which includes Los
Angeles-Anaheim-Riverside. The Index is presently published by the Bureau of
Labor Statistics of the United States Department of Labor. In the event
publication of the Index ceases, the computation of the Annual Fixed Rent due
from Tenant during each year of the term with respect to which the Index is to
be applied shall be computed upon the basis of whatever index published by the
United States Department of Labor at that time is most nearly comparable as a
measure of general changes in price levels for the area in which the Property is
located. In the event that the Index ceases to use 1982-84=100 as the basis of
calculation, then the Index shall be converted to the amount(s) that would have
resulted had the manner of calculating the Index in effect at the Date of this
Lease not been altered. Any decrease in the Index shall not cause Annual Fixed
Rent to be reduced.
4.2 Additional Rent. Tenant covenants and agrees to pay Tenant's
Percentage of Taxes and Operating Costs as provided below, and all other charges
and amounts payable by or due from Tenant to Landlord (all such amounts referred
to in this sentence being "Additional Rent").
<PAGE> 8
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4.3 Real Estate Taxes. Tenant shall pay to Landlord, as Additional Rent,
an amount ("Tenant's Tax Share") equal to Tenant's Percentage of the Taxes (as
hereinafter defined) due (or estimated to be due by governmental authority) for
any fiscal tax period (a "Tax Year") during the term hereof. Except as otherwise
provided in the immediately following paragraph, Tenant shall pay Tenant's Tax
Share to Landlord at least ten (10) days prior to the date or dates within any
year during the term hereof that the same, or any fractional share thereof,
shall be due and payable to any governmental authority responsible for
collection of same (as stated in a written notice to Tenant given at least
twenty (20) days prior to the date or dates any such payment shall be due, which
notice shall set forth the manner of computation of any Tenant's Tax Share due
from Tenant), except that such payment shall be made to Landlord not later than
ten (10) days after such notice to Tenant, if such notice is given subsequent to
the date twenty days prior to the date the same is due and payable as aforesaid.
At Landlord's election, Tenant shall pay to Landlord, as Additional Rent
on the first day of each calendar month during the term but otherwise in the
manner provided for the payment of Annual Fixed Rent, estimated payments on
account of Tenant's Tax Share, such monthly amounts to be sufficient to provide
Landlord by the time Tax payments are due or are to be made by Landlord a sum
equal to Tenant's Tax Share, as reasonably estimated by Landlord from time to
time on account of Taxes for the then current Tax Year. If the total of such
monthly remittances for any Tax Year is greater than Tenant's Tax Share for such
Tax Year, Landlord shall credit such overpayment against Tenant's subsequent
obligations on account of Taxes (or promptly refund such overpayment if the term
of this Lease has ended and Tenant has no further obligations to Landlord); if
the total of such remittances is less than Tenant's Tax Share for such Tax Year,
Tenant shall pay the difference to Landlord within ten (10) days after being so
notified in writing by Landlord.
If, after Tenant shall have made all payments due to Landlord pursuant
to this Section 4.3, Landlord shall receive a refund of any portion of Taxes as
a result of an abatement of such Taxes by legal proceedings, settlement or
otherwise (without either party having any obligation to undertake any such
proceed ings), Landlord shall pay or credit to Tenant Tenant's Percentage of
that percentage of the refund (after first deducting any reasonably incurred
expenses, including attorneys', consultants' and appraisers' fees, incurred in
connection with obtaining any such refund) which equals the percentage of the
applicable Tax Year included in the term hereof, provided however, in no event
shall Tenant be entitled to receive more than the sum of payments actually made
by Tenant on account of Taxes with respect to such Tax Year or to receive any
payment if Taxes for any Tax Year are less than Base Taxes.
<PAGE> 9
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In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Tax Year, or should the Tax Year
or period of assessment of real estate taxes be changed or be more or less than
one (1) year, or should Tenant's Percentage be modified during any Tax Year due
to a change in the rentable area of the Building and/or the Premises or
otherwise, as the case may be, then the amount of Tenant's Tax Share which may
be otherwise payable by Tenant as provided in this Section 4.3 shall be
appropriately apportioned and adjusted.
The term "Taxes" shall mean all taxes, assessments, excises and other
charges and impositions which are general or special, ordinary or extraordinary,
foreseen or unforeseen, of any kind or nature which are levied, assessed or
imposed at any time during the term by any governmental authority upon or
against the Complex, or taxes in lieu thereof, and additional types of taxes to
supplement real estate taxes due to legal limits imposed thereon. If, at any
time during the term of this Lease, any tax or excise on rents or other taxes,
however described, are levied or assessed against Landlord with respect to the
rent reserved hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes then assessed or levied on the Complex, such tax
or excise on rents shall be included in Taxes; however, Taxes shall not include
franchise, estate, inheritance, succession, capital levy, income or excess
profits taxes assessed on Landlord. Taxes also shall include all court costs,
attorneys', consultants' and accountants' fees, and other reasonably incurred
expenses incurred by Landlord contesting Taxes through and including all
appeals. Taxes shall include any estimated payment made by Landlord on account
of a fiscal tax period for which the actual and final amount of taxes for such
period has not been determined by the governmental authority as of the date of
any such estimated payment.
4.4 Personal Property Taxes. Tenant shall pay all taxes charged,
assessed or imposed upon the personal property of Tenant in or upon the
Premises.
4.5 Operating Costs. Tenant shall pay to Landlord, as Additional Rent,
an amount ("Tenant's Operating Cost Share") equal to Tenant's Percentage of
Operating Costs (as hereinafter defined) paid or incurred by Landlord in any
twelve-month period established by Landlord (an "Operating Year"). Except as
otherwise provided in the immediately following paragraph Tenant shall pay
Tenant's Operating Cost Share to Landlord within twenty (20) days from the date
Landlord shall furnish to Tenant an itemized statement thereof, prepared,
allocated and computed in accordance with then prevailing customs and practices
of the real estate industry in the San Diego area, consistently applied.
At the election of Landlord, Tenant shall pay to Landlord, as Additional
Rent on the first day of each calendar month during the term but otherwise in
the manner provided for the payment of
<PAGE> 10
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Annual Fixed Rent, estimated payments on account of Tenant's Operating Cost
Share, such monthly amounts to be sufficient to provide to Landlord, by the end
of each Operating Year, a sum equal to Tenant's Operating Cost Share for such
Operating Year, as reasonably estimated by Landlord from time to time during
such Operating Year. If, at the expiration of each Operating Year in respect of
which monthly installments of Tenant's Operating Cost Share shall have been made
as aforesaid, the total of such monthly remittances is greater than the actual
Tenant's Operating Cost Share for such Operating Year, Landlord shall credit
such overpayment against Tenant's subsequent obligations on account of Operating
Costs (or promptly refund such overpayment if the term of this Lease has ended
and Tenant has no further obligation to Landlord); if the total of such
remittances is less than Tenant's Operating Cost Share for such Operating Year,
Tenant shall pay the difference to Landlord within ten (10) days after being so
notified by Landlord.
In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Operating Year or Tenant's
Percentage shall be modified during any Operating Year due to a change in the
rentable area of the Building and/or the Premises or otherwise, as the case may
be, then the amount of Tenant's Operating Cost Share which may be payable by
Tenant as provided in this Section 4.5 shall be appropriately apportioned and
adjusted.
The term "Operating Costs" shall include, without limitation, all
reasonable costs and expenses as may be paid or incurred by Landlord in
maintaining, operating and repairing the common areas and facilities of the
Complex during the Term, including, without limitation, CC&R assessments and
dues, and the cost of labor, materials, supplies and services used or consumed
in maintaining operating and repairing the common areas and facilities,
including without limitation, the following:
(a) maintaining and repairing landscaping and sprinkler systems,
together with all charges for water and sewer service used in the common areas
of the Complex;
(b) maintaining and repairing concrete walkways and paved parking areas;
(c) maintaining and repairing signs and site lighting in the Complex;
(d) pest control, exterior janitorial, exterior window washing, sweeping
services, and buildings and Complex security;
(e) all electricity and other utilities supplied to the common areas of
the Complex;
(f) all costs of insurance maintained by Landlord;
<PAGE> 11
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(g) legal fees except as excluded below; and
(h) a management fee equal to five percent (5%) of the total Operating
Costs and Taxes.
Tenant may, at its sole expense, contract for or provide its own
interior janitorial service. If Tenant does not contract for or otherwise
provide for its own interior janitorial services, then Landlord may provide such
services and the costs thereof may be included within Operating Costs.
The following shall not constitute Operating Costs:
1. Brokerage commissions, advertising costs and other related expenses
incurred in connection with the leasing by Landlord of the Complex;
2. Structural repairs of a capital nature;
3. Damage, the cost to repair which is reimbursed to Landlord under any
insurance policy carried by Landlord under this Lease in connection with the
Complex;
4. Damage and repairs necessitated by the negligence or willful
misconduct of Landlord or Landlord's employees, agents or contractors;
5. Executive salaries of Landlord;
6. Salaries of service personnel to the extent such service personnel
performs services not attributable to management, operation, repair or
maintenance of the Complex;
7. Landlord's general overhead expenses not related to the Complex;
8. Payments of principal or interest on any mortgage or other
encumbrance including ground lease payments and points, commissions and legal
fees associated with financing;
9. Depreciation;
10. Legal fees, accountants' fees and expenses incurred in connection
with disputes with Tenant or other tenants or occupants of the Complex or
associated with the enforcement of any leases;
11. Costs, including permits, license and inspection fees incurred in
renovating or otherwise improving, decorating, painting or altering space for
other tenants in the Complex;
<PAGE> 12
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12. The cost of any service provided to Tenant or other tenants of the
Complex for which Landlord is reimbursed;
13. Charitable or political contributions;
14. Interest, penalties or other costs arising out of Landlord's failure
to make timely payments of its obligations;
15. Costs incurred in advertising and promotional activities for the
Complex;
16. Costs charged Landlord by any of its affiliates for goods and
services provided to the Complex to the extent in excess of the prevailing costs
thereof that would be charged to Landlord by non-affiliated parties;
17. Except as otherwise provided in Section 6.2, repairs, alterations,
additions, improvements or replacements to the Complex made to comply with
requirements of applicable governmental law in effect as of the Date of this
Lease, except for those repairs, alterations, additions, improvements or
replacements for which Tenant is otherwise responsible under this Lease, and
except for those arising out of or necessitated by Tenant's use (excluding
reasonable wear and tear), or any alterations or tenant improvements made by or
for Tenant;
18. Damage and repairs attributable to condemnation, fire and other
casualty for which Landlord is reimbursed by condemnation or insurance proceeds;
and
19. The cost or expense of testing for, removal, transportation or
storage of Hazardous Materials, except to the extent arising out of the storage,
use, generation, transportation, disposal, or release of Hazardous Materials by
Tenant, or its contractors, employees or invitees.
4.6 Insurance. Tenant shall, at its expense, take out and maintain, from
the date upon which Tenant first enters the Premises for any reason, and
throughout the term and thereafter so long as Tenant is in occupancy of any part
of the Premises, the following insurance:
(a) Commercial general liability insurance, including bodily injury and
property damage (on an occurrence basis and on a 1988 ISO CGL form or its
equivalent or otherwise in the broadest form available, including without
limitation, broad form contractual liability, fire, legal liability, independent
contractor's hazard and, upon commencement of commercial product production,
completed operations coverage) under which Tenant is named as an insured and
Landlord and Landlord's Agent (and the holder of any mortgage on the Building or
the Complex, as set out in a notice from time to time) are named as additional
insureds as their interests may appear, in an amount which shall, at the
<PAGE> 13
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beginning of the term, be at least equal to the Commercial General Liability
Insurance Limit, and, which, from time to time during the term, shall be for
such higher limits, if any, as are customarily carried in the area in which the
Premises are located at property comparable to the Premises and used for similar
purposes;
(b) Worker's compensation insurance with statutory limits covering all
of Tenant's employees working on the Premises; and
(c) So-called "all-risk" property insurance on a "replacement cost"
basis with an agreed value endorsement covering all Tenant's furniture,
furnishings, fixtures and equipment and other personal property and all
improvements and betterments to the Premises performed at Tenant's expense.
All such policies shall contain a clause confirming that such policy and
the coverage evidenced thereby shall be primary with respect to any insurance
policies carried by Landlord and shall be obtained from responsible companies
qualified to do business and in good standing in the State of California, which
companies shall have a general policy holder's rating in Best's of at least
A-VIII. A copy of each paid-up policy evidencing such insurance (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this Section and
containing provisions specified herein, shall be delivered to Landlord prior to
the commencement of the term of this Lease and, upon renewals, not less than
thirty (30) days prior to the expiration of such coverage. Tenant agrees to
furnish Landlord with certificates evidencing all such insurance prior to the
beginning of the term hereof. Tenant shall procure and pay for renewals of such
insurance from time to time before the expiration thereof, and Tenant shall
deliver to Landlord and any additional insured such renewal policy or a
certificate thereof at least thirty (30) days prior to expiration of any
existing policy. Each such policy shall be non-cancellable and not materially
changed with respect to the interest of Landlord and such mortgagees of the
Building or the Complex (and others that are in privity of estate with Landlord
of which Landlord provides notice to Tenant from time to time) without at least
ten (10) days' prior written notice thereto. Any insurance required of Tenant
under this Lease may be furnished by Tenant under a blanket policy carried by it
provided that such blanket policy shall reference the Premises, and shall
guarantee a minimum limit available for the Premises equal to the insurance
amounts required in this Lease. Landlord may, at any time, and from time to
time, inspect and/or copy any and all insurance policies required to be procured
by Tenant hereunder.
Landlord and Tenant shall each endeavor to secure an appropriate clause
in, or an endorsement upon, each property damage insurance policy obtained by it
and covering the Building,
<PAGE> 14
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the Premises or the personal property, fixtures and equipment located therein or
thereon, pursuant to which the respective insurance companies waive subrogation
or permit the insured, prior to any loss, to agree with a third party to waive
any claim it might have against said third party. The waiver of subrogation or
permission for waiver of any claim hereinbefore referred to shall extend to the
agents of each party and its employees and, in the case of Tenant, shall also
extend to all other persons and entities occupying or using the Premises by,
through or under Tenant. If and to the extent that such waiver or permission can
be obtained only upon payment of an additional charge then the party benefiting
from the waiver or permission shall pay such charge upon demand, or shall be
deemed to have agreed that the party obtaining the insurance coverage in
question shall be free of any further obligations under the provisions hereof
relating to such waiver or permission from such insurance companies.
Subject to the foregoing provisions of this Section 4.6, and insofar as
may be permitted by the terms of the insurance policies carried by it, each
party hereby releases the other with respect to any claim which it might
otherwise have against the other party for loss, damage or destruction of or to
its property to the extent such damage is or would be covered by policies of
insurance required by this Lease to be carried by the respective parties
hereunder. In addition, Tenant agrees to exhaust any and all claims against its
insurer(s) prior to commencing an action against Landlord for any property loss,
except for any loss or damage to property due to the gross negligence or willful
misconduct of Landlord or its agents or employees.
4.7 Utilities. Tenant shall pay for the cost of all charges for
electricity, telephone and other utilities or services not supplied by Landlord
pursuant to Article 5, whether designated as a charge, tax, assessment, fee or
otherwise, all such charges to be paid as the same from time to time become due.
Except as otherwise provided in this Section 4.7 or Article 5, it is understood
and agreed that Tenant shall make its own arrangements for the installation or
provision of all utilities and services and that Landlord shall be under no
obligation to furnish any utilities to the Premises. Tenant acknowledges that
Annual Fixed Rent does not include the cost of providing such utilities and
services to the Premises.
If the utility company serving the Premises shall agree to separate
metering of Tenant's electricity consumption in the Premises, such electricity
usage may (at Landlord's option) be separately metered.
If Tenant's electricity consumption shall be separately metered for all
or any portion of the Premises at any time during the term hereof, then, for
those portions of the Premises that are separately metered, Tenant shall pay all
bills for such
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electricity promptly to the utility company furnishing the same. If Tenant's
electricity consumption is not separately metered in all or any portion of the
Premises during all or any portion of the term, Tenant shall reimburse Landlord
for the costs incurred by Landlord (including any associated fees and expenses
reasonably incurred by Landlord) in supplying electricity to those portions of
the Premises which are not separately metered, within ten (10) days of
Landlord's invoice therefor.
4.8 Late Payment of Rent. If any installment of Annual Fixed Rent or
Additional Rent is paid after the date the same was due, it shall bear interest
(as Additional Rent) from the date due at the Default Rate (as defined in
Section 8.4). Absent specific provision to the contrary, all Additional Rent
shall be due and payable in full ten (10) days after demand by Landlord.
4.9 Security Deposit. Upon execution of this Lease, Tenant shall deposit
with Landlord the Security Deposit. The Security Deposit shall be held by
Landlord as security for the faithful performance of all the terms of this Lease
to be observed and performed by Tenant. The Security Deposit shall not be
mortgaged, assigned, transferred or encumbered by Tenant and any such act on the
part of Tenant shall be without force and effect and shall not be binding upon
Landlord.
If the Annual Fixed Rent or Additional Rent payable hereunder shall be
overdue and unpaid or should Landlord make any payment on behalf of the Tenant,
or Tenant shall fail to perform any of the terms of this Lease, then Landlord
may, at its option, upon not less than three (3) days' prior notice to Tenant,
but without prejudice to any other remedy which Landlord may have on account
thereof, appropriate and apply the entire Security Deposit or so much thereof as
may be necessary to compensate Landlord toward the payment of Annual Fixed Rent,
Additional Rent or other sums or loss or damage sustained by Landlord due to
such breach by Tenant; and Tenant shall forthwith upon demand restore the
Security Deposit to the original sum deposited. So long as Tenant shall not be
in default of its obligations under this Lease, Landlord shall return the
Security Deposit, or so much thereof as shall have not theretofore been applied
in accordance with the terms of this Section 4.9, to Tenant promptly following
the expiration or earlier termination of the term of this Lease and the
surrender of possession of the Premises by Tenant to Landlord in accordance with
the terms of this Lease. While Landlord holds the Security Deposit, Landlord
shall have no obligation to pay interest on the same and shall have the right to
commingle the same with Landlord's other funds. If Landlord conveys Landlord's
interest under this Lease, the Security Deposit, or any part thereof not
previously applied, shall be turned over by Landlord to Landlord's grantee, and
Tenant shall look solely to such grantee for proper application of the Security
Deposit in accordance with the terms of this Section 4.9 and the return thereof
in accordance herewith. The holder of a
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mortgage on the Property shall not be responsible to Tenant for the return or
application of the Security Deposit, whether or not it succeeds to the position
of Landlord hereunder, unless such holder actually receives the Security
Deposit.
In addition, at the expiration of the term of the Other Lease, Tenant
shall deliver to Landlord a letter of credit (the "Letter of Credit"), which
shall (a) be unconditional and irrevocable and otherwise in form and substance
satisfactory to Landlord; (b) be at all times in the amount of $150,000, and
shall permit multiple draws without a corresponding reduction in the amount of
the Letter of Credit; (c) be issued by a commercial bank reasonably acceptable
to Landlord from time to time; (d) be made payable to, and expressly
transferable and assignable at no charge by, the owner from time to time of the
Property (which transfer/assignment shall be conditioned only upon the execution
by such owner of a written document in connection with such transfer/assignment;
(e) be payable at sight upon presentment to a local branch of the issuer of a
simple sight draft accompanied by a certificate of Landlord stating that Tenant
is in default under this Lease, and the amount that Landlord is owed (or is
permitted to draw) in connection therewith; and (f) shall either expire sixty
(60) days following the expiration of the term of this Lease, or be replaced not
less than thirty (30) days prior to the expiration of the then current Letter of
Credit so that the original Letter of Credit or a replacement thereof shall be
in full force and effect throughout the Term of this Lease and for a period of
sixty (60) days thereafter. Tenant shall deliver to Landlord any replacement
Letter of Credit not less than thirty (30) days prior to the expiration of the
then current Letter of Credit. Notwithstanding anything in this Lease to the
contrary, any grace period or cure periods which are otherwise applicable under
Section 8.1, hereof, shall not apply to any of the foregoing, and, specifically,
if Tenant fails to comply with the requirements of subsection (f) above,
Landlord shall have the immediate right to draw upon the Letter of Credit in
full and hold the proceeds thereof as a cash security deposit until such breach
or default shall be cured by Tenant. Each Letter of Credit shall be issued by a
commercial bank that has a credit rating with respect to certificates of
deposit, short term deposits or commercial paper of at least P-2 (or equivalent)
by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard &
Poor's Corporation. If the issuer's credit rating is reduced below P-2 (or
equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent)
by Standard & Poor's Corporation, or if the financial condition of the issuer
changes in any other materially adverse way, then Landlord shall have the right
to require that Tenant obtain from a different issuer a substitute Letter of
Credit that complies in all respects with the requirements of this Section, and
Tenant's failure to obtain such substitute Letter of Credit within ten (10) days
after Landlord's written demand therefor (with no other notice, or grace or cure
period being applicable thereto) shall entitle
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Landlord to immediately draw upon the existing Letter of Credit in full, without
any further notice to Tenant until such substitute Letter of Credit is provided.
ARTICLE 5
Landlord's Covenants
5.1 Heat and Air-Conditioning. Landlord shall furnish heat and
air-conditioning ("HVAC") to the Premises (reserving the right, at any time, to
change energy sources) sufficient to maintain the Premises at comfortable
temperatures for the Permitted Uses and shall furnish ventilation to the
Premises in accordance with all legal requirements and in a fashion consistent
with similar space used for purposes similar to the Premises, subject to all
federal, state and municipal regulations. In the event Tenant makes any
alterations, locates an excessive number of persons or heat-generating equipment
in, or makes any other use of the Premises which overloads the capacity of the
Building HVAC systems or in any other way interferes with such system's ability
to perform adequately its proper functions, supplementary systems or alterations
may, if and as needed, at Landlord's option, upon reasonable prior notice to
Tenant be provided by Landlord, at Tenant's expense.
5.2 Water. Landlord shall furnish water for ordinary drinking, lavatory
and toilet facilities. If Tenant uses a disproportionate amount of water as
compared to other tenants of the Building, Landlord may assess a reasonable
charge for the additional water so used, or install a water meter and thereby
measure Tenant's water consumption for all purposes. In the latter event, Tenant
shall pay the cost of the meter and the reasonable cost of installation thereof
and shall keep such meter and installation equipment in good working order and
repair. Tenant agrees to pay for water consumed, as shown on such meter,
together with the sewer charge based on such meter charges, as and when bills
are rendered, and if Tenant shall fail to make such payment, Landlord may pay
such charges and collect the same from Tenant as Additional Rent.
5.3 Cleaning. Landlord shall provide cleaning to the Premises and the
common areas of the Building in accordance with standards generally prevailing
throughout the term hereof in comparable buildings in the San Diego area used
for similar purposes. Tenant shall pay to Landlord on demand the actual costs
incurred by Landlord for (a) extra cleaning work in the Premises required
because of carelessness, indifference, misuse or neglect on the part of Tenant
or its subtenants or its or their employees or visitors, and (b) removal from
the Premises and the Building of any refuse and rubbish of Tenant in excess of
that ordinarily accumulated in medical research and development office and
laboratory occupancy, including, without limitation,
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kitchen refuse, or at times other than Landlord's standard cleaning times.
Notwithstanding the foregoing, Landlord shall not be required to clean any
portions of the Premises used for preparation, serving or consumption of food or
beverages or other special purposes if same require greater or more difficult
cleaning work than office areas, and Tenant agrees, at Tenant's expense, to
retain Landlord's cleaning contractor to perform such extra cleaning, provided
that the charges of such cleaning contractor shall be commercially reasonable.
Landlord, its cleaning contractor and their respective employees shall
have access to the Premises after 6:00 p.m. and before 8:00 a.m. and shall have
the right to use, without charge therefor, all light, power and water in the
Premises reasonably required to clean the Premises as required hereunder.
Notwithstanding anything contained herein to the contrary, Landlord
shall have no obligation to collect or dispose of any (a) Hazardous Materials
(as hereinafter defined) or any radioactive, volatile, highly flammable,
explosive or toxic or hazardous materials, (b) needles, syringes, lancets,
similar sharp objects or contaminated glassware, (c) blood products, (d) body
fluids, (e) human or animal tissue and (f) any materials identified in
California Administrative Code Sections 66680-66685 et seq., any item identified
in clauses (a) through (f), above, hereinafter referred to as "Excepted Waste".
Tenant agrees that title to and liability for any Excepted Waste shall remain
with Tenant, even if Landlord collects and/or disposes of any such Excepted
Waste.
5.4 Lighting. Landlord shall purchase and install, at Tenant's expense,
all lamps, tubes, bulbs, starters and ballasts for lighting fixtures in the
Premises; and shall provide lighting to public and common areas of the Building.
5.5 Repairs. Except as otherwise expressly provided herein, Landlord
shall make such repairs and replacements to the roof, exterior walls, floor
slabs and other structural components of the Building, and to the common areas
and facilities of the Building (including any plumbing, electrical, HVAC
equipment, elevators and any other common equipment or systems in the Building)
as may be necessary to keep them in good repair and condition (exclusive of
equipment installed by Tenant and except for those repairs required to be made
by Tenant pursuant to Section 6.3 and repairs or replacements occasioned by any
act or negligence of Tenant, its servants, agents, customers, contractors,
employees, invitees, or licensees). In no event shall Landlord ever be liable or
accountable to Tenant for loss of light or view occasioned by alteration or
construction of buildings or structures adjacent to the Building or the Complex.
Landlord shall provide maintenance and landscaping to the exterior common areas
of the Building in accordance with
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standards generally prevailing throughout the term hereof in comparable office
buildings in the San Diego area.
5.6 Repair Cost Waiver. Tenant hereby waives all rights it would
otherwise have under California Civil Code Sections 1932(1) and 1942(a), or any
successor statutes, to deduct repair costs from rent or terminate this Lease as
a result of any failure by Landlord to perform its maintenance or repair
obligations.
5.7 Interruption. Landlord shall be under no responsibility or liability
for failure, interruption or unavailability of any services, facilities,
utilities, repairs or replacements or inability to provide access or inability
to perform any other obligation under this Lease caused by breakage, accident,
fire, flood or other casualty, strikes or other labor trouble, order or
regulation of or by any governmental authority, inclement weather, repairs,
inability to obtain or shortages of supplies, labor or materials, war, civil
commotion or other emergency, transportation difficulties or due to any act or
neglect of Tenant or Tenant's servants, agents, employees or licensees or for
any other cause beyond the reasonable control of Landlord, and in no event for
any indirect or consequential damages to Tenant; and failure or omission on the
part of Landlord to furnish any of same for any of the reasons set forth in this
paragraph shall not be construed as an eviction of Tenant, actual or
constructive, nor entitle Tenant to an abatement of rent, nor render the
Landlord liable in damages, nor release Tenant from prompt fulfillment of any of
its covenants under this Lease. Landlord shall, however, with due regard given
to the effect on Tenant's business, use all commercially reasonable efforts to
minimize, to the extent practical, the duration and extent of any such failure,
interruption, unavailability or inability to provide such services, facilities
and utilities.
Landlord reserves the right temporarily to stop the services of the
HVAC, plumbing, electrical or other utilities, systems or facilities in the
Building when necessary from time to time by reason of accident or emergency, or
for repairs, alterations, replacements or improvements which in the reasonable
judgment of Landlord are desirable or necessary, until such repairs,
alterations, replacements or improvements shall have been completed. Landlord
shall use reasonable efforts to give to Tenant at least ten (10) days' notice if
service is to be stopped and to schedule such interruption at nights or on
weekends, except in cases of emergency.
5.8 Outside Services. In the event Tenant wishes to provide outside
services for the Premises over and above those services to be provided by
Landlord as set forth herein, Tenant shall first obtain the prior approval of
Landlord (which approval shall not be unreasonably withheld or delayed provided
that Tenant agrees that it shall not be unreasonable for Landlord to
<PAGE> 20
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designate a sole provider of a given service for all tenants of the Building or
Complex) for the installation and/or utilization of such services. ("Outside
services" shall include, but shall not be limited to, cleaning services,
television, so-called "canned music" services, security services, catering
services and the like). In the event Landlord approves the installation and/or
utilization of such services, such installation and utilization shall be at
Tenant's sole cost, risk and expense.
5.9 Access to Building. Tenant acknowledges that Tenant is responsible
for providing security to the Premises following Tenant's entry onto the
Premises for any reason and for its own personnel whenever located therein.
Subject to the foregoing, Landlord shall, at all times, retain the right to
control and prevent such access by all persons whose presence, in the reasonable
discretion of Landlord, may jeopardize the safety, protection, character,
reputation and interests of the Building and its tenants or occupants. Landlord
shall in no case be liable for damages resulting from any error with regard to
the admission or exclusion of any person from the Building.
5.10 Insurance. Landlord shall carry (i) full replacement cost property
insurance (exclusive of footings and foundations, any betterments or
improvements performed by Tenant and subject to reasonable deductibles on the
Building) in at least the amount of coverage sufficient to prevent the
application of co-insurance provisions, and (ii) general liability insurance in
an amount consistent with that carried by other landlords of similar properties
in the San Diego metropolitan area.
ARTICLE 6
Tenant's Additional Covenants
6.1 Perform Obligations. Tenant shall, at all times during the term and
such further time as Tenant (or any entity claiming, whether in accordance with
this Lease or otherwise, by, through or under Tenant) occupies the Premises or
any part thereof, comply with all of the terms, provisions, covenants and
conditions on the part of Tenant to be performed under this Lease. Without
limiting the generality of the foregoing, Tenant shall perform promptly all of
the obligations of Tenant set forth in this Lease, including, without
limitation, the obligation to pay when due the Annual Fixed Rent and Additional
Rent and all other amounts which by the terms of this Lease are to be paid by
Tenant.
6.2 Use. Tenant shall use the Premises only for the Permitted Uses and
only to the extent permitted by zoning and other land use ordinances and
regulations, and for no other purpose and from time to time to procure and
maintain all
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licenses and permits necessary therefor and for any other use or activity
conducted at the Premises, at Tenant's sole expense.
Tenant acknowledges that the Premises are subject and subordinate to
those certain covenants, conditions and restrictions recorded at
Series/Instrument #80-317016, of the Official Records of San Diego County,
California, on September 29, 1980, a copy of which Tenant acknowledges has been
delivered to it (the "CC&R's"). Tenant acknowledges that it has read the CC&R's
and knows the contents thereof. Throughout the term, Tenant shall faithfully and
timely perform and comply with the CC&R's and any modification or amendments
thereto provided to Tenant, including the payment by Tenant of any periodic or
special dues or assessments against the Premises.
Tenant shall, at Tenant's sole cost and expense, take all action,
including any alterations necessary to comply with the requirements of the
Americans With Disabilities Act of 1990 (the "ADA"), which shall arise from
Tenant's use of the Premises, or any installations in the Premises, or required
by a breach of any of Tenant's covenants or agreements under this Lease, whether
or not such requirements shall now be in effect or hereafter enacted. Landlord
shall perform any work necessary for the common areas of the Complex to comply
with Title III of the ADA, to the extent such work is not Tenant's obligation
pursuant to the preceding sentence. The cost of any such work for which Landlord
is obligated shall be included as an Operating Cost.
6.3 Repair and Maintenance. Subject to Landlord's obligations under
Section 5.5, Tenant shall maintain the Premises in neat and clean order and
condition and shall perform all repairs to the Premises and all fixtures,
systems and equipment therein (including Tenant's equipment and other personal
property) as are necessary to keep them in good and clean working order,
appearance and condition, reasonable use and wear thereof and damage by fire or
by unavoidable casualty only excepted and shall replace any damaged or broken
glass in windows and doors of the Premises (except glass in the exterior walls
of the Building) with glass of the same quality as that damaged or broken.
6.4 Compliance with Law. Tenant shall (a) make all repairs alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority, but only to the extent either
arising out of Tenant's particular use of the Premises and not applicable
generally to properties used for office and laboratory purposes or arising out
of any work performed by Tenant, (b) keep the Premises equipped with all safety
appliances so required, but only to the extent either arising out of Tenant's
particular use of the Premises and not applicable generally to properties used
for office and laboratory purposes or arising out of any work performed by
Tenant; and (c) shall comply with the orders and regulations of all governmental
authorities with respect to zoning, building,
<PAGE> 22
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fire, health and other codes, regulations, ordinances or laws applicable to the
Premises and any use being conducted therein and any work being performed by
Tenant. Notwithstanding the foregoing, Tenant may defer compliance with any of
the foregoing if (i) the validity of any such law, ordinance, order or
regulation shall be contested by Tenant in good faith and by ap propriate legal
proceedings, (ii) Landlord shall not be subject to any fine or charge or other
cost, expense or liability, (iii) neither the Complex nor any portion thereof
shall be subject to being condemned or vacated, (iv) neither the Complex nor any
portion thereof shall be subject to any lien or encumbrance and (v) Tenant first
gives Landlord appropriate assurance or security against any loss, cost or
expense on account thereof.
6.5 Indemnification. Tenant shall save Landlord harmless, and shall
exonerate and indemnify Landlord from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority on account of nuisance or injury, death, damage
or loss to person or property in or upon the Premises and/or the Complex arising
out of the use or occupancy of the Premises by Tenant or by any person claiming
by, through or under Tenant (including, without limitation, all patrons,
employees, contractors, vendors, suppliers and customers of Tenant), or arising
out of labor disputes with Tenant's employees or strikes, picketing or other
similar actions, or on account of or based upon anything whatsoever done on or
occurring in the Premises except (and then only to the extent not subject to the
provisions of the last paragraph of Section 4.6) if the same were caused by the
gross negligence or willful misconduct of Landlord, its agents, servants or
employees. In respect of all of the foregoing, Tenant shall, except to the
extent due to the gross negligence or willful misconduct of Landlord, its
agents, servants or employees, indemnify Landlord (and such others as are in
privity of estate with Landlord) from and against all costs, expenses
(including, without limitation, reasonable attorneys' fees), and liabilities
reasonably incurred in or in connection with any such claim, action or
proceeding brought thereon; and, in case of any action or proceeding brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord
and at Tenant's expense, shall resist or defend such action or proceeding and
employ counsel therefor reasonably satisfactory to Landlord.
6.6 Landlord's Right to Enter. Tenant hereby grants to Landlord and its
agents and invitees the right to enter into and examine the Premises at
reasonable times and to show the Premises to prospective lessees, lenders,
partners and purchasers and others having a bonafide interest in the Premises,
and to make such repairs, alterations and improvements and to perform such
testing and investigation as Landlord shall reasonably determine to make or
perform, and, during the last six (6) months prior to the expiration of this
Lease, to keep affixed in suitable places notices of availability of the
Premises. Except in instances
<PAGE> 23
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posing an imminent threat to life or property and except for any entry pursuant
to the performance of Landlord's obligations under Article 5, Landlord shall
give Tenant reasonable notice prior to making any entry onto the Premises
provided however notwithstanding Section 10.1 to the contrary, such notice may
be made orally.
6.7 Personal Property at Tenant's Risk. Tenant hereby assumes all risk
of loss, damage or destruction to all furnishings, fixtures, equipment, effects
and property of every kind, nature and description brought to the Premises or
installed in the Premises by or on behalf of Tenant or any person claiming by,
through or under Tenant. If the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, Tenant
shall hold harmless and indemnify Landlord from and against any and all injury,
loss, damage or liability to Tenant and all other persons or entities arising
out of said loss or damage, except that Landlord shall in no event be
indemnified or held harmless or exonerated from any liability to Tenant or to
any other person or entity, for any injury, loss, damage or liability to the
extent prohibited by law or arising from the gross negligence or willful
misconduct of Landlord or its agents, servants or invitees, subject however (to
the extent not prohibited by law) to the provisions of Section 4.6.
6.8 Payment of Landlord's Cost of Enforcement. Tenant shall pay on
demand such expenses, including, without limitation, reasonable attorneys' fees,
reasonably incurred by Landlord in enforcing any obligation of Tenant under this
Lease or in curing any default by Tenant under this Lease as provided in Section
8.4.
6.9 Yield Up. At the expiration or earlier termination of the term of
this Lease Tenant shall (a) surrender all keys to the Premises; (b) remove all
of its trade fixtures and personal property in the Premises; (c) remove such
installations made by it as Landlord may request and any such installations or
improvements made by Tenant at its expense during the term of this Lease which
Tenant shall desire to remove and all Tenant's signs wherever located; (d)
repair all damage caused by such removal and (e) yield up the Premises
(including all installations and improvements made by Tenant except for such
installations or improvements as Tenant shall remove or as Landlord shall
request Tenant to remove), broom clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the provisions of
this Lease. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by Landlord in such manner as Landlord shall determine
and Tenant shall pay Landlord the entire cost and expense reasonably incurred by
it in effecting such removal and disposition and in making any incidental
repairs and replacements
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to the Premises and for use and occupancy during the period after the expiration
or earlier termination of the term of this Lease and prior to the performance by
Tenant of its obligations under this Section 6.9. Tenant shall further indemnify
Landlord against all loss, cost and damage resulting from Tenant's failure or
delay in surrendering the Premises as above provided.
6.10 Rules and Regulations. Tenant shall observe and abide by the Rules
and Regulations of the Building set forth as Exhibit B, as the same may from
time to time be amended, revised or supplemented (the "Rules and Regulations").
Tenant shall further be responsible for compliance with the Rules and
Regulations by the employees, servants, agents and visitors of Tenant. The
failure of Landlord to enforce any of the Rules and Regulations against Tenant,
or against any other tenant or occupant of the Building, shall not be deemed to
be a waiver of such Rules and Regulations. Tenant shall be liable for all
injuries or damages sustained by Landlord or by other tenants, occupants or
invitees of the Building to the extent arising by reason of any breach of the
Rules or Regulations by Tenant or by Tenant's agents or employees, and not due
to the negligence or other wrongful conduct of Landlord or its agents, servants
or employees.
6.11 Estoppel Certificate. Upon not less than ten (10) days' prior
written request by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect and that Tenant has no defenses, offsets or counterclaims
against its obligations to pay the Annual Fixed Rent and Additional Rent and any
other charges and to perform its other covenants under this Lease (or, if there
have been any modifica tions, that this Lease is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets
or counterclaims, setting them forth in reasonable detail), the dates to which
the Annual Fixed Rent and Additional Rent and other charges have been paid, and
any other matter pertaining to this Lease. Any such statement delivered pursuant
to this Section 6.11 may be relied upon by any prospective purchaser or
mortgagee of the Building or the Complex, or any prospective assignee of such
mortgage.
6.12 Landlord's Expenses Re Consents. Tenant shall reimburse Landlord,
as Additional Rent, promptly on demand for all reasonable legal, engineering and
other professional services expenses incurred by Landlord in connection with all
requests by Tenant for consent or approval hereunder. Upon request by Tenant,
Landlord shall give to Tenant an estimate of such expenses.
6.13 Financial Information. Tenant shall provide Landlord with such
information as to Tenant's financial condition and/or organizational structure
as Landlord or the holder of any mortgage of the Building or the Complex
requires, within fifteen
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days of request. Landlord agrees (i) not to disclose such information except as
is required by law or necessary or appropriate for the enforcement of this Lease
or the present or future financing of the Building or Complex and (ii) to use
all reasonable efforts to respect the confidentiality of such information.
6.14 Assignment and Subletting. Tenant shall not assign or transfer this
Lease, or any interests herein, or sublet the Premises or any part thereof, or
any right or privilege appurtenant thereto, or suffer any other person (the
agents and servants of Tenant excepted) to occupy or use the Premises, or any
portion thereof, without first obtaining the written consent of Landlord. Tenant
acknowledges that the use restrictions set forth in Section 6.2, among other
provisions, are material to Landlord in considering any assignment or sublet.
Notwithstanding the foregoing, Tenant may, without the need for
Landlord's consent, assign its interest in this Lease (a "Permitted Assignment")
to (i) any corporation or entity which is a successor to Tenant either by merger
or consolidation, (ii) a purchaser of all or substantially all of Tenant's
assets or (iii) a corporation or other entity which shall (A) control, (B) be
under the control of, or (C) be under common control with, Tenant (the term
"control" meaning ownership, directly or indirectly, of at least fifty-one
percent (51%) of the outstanding voting stock of a corporation, or other
equivalent equity and control interest if Tenant or such other entity is not a
corporation) (an entity described in clause (iii) above being referred to herein
as an "Affiliate"), so long as (I) the principal purpose of such assignment is
not the acquisition of Tenant's interest in this Lease (except if such
assignment is made for a valid intracorporate business purpose to an Affiliate)
and is not made to circumvent the provisions of this Section 6.14, (II) except
if pursuant to clause (i) above, Tenant shall promptly furnish Landlord with
fully executed counterparts of any such assignment after consummation thereof
which assignment shall include an agreement by the assignee, in form reasonably
satisfactory to Landlord, to be bound by all of the terms of this Lease, and
(III) there shall not be a Default of Tenant at the effective date of such
assignment. Tenant shall also be permitted, without the need for Landlord's
consent, to enter into any sublease with any Affiliate provided that such
sublease shall expire upon any event pursuant to which the sublessee thereunder
shall cease to be an Affiliate. Any assignment to an Affiliate may, at
Landlord's election, be deemed void if during the term of this Lease Tenant
shall cease to control such assignee. In the event Tenant shall have entered
into a sublease with an Affiliate and thereafter such sublessee shall cease to
be an Affiliate, then the provisions of the following two paragraphs of this
Section 6.14 shall apply as if the term of such sublease were to commence as of
the date of the change of status as an Affiliate.
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In the event that Tenant shall intend to enter into any sublease or
assignment which requires Landlord's consent, then Tenant shall, not sooner than
one hundred twenty (120) days, and not later than sixty (60) days, prior to the
proposed effective date of such sublease or assignment, give Landlord notice of
such intent, identifying the proposed subtenant or assignee, all of the terms
and conditions of the proposed sublease or assignment and such other information
as the Landlord may reasonably request. Landlord may elect (a) to terminate this
Lease if Tenant intends to assign this Lease, or to sublease more than fifty
percent (50%) of the Premises or (b) to exclude from the Premises the portion
thereof to be sublet if such portion is fifty percent (50%) or less of the
Premises, by giving notice to Tenant of such election not later than thirty (30)
days after receiving notice of such intent from Tenant. If Landlord shall give
such notice within such thirty (30) day period, upon the later to occur of (A)
the proposed date of commencement of such proposed sublease or assignment, or
(B) the date which is thirty (30) days after Landlord's notice, this Lease shall
terminate or the Premises shall be reduced to exclude the portion of the
Premises intended for subletting, in which case Annual Fixed Rent and Tenant's
Percentage shall be correspondingly reduced. If Landlord shall give its consent,
Tenant may enter into such sublease or assignment on the terms and conditions
set forth in such notice from Tenant within the following one hundred and twenty
(120) days. If Tenant shall not enter into such sublease or assignment within
such following one hundred and twenty (120) day period and shall still desire to
enter into any sublease or assignment, or if Tenant shall change the terms and
conditions thereof following the date of Tenant's notice to Landlord, the first
sentence of this paragraph shall again become applicable.
If Landlord shall not elect to terminate this Lease pursuant to the
preceding paragraph, then Landlord shall not unreasonably withhold its consent
to an assignment or subletting, provided that the proposed assignee or subtenant
(i) is reasonably satisfactory to Landlord with respect to credit
considerations, (ii) will use the Premises for the Permitted Uses set forth in
Section 1.1 hereof, and (iii) will not use the Premises for a purpose or in a
manner which is inconsistent with Landlord's commitments to other tenants in the
Complex, (iv) shall assume all obligations of Tenant under this Lease and shall
be and remain jointly and severally liable with Tenant for the performance of
all of the terms, covenants, conditions, and agreements to be performed by
Tenant under the terms of this Lease.
Any sublease of all or any portion of the Premises shall provide that it
is subject and subordinate to this Lease and to the matters to which this Lease
is or shall be subject or subordinate, and that in the event of termination of
this Lease or reentry or dispossession of Tenant by Landlord under this Lease,
Landlord may, at its option, elect to continue such
<PAGE> 27
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sublease in effect as a direct lease between Landlord and Tenant and such
subtenant shall thereupon attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord nor any mortgagee of
the Property, as holder of a mortgage or as Landlord under this Lease if such
mortgagee succeeds to that position, shall (a) be liable for any act or omission
of Tenant under such sublease, (b) be subject to any credit, counterclaim,
offset or defense which theretofore accrued to such subtenant against Tenant, or
(c) be bound by any previous modification of such sublease or by any previous
prepayment of more than one (1) month's rent, (d) be bound by any covenant of
Tenant to undertake or complete any construction of the Premises or any portion
thereof, (e) be required to account for any security deposit of the subtenant
other than any security deposit actually received by Landlord, (f) be bound by
any obligation to make any payment to such subtenant or grant any credits, (g)
be responsible for any monies owing by Landlord to the credit of Tenant or (h)
be required to remove any person occupying the Premises or any part thereof; and
such sublease shall provide that the subtenant thereunder shall, at the request
of Landlord, execute a suitable instrument in confirmation of such agreement to
attorn. The provisions of this paragraph shall not be deemed a waiver of the
provisions set forth in the first paragraph of this Section 6.14.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver of the
obligation to obtain the Landlord's written approval in the case of any other
subletting or assignment. The joint and several liability of Tenant named herein
and any immediate and remote successor in interest of Tenant (by assignment or
otherwise), and the due performance of the obligations of this Lease on Tenant's
part to be performed or observed, shall not in any way be discharged, released
or impaired by any (a) agreement which modifies any of the rights or obligations
of the parties under this Lease, (b) stipulation which extends the time within
which an obligation under this Lease is to be performed, (c) waiver of the
performance of an obligation required under this Lease, or (d) failure to
enforce any of the obligations set forth in this Lease. No assignment,
subletting or occupancy shall affect the Permitted Uses. Any subletting,
assignment or other transfer of Tenant's interest in this Lease in contravention
of this Section 6.14 shall be voidable at Landlord's option. Tenant shall not
occupy any space in the Building (by assignment, sublease or otherwise) other
than the Premises.
If the rent and other sums (including, without limitation, all monetary
payments plus the reasonable value of any services performed or any other thing
of value given by any assignee or subtenant in consideration of such assignment
or sublease), either initially or over the term of any assignment or sublease,
<PAGE> 28
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payable by such assignee or subtenant on account of an assignment or sublease of
all or any portion of the Premises exceed the sum of Annual Fixed Rent plus
Additional Rent called for hereunder with respect to the space assigned or
sublet, Tenant shall pay to Landlord as Additional Rent fifty percent (50%) of
such excess payable monthly at the time for payment of Annual Fixed Rent.
Nothing in this paragraph shall be deemed to abrogate the provisions of this
Section 6.14 and Landlord's acceptance of any sums pursuant to this paragraph
shall not be deemed a granting of consent to any assignment of this Lease or
sublease of all or any portion of the Premises.
Following Landlord's consent, or refusal to consent, to any assignment
or sublease, Tenant shall pay Landlord, upon demand, a reasonable charge to
cover Landlord's administrative costs in connection therewith, plus the amount
of Landlord's out-of-pocket costs reasonably incurred including Landlord's
reasonable attorneys fees.
Landlord may accept rent from any person other than Tenant pending
approval or disapproval of any assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this Section 6.14. A consent to one
assignment, transfer, subletting, occupation or use by any other person shall
not be deemed to be a consent to any subsequent assignment, transfer,
subletting, occupation or use by another person. Any such subsequent assignment,
transfer, subletting, occupation or use without such consent hereunder shall be
void, and shall, at the option of Landlord, terminate this Lease. Landlord's
acceptance of any name for listing on the Building directory or any Building
signs will not be deemed, nor will it substitute for, Landlord's consent, as
required by this Lease, to any sublease, assignment, or other occupancy of the
Premises.
Tenant shall not assign, mortgage, pledge, hypothecate or encumber its
interests hereunder as security for any obligation or otherwise, and any such
assignment, mortgage, pledge, hypothecation or encumbrance in violation of this
provision shall, at Landlord's option (exercised in Landlord's sole and absolute
discretion), be void.
6.15 Nuisance. Tenant shall not injure, deface or otherwise harm the
Premises; nor commit any nuisance; nor permit in the Premises any vending
machine (except such as is used for the sale of merchandise to employees of
Tenant) or inflammable fluids or chemicals (except such as are customarily used
in connection with standard office and biotechnology research equipment); nor
permit any cooking to such extent as requires special exhaust venting; nor
permit the emission of any objectionable noise or odor; nor make, allow or
suffer any waste of the Premises; nor make any use of the Premises which is
<PAGE> 29
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improper, offensive or contrary to any law or ordinance or which will invalidate
or increase the premiums for any of Landlord's insurance or which is liable to
render necessary any alteration or addition to the Building which Landlord shall
not have approved in accordance with Section 6.1.8; nor conduct any auction,
fire, "going out of business" or bankruptcy sales.
6.16 Equipment; Floor Load. Tenant shall not place a load upon any floor
of the Premises exceeding the lesser of the floor load capacity which such floor
was designed to carry or that which is allowed by law. Business machines and
equipment which emit vibration, noise or other emissions shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient to absorb and
prevent vibration, noise and all other emissions. If any safe, machinery, heavy
equipment, freight, or fixtures requires special handling, Tenant agrees to
employ only persons suitably trained and experienced to do said work, and that
all work in connection therewith shall comply with applicable laws and
regulations. Any such moving shall be at the sole risk and hazard of Tenant and
Tenant hereby agrees to exonerate, indemnify and save Landlord harmless against
and from any liability, loss, injury, claim or suit resulting directly or
indirectly from such moving. To the extent such moving shall involve loading
docks or other common areas or facilities of the Building, Tenant shall schedule
such moving at such times as Landlord shall reasonably designate.
6.17 Electricity. Tenant shall not connect to the electrical
distribution system serving the Premises a total load exceeding the lesser of
the capacity of such system or the maximum load permitted from time to time
under applicable governmental regulations. The capacity of the electrical
distribution system serving the Premises shall be the lesser of (i) the capacity
of the branch of the system serving the Premises exclusively or (ii) the
allocation to the Premises of the capacity of the system serving the entire
Building, Landlord and Tenant agreeing that such capacity shall be allocated
equally over the entire rentable area of the Building.
6.18 Installations, Alterations or Additions. Tenant shall make no
installations, alterations or additions in, to or on the Premises and shall not
permit the making of any holes in the walls, partitions, ceilings or floors
without on each occasion obtaining the prior consent of Landlord, and then only
pursuant to plans and specifications approved by Landlord in advance in each
instance. Notwithstanding the foregoing, Landlord's consent shall not be
required for the performance by Tenant of any alteration, addition or
improvement to the Premises that shall not be visible from the exterior of the
Premises, shall not affect the mechanical, electrical, plumbing, heating,
ventilation, life safety or air-conditioning systems of the Building or any
structural or other common areas or elements of the Building (such alterations,
additions and improvements being
<PAGE> 30
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"Nonstructural Alterations") and shall not exceed $50,000 in cost, provided
however Tenant shall not perform any Nonstructural Alterations without giving
Landlord reasonable prior notice thereof, together with all plans and
specifications (if any). All work to be performed to the Premises by Tenant (a)
shall be performed in a good and workmanlike manner by contractors approved in
advance by Landlord and in compliance with the provisions of Exhibit C and all
applicable zoning, building, fire, health and other codes, regulations,
ordinances and laws, (b) shall be made at Tenant's sole cost and expense (except
as hereinafter provided) and at such times and in such a manner as Landlord may
from time to time designate, and (c) shall become part of the Premises and the
property of Landlord without being deemed Additional Rent for tax purposes,
Landlord and Tenant agreeing that Tenant shall be treated as the owner for tax
purposes until the expiration or earlier termination of the term hereof, subject
to Landlord's rights pursuant to Section 6.9 to require Tenant to remove the
same at or prior to the expiration or earlier termination of the term hereof.
Tenant shall pay promptly when due the entire cost of any work to the Premises
so that the Premises, Building and Complex shall at all times be free of liens
for labor and materials, and, at Landlord's request, Tenant shall furnish to
Landlord a bond or other security acceptable to Landlord assuring that any such
work will be completed in accordance with the plans and specifications
theretofore approved by Landlord and assuring that the Premises will remain free
of any mechanics' lien or other encumbrances that may arise out of such work.
Prior to the commencement of any such work, and throughout and until completion
thereof, Tenant shall maintain, or cause to be maintained, the insurance
required by Exhibit D, all with coverage limits as stated therein or such higher
limits as shall be reasonably required by Landlord. In addition, Tenant shall
save Landlord harmless and indemnified from all injury, loss, claims or damage
to any person or property occasioned by or arising out of such work. Whenever
and as often as any mechanic's or materialmen's lien shall have been filed
against the Building or the Complex based upon any act of Tenant or of anyone
claiming through Tenant, Tenant shall within three (3) days of notice from
Landlord to Tenant take such action by bonding, deposit or payment as will
remove or satisfy the lien.
Landlord or its representatives shall have the right to post, and keep
posted upon the Premises, notices of non-responsibility or such other notices
which Landlord may deem to be proper for the protection of Landlord's interest
in the Premises and the Building. Tenant, before the commencement of any work
from which a mechanic's or materialmen's lien may arise, shall give to Landlord
written notice of Tenant's intention to commence such work in sufficient time to
enable Landlord to post such notices.
<PAGE> 31
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If Tenant shall, having first received Landlord's prior approval, make
any leasehold improvement to the Premised during the term, then provided this
Lease is in effect and Tenant shall not have exercised its right to elect to
terminate the term of this Lease pursuant to Section 2.3, Landlord shall, within
thirty (30) days after request by Tenant following completion of such work and
delivery to Landlord of a certificate of occupancy for the entire Premises and
lien waivers from all of Tenant's contractors and subcontractors, make a
one-time payment to Tenant in the amount equal to the lesser of the cost of such
work as shown by such contractor invoices or $544,400.
Tenant shall not, at any time, directly or indirectly, employ or permit
the employment of any contractor, mechanic or laborer in the Premises, if such
employment will interfere or cause any conflict with other contractors,
mechanics or laborers engaged in the construction, maintenance or operation of
the Building by Landlord, Tenant or others. In the event of any such
interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
6.19 Signs. Tenant shall not paint or place any signs or place any
curtains, blinds, shades, awnings, aerials, or the like, visible from outside
the Premises. Landlord will not unreasonably withhold consent for signs or
lettering on or adjacent to the entry doors to the Premises provided such signs
conform to building standards adopted by Landlord and Tenant has submitted to
Landlord a plan or sketch of the sign to be placed on such entry doors. Landlord
agrees, however, to maintain a tenant directory in the lobby of the Building in
which will be placed Tenant's name and the location of the Premises in the
Building. Tenant shall not install any signs on the exterior of the Building.
However, if a monument sign now or hereafter located at the entrance of the
parking area serving the Building includes the names of the tenants of the
Building, Tenant's name or the name under which it operates as of the Date of
this Lease shall be placed on such sign.
6.20 Hazardous Materials. Tenant shall not (a) introduce on or transfer
to or store on the Premises, the Building or the Complex or use on the Premises,
any Hazardous Materials (as hereinafter defined), except such Hazardous
Materials in such amounts as are reasonably necessary for the conduct of the
Permitted Uses, and then only in compliance with all Environmental and Health
Laws (as hereinafter defined) and the terms and conditions of recommendations,
policies or requirements of any insurer of the Building of Complex ("Insurance
Conditions"); (b) dump, flush or otherwise dispose of any Hazardous Materials
into the drainage, sewage or waste disposal systems serving the Premises, the
Building or the Complex, except in compliance with Environmental and Health Laws
and Insurance Conditions; (c) release, spill or dispose of any Hazardous
<PAGE> 32
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Materials in or on the Premises, the Building or the Complex, or (d) transfer
any Hazardous Materials from the Premises to any other location (except the
transfer of such Hazardous Materials expressly permitted to be used on the
Premises from the Premises for disposal and then only in compliance with all
Environmental and Health Laws and Insurance Conditions).
Tenant agrees that if it or anyone claiming under it shall transfer to
the Premises, store, use or dispose (except to the extent expressly permitted
above), generate, release, threaten release or spill, any Hazardous Materials,
it shall forthwith remove the same, at its sole cost and expense, in the manner
provided by all applicable Environmental and Health Laws, regardless of when
such Hazardous Materials shall be discovered. Furthermore, Tenant shall pay any
fines, penalties or other assessments imposed by any governmental agency with
respect to any such Hazardous Materials and shall forthwith repair and restore
any portion of the Premises, the Building or the Complex which it shall disturb
in so removing any such Hazardous Materials to the condition which existed prior
to Tenant's disturbance thereof.
Tenant agrees to deliver promptly to Landlord any notices, orders or
similar documents received from any governmental agency or official concerning
any violation of any Environmental and Health Laws or with respect to any
Hazardous Materials affecting the Premises, the Building or the Complex. In
addition, Tenant shall, within ten (10) days of receipt, accurately complete any
questionnaires from Landlord or other informational requests relating to
Tenant's use of the Premises and, in particular, to Tenant's use, generation,
storage and/or disposal of Hazardous Materials at, to, or from the Premises.
For purposes of this Lease, the term "Hazardous Materials" shall mean
and include any Excepted Waste (as defined in Section 5.3 of this Lease),
asbestos and asbestos-containing materials, air pollutants or contaminants,
crude and refined oil and the products and by-products of oil and petroleum,
radioactive, biological, medical or infectious wastes or materials, and any
other toxic or hazardous wastes, materials and substances which are defined,
determined or identified as a hazardous substance or hazardous waste, extremely
hazardous waste, infectious waste, non-RCRA waste, retrograde material,
restricted hazardous waste, volatile organic compound, waste or similarly
defined, determined or identified in any Environmental and Health Laws, or in
any judicial or administrative interpretation of Environmental and Health Laws.
"Environmental and Health Laws" shall mean any and all present and
future federal, state, county and municipal or other local statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements or
other governmental
<PAGE> 33
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restrictions applicable to the Complex relating to Hazardous Materials or the
environment or to emissions, discharges or releases or threatened releases of
Hazardous Materials into the environment, including, without limitation, into
the ambient air, surface water, ground water or in, on or under any land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, release or threatened release, disposal, transport or handling of
Hazardous Materials or the cleanup or other remediation thereof. Environmental
and Health Laws include, without limitation, the following: the Comprehensive
Environmental Response, Compensation and Liability At of 1980, as amended (42
U.S.C. Section 9601 et. seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. Section 6901 et seq.), the California Safe
Drinking Water and Toxic Enforcement Act of 1986 (Health and Safety Code
Section 25249.5 et seq.), the California Hazardous Waste Control Act (Health and
Safety Code Section 25100 et seq.)
The obligations of Tenant contained in this Section 6.21 shall survive
the expiration or termination of this Lease.
ARTICLE 7
Casualty or Taking
7.1 Termination. If: (i) the Building is substantially damaged by fire
or casualty (the term "substantially damaged" meaning for the purposes of this
paragraph only at least thirty (30) percent of the rentable area of the
Building, or any portion of a common area or facility necessary for the
efficient operation of the Building is damaged to such an extent that the repair
of the same in the ordinary course could not be expected to be completed within
one year of the fire or other casualty; or (ii) any material part of the
Building is permanently taken by any exercise of eminent domain or is condemned
(the term "material part" meaning (A) at least thirty (30) percent of the
rentable area of the Building or (B) convenient access or (C) any portion of a
common area or facility necessary for the efficient operation of the Building is
so taken or condemned) for a period of at least all or substantially all of the
remainder of the term of this Lease (the "Remainder") then Landlord shall have
the right to terminate this Lease by giving notice to Tenant of its election so
to do within ninety (90) days after either the occurrence of such casualty or
the effective date of such taking or condemnation (as applicable), whereupon
this Lease shall terminate thirty (30) days after the date of such notice with
the same force and effect as if such date were the date on which this Lease were
to expire by effluxion of time.
In the event that (i) the Premises or any common areas of
the Complex necessary for Tenant's use and enjoyment of the
<PAGE> 34
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Premises are substantially damaged by fire or casualty (the term "substantially
damaged" meaning for purposes of this paragraph only damage to at least thirty
(30) percent of the Premises to such an extent that repair of the same in the
ordinary course could not be expected to be completed within one year of the
fire or other casualty) or (ii) at least thirty (30) percent of the Premises is
taken for the Remainder by any exercise of eminent domain, then in either case
Tenant shall have the right to terminate this Lease by giving notice of its
desire to do so to Landlord within thirty (30) days after such damage or taking,
and on the date thirty (30) days after the giving of such notice, this Lease
shall terminate with the same force and effect as if such day were the date on
which this Lease were to expire by effluxion of time. Notwithstanding the
foregoing to the contrary, Tenant shall have no right to terminate this Lease
pursuant to this Section 7.1 due to a fire or other casualty if the cause
thereof was due to the negligence or other wrongful conduct of Tenant or any
agent, employee or invitee of Tenant or any sublessee or other occupant
permitted on the Premises by Tenant.
7.2 Restoration. If this Lease shall not be terminated pursuant to
Section 7.1, this Lease shall continue in force and a just proportion of the
Annual Fixed Rent and Additional Rent on account of Operating Costs and Taxes
shall be suspended or abated until the Premises (excluding any improvements to
the Premises made at Tenant's expense), or what may remain thereof, shall be put
by Landlord in proper condition for use. Landlord covenants to perform such
repairs with reasonable diligence and to the extent permitted by the net
proceeds of insurance recovered or damages awarded for such taking, destruction
or damage and subject to zoning and building laws or ordinances then in
existence. "Net proceeds of insurance recovered or damages awarded" refers to
the gross amount of such insurance or damages actually made available to
Landlord (and not retained by any Superior Lessor or Superior Mortgagee) less
the reasonable expenses of Landlord incurred in connection with the collection
of the same, including without limitation, fees and expenses for legal and
appraisal services.
7.3 Award. Irrespective of the form in which recovery may be had by law,
all rights to damages or compensation shall belong to Landlord in all cases.
Tenant hereby grants to Landlord all of Tenant's rights to such damages and
covenants to deliver such further assignments thereof as Landlord may from time
to time request. Nothing contained herein shall be construed to prevent Tenant
from prosecuting in any condemnation proceedings a claim for the value of any of
Tenant's removable personal property and business machines and equipment
installed in the Premises by Tenant at Tenant's expense and which are subject to
a Taking (if such an award is available to Tenant) and for relocation expenses,
if such a claim shall not affect the amount of
<PAGE> 35
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compensation otherwise recoverable by Landlord from the Taking authority.
7.4 Termination Waiver. Tenant waives the provisions of California Civil
Code Sections 1932(2) and 1933(4) (and all similar or successor statutes) which
relate to the termination of leases when the thing leased is destroyed, and
agrees that such event shall be governed by the terms of this Lease.
ARTICLE 8
Defaults
8.1 Default of Tenant. The occurrence of any one or more of the
following shall constitute a "Default of Tenant" under this Lease:
(a) The failure by Tenant to make any payment of Annual Fixed
Rent, Additional Rent or any other payment required to be made by Tenant
hereunder (collectively, "Rent"), as and when due, where such failure shall
continue for seven (7) days after notice thereof from Landlord to Tenant;
provided, 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.
(b) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed and
performed by Tenant, other than as specified in subsection (a) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, 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; 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 such thirty (30) day period and thereafter diligently
prosecute such cure to completion within sixty (60) days from the date of such
notice from Landlord.
(c) An assignment by Tenant or any guarantor of Tenant for the
benefit of creditors.
(d) The taking by execution or levy of Tenant's leasehold
interest.
(e) The filing of a lien or other involuntary encumbrance against
Tenant's leasehold interest or Tenant's other property, including said leasehold
interest, or against the property of any guarantor of Tenant, which filing shall
not be
<PAGE> 36
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discharged within thirty (30) days after Tenant receives notice thereof.
(f) The filing of a petition by Tenant or any guarantor of Tenant
for liquidation, or for reorganization or an arrangement under any provision of
any bankruptcy law or code as then in force and effect.
(g) The filing of an involuntary petition under any of the
provisions of any bankruptcy law or code against Tenant or any guarantor of
Tenant and such involuntary petition shall not be dismissed within sixty (60)
days thereafter.
(h) The appointment of a custodian, receiver or similar agent
shall be authorized or appointed to take charge of all or substantially all of
the assets of Tenant or any guarantor of Tenant.
(i) The dissolution or liquidation (except in connection with a
transaction permitted pursuant to the second paragraph of Section 6.14) of
Tenant or any guarantor of Tenant or the adoption of any plan or the
commencement of any proceeding, the result of which is or is intended to include
the dissolution or liquidation of Tenant or any guarantor of Tenant.
(j) The entry of an order in any proceeding by or against Tenant
or any guarantor of Tenant decreeing or permitting the dissolution of Tenant or
any guarantor of Tenant or the winding up of its affairs.
(k) The occurrence of a default by Tenant under the Other Lease,
Tenant hereby also agreeing that a Default of Tenant under this Lease shall be
deemed a default of Tenant under the Other Lease, affording Landlord all of the
remedies available under Section 15 B of the Other Lease.
8.2 Remedies. In the event of a Default of Tenant, in addition to all
other rights or remedies Landlord may have, Landlord, acting through its
employees, agents or servants, may terminate this Lease by notice to Tenant in
the manner provided in Section 10.1. In addition to all other rights or remedies
Landlord may have, in the event of a Default of Tenant, Landlord shall have the
immediate right to re-enter and repossess the Premises. Should Landlord elect to
re-enter as herein provided, or should Landlord take possession pursuant to
legal proceedings or pursuant to any notice provided by law, and should Landlord
elect to terminate this Lease, Landlord may recover from Tenant:
(1) The worth at the time of the award of the unpaid Rent which
is due, owing and unpaid by Tenant to Landlord at the time of termination; and
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(2) 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 the
award exceeds the amount of the rent loss Tenant proves could have been
reasonably avoided; and
(3) The worth at the time of the award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of rental loss which Tenant proves could be reasonably avoided; and
(4) All other amounts 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 events are likely to result
therefrom including all costs (including attorneys' fees) of recovering
possession of the Premises, removing persons or property from the Premises,
repairs, brokers' fees, advertising and alterations to the Premises in
connection with reletting the Premises; and
(5) At Landlord's election, other amounts in addition to or in
lieu of the above as may be permitted from time to time by applicable law.
All computations of the worth at the time of amounts recoverable by
Landlord under clauses (1), (2) and (4) above shall be computed by allowing
interest at the Default Rate (as defined in Section 8.4). The worth at the time
of award recoverable by Landlord under clause (3) above shall be computed by
discounting the amount otherwise recoverable by Landlord at the discount rate of
the Federal Reserve Bank of San Francisco plus one percent (1%).
If Landlord takes possession of the Premises pursuant to legal
proceedings or pursuant to any notice provided by applicable law, and if
Landlord does not elect to terminate this Lease, Landlord may from time to time,
without terminating this Lease, recover all Rent as it becomes due and, at
Landlord's election, relet the Premises or any part of the Premises upon such
terms, at such rent, upon such conditions and for such a period of time as
Landlord in its sole discretion may deem advisable. Landlord shall also have the
right to make such alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable and necessary for the purpose
of reletting the Premises; and the making of such alterations, repairs and
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall apply to any unpaid amounts due Landlord
hereunder the net proceeds, if any, of any reletting of the Premises, after
deducting all expenses in connection therewith, including, without limitation,
all repossession costs, brokerage commissions, legal expenses, attorneys' fees,
advertising, expenses of employees, alteration costs and expenses of preparing
the Premises for such reletting. Tenant hereby
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waives all right to receive all or any portion of the net proceeds of any such
reletting. Landlord shall in no event be liable for failure to relet the
Premises, or, in the event that the Premises are relet, for failure to collect
the rent under such reletting.
In the event that Tenant should breach this Lease, Landlord may, at it
option, enforce all of its rights and remedies under this Lease, including the
right to recover the Rent as it becomes due hereunder. Additionally, Landlord
shall be entitled to recover from Tenant all costs of maintenance and
preservation of the Premises, and all costs, including attorneys' fees, to
protect the Premises and Landlord's interest under this Lease.
At any time after a Default of Tenant occurs, Landlord may re-enter the
Premises and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant. No re-entry into the Premises by Landlord pursuant to
this paragraph shall be construed as an election to terminate this Lease unless
a written notice of such intention is given to Tenant.
To the fullest extent permitted by law, Tenant hereby waives all rights
of redemption or relief from forfeiture under California Civil Procedure
Sections 1174 and 1179, or under any other present or future law, in the event
Tenant is evicted or Landlord takes possession of the Premises by reason of any
Default of Tenant.
8.3 Remedies Cumulative. Any and all rights and remedies which Landlord
may have under this Lease, and at law and equity (including without limitation
actions at law for direct, indirect, special and consequential (foreseeable and
unforeseeable) damages, for Tenant's failure to comply with its obligations
under this Lease shall be cumulative and shall not be deemed inconsistent with
each other, and any two or more of all such rights and remedies may be exercised
at the same time insofar as permitted by law.
8.4 Landlord's Right to Cure Defaults. At any time with or without
notice, Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of monies which may be
necessary or appropriate by reason of the failure or neglect of Tenant to comply
with any of its obligations under this Lease (irrespective of whether the same
shall have ripened into a Default of Tenant), and in the event of the exercise
of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon
demand, as Additional Rent, all such sums including reasonable attorneys fees,
together with interest thereon at a rate (the "Default Rate") equal to the
greater of 6% over the Prime Rate or twelve percent (12%) per annum, but in no
event in excess of the maximum rate of interest
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then permitted to be agreed to by the parties under applicable law. "Prime Rate"
shall mean the annual floating rate of interest, determined daily and expressed
as a percentage from time to time announced by the largest national or
state-chartered banking institution in the state or district in which the
Complex is located as its "prime" or "base" rate. If, at any time, both the
largest national and state-chartered banking institutions having their principal
offices in the City of San Diego, shall cease to announce such a floating rate,
Prime Rate shall mean a rate of interest, determined daily, which is two (2)
percentage points above the 14-day moving average closing trading price of
90-day Treasury Bills.
8.5 Holding Over. Any holding over by Tenant after the expiration or
early termination of the term of this Lease shall be treated as a daily tenancy
at sufferance at a rate equal to 1.75 times the greater of the fair market
rental value for the Premises on a month-to-month basis or the Annual Fixed Rent
in effect immediately prior to the expiration or earlier termination of the term
plus Additional Rent and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or
consequential (foreseeable and unforeseeable), sustained by reason of any such
holding over. Otherwise, such holding over shall be on the terms and conditions
set forth in this Lease as far as applicable.
8.6 Effect of Waivers of Default. Any consent or permission by Landlord
to any act or omission by Tenant shall not be deemed to be consent or permission
by Landlord to any other similar or dissimilar act or omission and any such
consent or permission in one instance shall not be deemed to be consent or
permission in any other instance.
8.7 No Waiver, etc. The failure of Landlord or Tenant to seek redress
for violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to have been a waiver of such breach by Landlord, or by
Tenant, unless such waiver be in writing signed by the party to be charged. No
consent or waiver, express or implied, by Landlord or Tenant to or of any breach
of any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
8.8 No Accord and Satisfaction. No acceptance by Landlord of a lesser
sum than the Annual Fixed Rent, Additional Rent or any other charge then due
shall be deemed to be other than on account of the earliest installment of such
rent or charge due, nor shall any endorsement or statement on any check or any
letter
<PAGE> 40
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accompanying any check or payment as rent or other charge 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 installment or
pursue any other remedy in this Lease provided.
ARTICLE 9
Rights of Holders
9.1 Rights of Mortgagees or Ground Lessors. This Lease, and all rights
of Tenant hereunder, are and shall be subject and subordinate to any ground or
master lease, and all renewals, extensions, modifications and replacements
thereof, and to all mortgages, which may now or hereafter affect the Building or
the Complex and/or any such lease, whether or not such mortgages shall also
cover other lands and/or buildings and/or leases, to each and every advance made
or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages and
all consolidations of such mortgages. This Section shall be self-operative and
no further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the holder of any
such mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination. Any lease to which this Lease is subject
and subordinate is herein called "Superior Lease" and the lessor of a Superior
Lease or its successor in interest, at the time referred to, is herein called
"Superior Lessor"; and any mortgage to which this Lease is subject and
subordinate, is herein called "Superior Mortgage" and the holder of a Superior
Mortgage is herein called "Superior Mortgagee".
If any Superior Lessor or Superior Mortgagee or the nominee or designee
of any Superior Lessor or Superior Mortgagee shall succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease or deed, or otherwise, then at the request of such party
so succeeding to Landlord's rights (herein called "Successor Landlord") and upon
such Successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect as a
direct lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease, except that the
Successor Landlord (unless formerly the landlord under this Lease) shall not be
(a) liable in any way to Tenant for any act
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or omission, neglect or default on the part of Landlord under this Lease, (b)
responsible for any monies owing by or on deposit with Landlord to the credit of
Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to
Tenant against Landlord, (d) bound by any modification of this Lease subsequent
to such Superior Lease or Superior Mortgage, or by any previous prepayment of
Annual Fixed Rent or Additional Rent for more than one (1) month, which was not
approved in writing by the Successor Landlord, (e) liable to the Tenant beyond
the Successor Landlord's interest in the Complex and the rents, income,
receipts, revenues, issues and profits issuing from the Complex, (f) responsible
for the performance of any work to be done by Landlord under this Lease to
render the Premises ready for occupancy by the Tenant, or (g) required to remove
any person occupying the Premises or any part thereof, except if such person
claims by, through or under the Successor Landlord. Tenant agrees at any time
and from time to time to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid.
9.2 Modifications. If any Superior Lessor or Superior Mortgagee shall
require any modification(s) of this Lease, Tenant shall, at Landlord's request,
promptly execute and deliver to Landlord such instruments effecting such
modification(s) as Landlord shall require, provided that such modification(s) do
not adversely affect in any material respect any of Tenant's rights or increase
any of Tenant's obligations under this Lease. In addition, and notwithstanding
Section 9.1 to the contrary, any Superior Lessor or Superior Mortgagee may, at
its option, subordinate the Superior Lease or Superior Mortgage of which it is
the lessor or holder to this Lease by giving Tenant ten (10) days prior written
notice of such election, whereupon this Lease shall, irrespective of dates of
execution, delivery and recording, be superior to such Superior Lease or
Superior Mortgage and no other documentation shall be necessary to effect such
change.
ARTICLE 10
Miscellaneous Provisions
10.1 Notices. All notices, requests, demands, consents, approvals or
other communications to or upon the respective parties hereto shall be in
writing and delivered by hand or mailed by certified or registered mail, return
receipt requested, or a nationally recognized courier service that provides a
receipt for delivery such as Federal Express, United Parcel Service or U.S.
Postal Service Express Mail and shall be effective on the date delivered (or the
first date such delivery is attempted and refused) in writing to the party to
which such notice, request, demand, consent, approval or other communication is
required or permitted to be given or made under this Lease,
<PAGE> 42
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addressed if intended for Landlord, to the Original Address of Landlord set
forth in Section 1.1 of this Lease with a copy by regular mail to Warren M.
Heilbronner, Esq., Sullivan & Worcester LLP, One Post Office Square, Boston,
Massachusetts 02109 (or to such other address or addresses as may from time to
time hereafter be designed by Landlord by like notice); and if intended for
Tenant, addressed to Tenant at the Original Address of Tenant set forth in
Section 1.1 of this Lease until the Commencement Date and thereafter to the
Premises and in either case with a copy to Frederick Muto, Esq., Cooley,
Godward, 4365 Executive Drive, Suite 1100, San Diego, CA 92121 (or to such other
address or addresses as may from time to time hereafter be designated by Tenant
by like notice). Notices from Landlord may be given by Landlord's Agent, if any,
or Landlord's attorney.
10.2 Quiet Enjoyment; Landlord's Right to Make Alterations, Etc.
Landlord agrees that, upon Tenant's paying the rent and performing and observing
the agreements, conditions and other provisions on its part to be performed and
observed, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises during the term hereof without any manner of hindrance or molestation
from Landlord or anyone claiming under Landlord, subject, however, to the terms
of this Lease; provided, however, Landlord reserves the right at any time and
from time to time, without the same constituting breach of Landlord's covenant
of quiet enjoyment or an actual or constructive eviction, and without Landlord
incurring any liability to Tenant or otherwise affecting Tenant's obligations
under this Lease, to make such changes, alterations, improvements, repairs or
replacements in or to the interior and exterior of the Building (including the
Premises) and the fixtures and equipment thereof, and in or to the Building or
the Complex, or properties adjacent thereto, as Landlord may deem necessary or
desirable, and to change (provided that there be no unreasonable obstruction of
the right of access to the Premises by Tenant and that Landlord use commercially
reasonable efforts to minimize, to the extent practical, any interference with
the conduct of business at the Premises) the arrangement and/or location of
entrances or passageways, doors and doorways, corridors, elevators, or other
common areas of the Building and the Complex. Landlord shall give Tenant
reasonable prior notice of any alterations which shall adversely affect Tenant
in any material respect.
Without incurring any liability to Tenant, Landlord may permit access to
the Premises and open the same, whether or not Tenant shall be present, upon any
demand of any receiver, trustee, assignee for the benefit of creditors, sheriff,
marshal or court officer Landlord reasonably believes is entitled to such access
for the purpose of taking possession of, or removing, Tenant's property or for
any other lawful purpose (but this provision and any action by Landlord
hereunder shall not be deemed a recognition by Landlord that the person or
official making such demand has any right or interest in or to this Lease,
<PAGE> 43
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or in or to the Premises), or upon demand of any representative of the fire,
police, building, sanitation or other department of the city, state or federal
governments.
10.3 Lease Not to be Recorded. Tenant agrees that it will not record
this Lease. Both parties shall, upon the request of either, execute and deliver
a notice or short form of this Lease in such form, if any, as may be acceptable
for recording with the land records of the governmental entity responsible for
keeping such records. In no event shall such document set forth the rent or
other charges payable by Tenant pursuant to this Lease; and any such document
shall expressly state that it is executed pursuant to the provisions contained
in this Lease and is not intended to vary the terms and conditions of this
Lease.
10.4 Assignment of Rents and Transfer of Title; Limitation of Landlord's
Liability. With reference to any assignment by Landlord of Landlord's interest
in this Lease, or the rents payable hereunder, whether absolute or conditional
in nature or otherwise, which assignment is made to the holder of a mortgage on
property which includes the Premises, Tenant agrees that the execution thereof
by Landlord, and the acceptance thereof by the holder of such mortgage shall
never be treated as an assumption by such holder of any of the obligations of
Landlord hereunder unless such holder shall, by notice sent to Tenant,
specifically otherwise elect and that, except as aforesaid, such holder shall be
treated as having assumed Landlord's obligations hereunder (subject to the
limitations set forth in Section 9.1) only upon foreclosure of such holder's
mortgage and the taking of possession of the Premises.
The term "Landlord" as used in this Lease, so far as covenants or
obligations to be performed by Landlord are concerned, shall be limited to mean
and include only the owner or owners at the time in question of Landlord's
interest in the Complex, and in the event of any transfer or transfers of such
title to said property, Landlord (and in case of any subsequent transfers or
conveyances, the then grantor) shall be concurrently freed and relieved from and
after the date of such transfer or conveyance, without any further instrument or
agreement, of all liability with respect to the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, it being intended hereby that the covenants and obligations contained
in this Lease on the part of Landlord, shall, subject as aforesaid, be binding
on Landlord, its successors and assigns, only during and in respect of their
respective period of ownership of such interest in the Complex. Notwithstanding
the foregoing, in no event shall the acquisition of Landlord's interest in the
Building or the Complex by a purchaser which, simultaneously therewith, leases
Landlord's entire interest in the Building or the Complex back to Landlord or
the seller thereof be treated as an assumption by operation of law or otherwise,
of Landlord's obligations hereunder. Tenant
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shall look solely to such seller-lessee, and its successors from time to time in
title, for performance of Landlord's obligations hereunder. The seller-lessee,
and its successors in title, shall be the Landlord hereunder unless and until
such purchaser expressly assumes in writing the Landlord's obligations
hereunder.
Tenant, its successors and assigns, shall not assert nor seek to
enforce any claim for breach of this Lease against any of Landlord's assets
other than Landlord's interest in the Complex, and Tenant agrees to look solely
to such interest for the satisfaction of any liability or claim against Landlord
under this Lease, it being specifically agreed that in no event whatsoever shall
Landlord (which term shall include, without limitation, any general or limited
partner, trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability.
10.5 Landlord's Default. Landlord shall not be deemed to be in default
in the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of thirty
(30) days or such additional time as is reasonably required to correct any such
default after written notice has been given by Tenant to Landlord specifying the
nature of Landlord's alleged default. Tenant shall have no right to terminate
this Lease for any default by Landlord hereunder and no right, for any such
default, to offset or counterclaim against any rent due hereunder. In no event
shall Landlord ever be liable to Tenant for any punitive damages or for any loss
of business or any other indirect, special or consequential damages suffered by
Tenant from whatever cause.
Where provision is made in this Lease for Landlord's consent and Tenant
shall request such consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding by
Landlord of its consent, it being intended that Tenant's sole remedy shall be an
action for specific performance or injunction (and reimbursement of Tenant's
reasonable legal fees and other out-of-pocket expenses incurred in successfully
obtaining a final, unappealable injunction against Landlord), and that such
remedy shall be available only in those cases where Landlord is expressly
required not to withhold its consent unreasonably.
10.6 Notice to Mortgagee and Ground Lessor. After receiving notice from
any person, firm or other entity that it holds a mortgage which includes the
Premises as part of the mortgaged premises, or that it is the ground lessor
under a lease with Landlord, as ground lessee, which includes the Premises as
part of the demised premises, no notice from Tenant to Landlord shall be
effective unless and until a copy of the same is given to such holder or ground
lessor, and the curing of any of
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Landlord's defaults by such holder or ground lessor shall be treated as
performance by Landlord.
10.7 Building or Complex Name Change. Landlord shall have the right to
change the name of the Building or the Complex at any time and Tenant expressly
waives any and all claims for damages against Landlord resulting therefrom.
10.8 Parking. So long as this Lease is in force and effect, Landlord
shall maintain a ratio of 3.28 space(s) in the parking areas in the Complex for
every 1,000 rentable square feet located within the Complex. All parking shall
be provided without charge on an unreserved un-assigned basis.
10.9 Brokerage. Tenant warrants and represents that it has dealt with no
broker in connection with the consummation of this Lease other than Irving
Hughes Group, Inc., and in the event of any brokerage claims or liens against
Landlord or the Property predicated upon or arising out of prior dealings with
Tenant including any claim or lien by Irving Hughes Group, Inc. (which
commission Tenant agrees to pay in full), Tenant agrees to defend the same and
indemnify and hold Landlord harmless against any such claim, and to discharge
any such lien.
10.10 Applicable Law and Construction. This Lease shall be governed by
and construed in accordance with the laws of the state or district in which the
Complex is located and if any provisions of this Lease shall to any extent be
invalid, the remainder of this Lease shall not be affected thereby. Tenant
expressly acknowledges and agrees that Landlord has not made and is not making,
and Tenant, in executing and delivering this Lease, is not relying upon, any
warranties, representations, promises or statements, except to the extent that
the same are expressly set forth in this Lease or in any other written agreement
which may be made between the parties concurrently with the execution and
delivery of this Lease and which shall expressly refer to this Lease. All
understandings and agreements heretofore made between the parties are merged in
this Lease and any other such written agreement(s) made concurrently herewith,
which alone fully and completely express the agreement of the parties and which
are entered into after full investigation, neither party relying upon any
statement or representation not embodied in this Lease or any other such written
agreement(s) made concurrently herewith. This Lease may be amended, and the
provisions hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant. The titles of the several Articles and Sections
contained herein are for convenience only and shall not be considered in
construing this Lease. The submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation of, or
option for, the Premises, and Tenant shall have no right to the Premises
hereunder until the execution and delivery hereof by both Landlord and Tenant.
Except as herein
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otherwise provided, the terms hereof shall be binding upon and shall inure to
the benefit of the successors and assigns, respectively, of Landlord and Tenant
and, if Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and assigns. If two or more persons are named as
Tenant herein, each of such persons shall be jointly and severally liable for
the obligations of the Tenant hereunder, and Landlord may proceed against any
one without first having com menced proceedings against any other of them. Each
term and each provision of this Lease to be performed by Tenant shall be
construed to be both an independent covenant and a condition and time is of the
essence with respect to the exercise of any of Tenant's rights under this Lease.
The reference contained to successors and assigns of Tenant is not intended to
constitute a consent to assignment of Tenant. Except as otherwise set forth in
this Lease, any obligations of Tenant (including, without limitation, rental and
other monetary obligations, repair obligations and obligations to indemnify
Landlord), shall survive the expiration or earlier termination of this Lease,
and Tenant shall immediately reimburse Landlord for any expense incurred by
Landlord in curing Tenant's failure to satisfy any such obligation
(notwithstanding the fact that such cure might be effected by Landlord following
the expiration or earlier termination of this Lease).
WITNESS the execution hereof under seal on the day and year first above
written.
Landlord:
HUB PROPERTIES TRUST
By: /s/ DAVID J. HEGARTY
--------------------------------
David J. Hegarty, President
Tenant:
SIGNAL PHARMACEUTICALS, INC.
By: [SIG]
--------------------------------
<PAGE> 47
EXHIBIT A
[GRAPHIC]
<PAGE> 48
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, corridors, vestibules, halls,
elevators or stairways in or about the Building shall not be obstructed by
Tenant or used by Tenant for any purpose other than for access to the Premises
and the common areas.
2. Tenant shall not place objects against glass partitions, doors or
windows which would be unsightly from the Building corridor or from the exterior
of the Building. No signs, advertisements, placards, pictures, names, notices,
or lettering shall be exhibited, inscribed, painted or fixed by Tenant on any
window or part of the outside or inside of the Building or the Complex without
the prior consent of Landlord.
3. All window coverings shall be of a uniform shape, color, material and
design as prescribed by Landlord.
4. Tenant shall not place a load upon any floor of the Building exceeding
the lesser of the floor load which such floor was designed to carry or that
allowed by law.
5. Tenant shall not waste electricity or water in the Build ing and shall
cooperate fully with Landlord to assure the most effective operation of the
Building HVAC system.
6. No additional or different locks or bolts shall be affixed on doors by
Tenant without reasonable prior notice to Landlord. Tenant shall return all keys
to Landlord upon termination of Tenant's lease. Tenant shall not allow peddlers,
solicitors or beggars in the Building.
7. Tenant shall not use the Premises so as to cause any increase above
normal insurance premiums on the Building.
8. No vehicles or animals (except a seeing-eye dog) shall be brought into
or kept in or about the Premises. No space in the Building shall be used for
manufacturing (as opposed to development) or for the sale of merchandise of any
kind at auction or for storage thereof preliminary to such sale.
9. Tenant shall not engage or pay any employees of the Building without
approval from the Landlord. Tenant shall not employ any persons other than the
janitor or employees of Landlord for the purpose of cleaning Premises without
the prior written consent of Landlord.
10. All removals from the Building or the carrying in or out of the
Premises of any freight, furniture or bulky matter of any description which
removal involves loading docks or other common areas or facilities of the
Building must take place at such time and in such manner as Landlord may
determine from time to time.
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Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of the
rules and regulations or provisions of Tenant's lease. Heavy objects shall, if
considered necessary by Landlord, stand on reinforcing plates of such thickness
and size as is necessary to properly distribute the weight. Landlord will not be
responsible for loss of or damage to any such property from any cause and all
damage done to the Building by moving or maintaining any such property shall be
repaired at the sole cost and expense of Tenant.
11. Tenant shall cooperate with Landlord in minimizing loss and risk
thereof from fire and associated perils.
12. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the Landlord and/or its contractors, agents and employees
during the making of repairs, alterations, additions or improvements in or to
the demised premises.
13. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed and no sweepings, rubbish, rags, acid or like substance shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by Tenant. Any equipment or apparatus within the Premises, including,
without limitation, x-ray effluent drains, shall be maintained by Tenant
throughout the term hereof, at Tenant's sole cost and expense.
14. Tenant may request HVAC service outside of Normal Building Operating
Hours by submitting a request in writing to the Building Manager's office by
noon of the preceding workday.
15. Landlord reserves the right to establish, modify and enforce parking
rules and regulations.
16. All refuse from the Premises shall be disposed of in accordance with
the requirements established therefor by Landlord and no dumpster shall be
overloaded by Tenant.
17. A Building directory will be provided for the display of the name and
location of the Tenant named on the Lease and Landlord reserves the right to
exclude any other names therefrom. Tenant shall be entitled to initial listings
on the directory for each Tenant indicated on the Lease. Additional listings
thereafter, if approved in writing by Landlord, shall be at the sole cost and
expense of the Tenant. Landlord's acceptance of any name for listing on the
building directory will not be deemed, nor will it substitute for, Landlord's
consent, as required by this Lease, to any sublease, assignment, or other
occupancy of the demised Premises. All orders for directory listings should be
given to Landlord in writing by Tenant. No
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oral orders, changes, additions or deletions shall be accepted by Landlord.
18. Landlord will direct electricians and telephone installers as to where
and how electrical and telephone wires are to be installed by Tenant except
where Landlord has previously reviewed and approved such plans. No boring or
cutting for wires will be allowed without the written consent of the Landlord.
19. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
20. No air conditioning or heating unit or other similar apparatus shall
be installed or used by any Tenant without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed provided
that such installation or use shall not affect the HVAC system or its operation,
or any other mechanical, electrical, plumbing or structural element or system of
the Building.
21. All doors opening onto public corridors and stairwells shall be kept
closed as required by state and local fire codes, except when being used for
ingress and egress, and shall be securely locked by Tenant before leaving the
Premises.
22. No cooking shall be done or permitted by Tenant on the Premises and no
vending machines of any description shall be installed, maintained or operated
upon the Premises without the prior written consent of Landlord.
23. No smoking is allowed in the Building (including the Premises) or any
other building or structure in the Complex.
24. No Tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Complex, Buildings or
Premises or those having business with them by the use of any musical
instrument, radio, stereo, television or in any other way.
25. The requirements of Tenant to which it is entitled hereunder will be
attended to only upon application at the Building office. Employees of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special written instructions from Landlord, and no employee will admit any
person (Tenant or otherwise) to any office, or sign acceptance of delivery for
any Tenant, without written specific instructions from Tenant.
26. Landlord shall furnish restroom supplies for public area restrooms
only. Tenant shall purchase supplies for any toilet rooms within such Tenant's
Premises and shall not be allowed to supply its private toilet areas from
Building supplies.
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27. Landlord reserves the right at any time to rescind, alter or waive any
rule or regulation at any time prescribed for the Building and to impose
additional rules and regulations when in its judgment reasonably exercised
Landlord deems it necessary, desirable or proper for its best interest and for
the best interest of tenants and other occupants and invitees thereof. No
alteration or waiver of any rule or regulation in favor of one Tenant shall
operate as an alteration or waiver in favor of any other Tenant. Landlord shall
not be responsible to any Tenant for the non-observance or violation by any
other Tenant however resulting of any rules or regulations at any time
prescribed for the Building. In the event of any conflict between these Rules
and Regulations, or any further or modified rules and regulations from time to
time issued by Landlord, and the Lease provisions, the Lease provisions shall
govern and control.
<PAGE> 52
EXHIBIT C
ALTERATIONS REQUIREMENTS
A. General
1. All alterations, installations or improvements ("Alterations") to be
made by Tenant in, to or about the Premises shall be made in accordance
with the requirements of this Exhibit and by contractors or mechanics
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
2. Tenant shall, prior to the commencement of any Alterations, submit for
Landlord's written approval, complete plans of the Premises, or of the
floor on which the Alterations are to occur, including mechanical,
electrical, plumbing and architectural drawings. Drawings are to be
complete with full details and specifications for all of the Alterations
and shall be stamped by an architect licensed in the state or district in
which the Complex is located certifying compliance with building codes.
3. The proposed Alterations must comply with the building code in effect
for the City of San Diego and the requirements, rules and regulations and
any governmental agencies having jurisdiction.
4. No work shall be permitted to commence without the Landlord being
furnished with a valid permit from the building department and/or other
agencies having jurisdiction in the City of San Diego.
5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Building operations, must be
scheduled and performed before or after Building hours (unless Landlord
agrees otherwise) and Tenant shall provide the Building manager with at
least 24 hours' notice prior to proceeding with such work.
6. All inquiries, submissions, approvals and all other matters shall be
processed through the Building manager.
B. Prior to Commencement of Work
1. Tenant shall submit to the Building manager a request to perform the
Alterations. The request shall include the following enclosures:
(i) A list of Tenant's contractors and/or
subcontractors for Landlord's approval.
(ii) Three complete sets of plans and specifications
properly stamped by a registered architect or
<PAGE> 53
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professional engineer certifying compliance with
applicable building codes.
(iii) A properly executed building permit application form.
(iv) Four executed copies of the Insurance Requirements agreement
in the form set forth in Exhibit D from Tenant's contractor and if
requested by Landlord, from the contractor's subcontractors.
(v) Contractor's and subcontractor's insurance certificates
including an indemnity in accordance with the Insurance
Requirements agreement.
2. Landlord will return the following to Tenant:
(i) Plans approved or returned with comments (Such approval or
comments shall not constitute a waiver of Building Department
approval or approval of other governmental agencies).
(ii) Two fully executed copies of the Insurance
Requirements agreement.
3. Tenant shall obtain a building permit from the building department and
necessary permits from other governmental agencies. Tenant shall be
responsible for keeping current all permits. Tenant shall submit copies of
all approved plans and permits to Landlord and shall post the original
building permit on the Premises prior to the commencement of any work. All
Alterations shall be subject to reasonable supervision and inspection by
Landlord's representative. Such supervision and inspection shall be at
Tenant's sole expense and Tenant shall pay Landlord's reasonable charges
for such supervision and inspection. Landlord shall notify Tenant if it
estimates that the expense of supervision and inspection for any project
shall exceed $1,000, if Tenant shall first request such estimate.
C. Requirements and Procedures
1. All structural and floor loading requirements shall be subject to the
prior approval of Landlord's structural engineer.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers. When necessary, Landlord will require engineering
and shop drawings, which drawings must be approved by Landlord before work
is started. Drawings are to be prepared by Tenant and all approvals shall
be obtained by Tenant.
<PAGE> 54
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3. Elevator service for construction work shall be charged to Tenant at
standard Building rates. Prior arrangements for elevator use shall be made
with the Building manager by Tenant. No material or equipment shall be
carried under or on top of elevators. If an operating engineer is required
by any union regulations, such engineer shall be paid for by Tenant.
4. If shutdown of risers and mains for electrical, HVAC, sprinkler and
plumbing work is required, such work shall not be undertaken without prior
approval of Landlord. No work will be performed in Building mechanical
equipment rooms without Landlord's approval and, if required by Landlord,
under Landlord's supervision.
5. Tenant's contractor shall:
(i) have a superintendent or foreman on the Premises
at all times;
(ii) police the job at all times, continually keeping
the Premises orderly;
(iii) maintain cleanliness and protection of all areas,
including elevators and lobbies;
(iv) protect the front and top of all peripheral HVAC
units and thoroughly clean them at the completion of
work;
(v) block off supply and return grills, diffusers and ducts to keep
dust from entering into the Building HVAC system; and
(vi) avoid the disturbance of other tenants.
6. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for any necessary or appropriate corrective work.
7. All equipment and installations must be equal to the Building
standards. Any deviation from such standards will be permitted only if
indicated or specified on the plans and specifications and approved by
Landlord.
8. A properly executed air balancing report signed by a professional
engineer shall be submitted to Landlord upon the completion of all HVAC
work.
9. Upon completion of the Alterations, Tenant shall submit to Landlord the
final Department of Building and Safety
<PAGE> 55
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permit card and final approval by all other governmental
agencies having jurisdiction.
10. Tenant shall submit to Landlord a final "as-built" set of sepia
drawings showing all items of Alterations in full detail.
11. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.
<PAGE> 56
EXHIBIT D
CONTRACTOR'S INSURANCE REQUIREMENTS
Building:
Tenant:
Premises:
The undersigned contractor or subcontractor ("Contractor") has been hired
by the tenant or occupant (hereinafter called "Tenant") of the Building named
above or by Tenant's contractor to perform certain work ("Work") for Tenant in
the Premises identified above. Contractor and Tenant have requested the
undersigned landlord ("Landlord") to grant Contractor access to the Building and
its facilities in connection with the performance of the Work and Landlord
agrees to grant such access to Contractor upon and subject to the following
terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord, and if
Landlord is a general or limited partnership each of the partners thereof,
and if Landlord is a nominee trust the trustee(s) and all beneficiaries
thereof, and all of their respective officers, employees and agents, from
and against any claims, demands, suits, liabilities, losses and expenses,
including reasonable attorneys' fees, arising out of or in connection with
the Work (and/or imposed by law upon any or all of them) because of
personal injuries, including death, at any time resulting therefrom and
loss of or damage to property, including consequential damages, whether
such injuries to person or property are claimed to be due to negligence of
the Contractor, Tenant, Landlord or any other party entitled to be
indemnified as aforesaid except to the extent specifically prohibited by
law or where such losses and expenses arise from the gross negligence or
willful misconduct of Landlord or its agents or servants (and any such
prohibition shall not void this agreement but shall be applied only to the
minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workmen's Compensation and Employers Liability Insurance
covering each and every workman employed in, about or upon the Work, as
provided for in each and every statute applicable to Workmen's
Compensation and Employers' Liability
Insurance.
(b) Commercial General Liability Insurance including
coverages for Protective and Contractual Liability (to
<PAGE> 57
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specifically include coverage for the indemnification clause of this
agreement) for not less than the following limits:
<TABLE>
<S> <C>
Bodily Injury: $2,000,000 per person
$2,000,000 per occurrence
Property Damage: $2,000,000 per occurrence
$2,000,000 aggregate
</TABLE>
(c) Commercial Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the
Work) for not less than the following limits:
<TABLE>
<S> <C>
Bodily Injury: $2,000,000 per person
$2,000,000 per occurrence
Property Damage: $2,000,000 per occurrence.
</TABLE>
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that
it has complied with the above requirements regarding insurance and
providing that the insurer will give Landlord ten (10) days' prior written
notice of the cancellation of any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the Work
to provide the following insurance:
(a) Commercial General Liability Insurance including Protective and
Contractual Liability coverages with limits of liability at least
equal to the limits stated in paragraph 2(b).
(b) Commercial Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with
the Work) with limits of liability at least equal to the limits
stated in paragraph 2(c).
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
Agreed to and executed this day of , 19 .
---- ------------- --
Contractor: Landlord:
BY:
-----------------------------------
BY:
-----------------------------------
<PAGE> 58
EXHIBIT E
CLERK'S CERTIFICATE
I, Brad Gordon, the duly elected and acting [Secretary/Clerk] of Signal
Pharmaceuticals California, a corporation (the "Corporation"), hereby certify
that:
(A) at a meeting of the board of directors of the Corporation held on
November 4, 1997 in accordance with law and the Bylaws of the Corporation the
following resolutions were duly adopted:
VOTED: a. To approve a lease of approximately 10,888
rentable square feet of space for terms of 6 years with respect to Suite
100 in the building commonly known as 5626 Oberlin Drive in San Diego,
which lease grants the Corporation an option to extend the term for n/a
terms of n/a years each, substantially in the form of the draft presented
at this meeting, a copy of which shall be placed on file in the office of
the [Secretary/Clerk] and be incorporated by reference in this vote;
b. To authorize Brad Gordon and Alan Lewis, or any one
of them (each hereinafter referred to as a "Signatory"), to execute and
deliver in the name and on behalf of the Corporation the above-described
lease and to execute and deliver all other documents, agreements and
instruments, including, without limitation, notices of lease, and to take
all other actions with respect to the foregoing which any Signatory, in
such Signatory's discretion, shall determine to be necessary or
appropriate to effect or secure the transactions contemplated herein, the
execution and delivery of any of the foregoing or the taking of any such
action to be conclusive evidence of such Signatory's determination and of
the Signatory's authority so to do granted by this vote;
(B) as of this date the following individuals are duly elected and
qualified officers of the Corporation holding at this date, the offices
specified next to their names and the signature next to each such name is such
individual's true signature.
NAME OFFICE SIGNATURE
Bradley Gordon CFO /s/ BRAD GORDON
- ----------------------- -------------------- -------------------------
Alan J. Lewis President/CEO /s/ ALAN LEWIS
- ----------------------- -------------------- -------------------------
Carl F. Bobkoski E.V.P /s/ CARL BOBKOSKI
- ----------------------- -------------------- -------------------------
David Anderson V.P. R&D /s/ DAVID ANDERSON
- ----------------------- -------------------- -------------------------
(C) The form of lease attached to this Certificate is the form referred to
in the foregoing vote.
<PAGE> 59
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(D) The resolutions set forth above are unmodified and continue to be in
full force and effect and the Corporation has adopted no other resolutions in
respect of the subject matter thereof.
In witness whereof, I have hereunto set my hand and affixed the seal of
the Corporation this day of , 19 .
[SIG]
----------------------------------------
[Secretary/Clerk]
[SEAL]
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.27
EXCLUSIVE LICENSE AGREEMENT
between
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
and
SIGNAL PHARMACEUTICALS, INC.
for
[***]
UC Case No. [92-116]
[***]
UC Case Nc. [93-173] and
[***]
UC Case No. [93-179]
***Confidential Treatment Requested
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article No. Title Page
<S> <C> <C>
RECITALS.............................................................1
1. DEFINITIONS..........................................................3
2. EXCLUSIVE GRANT......................................................5
3. SUBLICENSES..........................................................6
4. LICENSE-ISSUE FEE....................................................7
5. EARNED ROYALTIES AND MILESTONE PAYMENTS..............................7
6. DUE DILIGENCE.......................................................12
7. PROGRESS AND ROYALTY REPORTS........................................15
8. BOOKS AND RECORDS...................................................16
9. LIFE OF THE AGREEMENT...............................................17
10. TERMINATION BY THE REGENTS..........................................17
11. TERMINATION BY LICENSEE.............................................18
12. DISPOSITION OF LICENSED PRODUCTS
ON HAND UPON TERMINATION.......................................19
13. USE OF NAMES AND TRADEMARKS.........................................19
14. LIMITED WARRANTY....................................................19
15. PATENT PROSECUTION AND MAINTENANCE..................................21
16. PATENT MARKING......................................................23
17. PATENT INFRINGEMENT.................................................24
18. INDEMNIFICATION.....................................................26
19. NOTICES.............................................................27
20. ASSIGNABILITY.......................................................28
21. LATE PAYMENTS.......................................................28
22. WAIVER..............................................................28
23. FAILURE TO PERFORM..................................................29
24. GOVERNING LAWS......................................................29
25. PREFERENCE FOR UNITED STATES INDUSTRY...............................29
26. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION................................................29
27. EXPORT CONTROL LAWS.................................................30
28. SECRECY.............................................................30
29. MISCELLANEOUS.......................................................32
</TABLE>
<PAGE> 3
UC Case Nos. 92-116, 93-173 and 93-179
EXCLUSIVE LICENSE AGREEMENT
for
[***]
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective this
26TH day of October , 1993 by and between THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, hereinafter
referred to as "The Regents", and Signal Pharmaceuticals, Inc., a California
corporation having a principal place of business at 11545 Sorrento Valley Road,
Suite 315, San Diego, California 92121, hereinafter referred to as the
"Licensee".
RECITALS
WHEREAS, certain inventions, generally characterized as methods for
the [***] and testing drugs therewith (UC Case No. 92-116), [***] (UC Case No.
93-173), and [***]
U.C. Agreement
Control Number
93-04-0786
***Confidential Treatment Requested
<PAGE> 4
[***] (UC Case No. 93-179), hereinafter collectively referred to as the
"Inventions", were made in the course of research at the University of
California, San Diego by [***] (UC Case No. 92-116), [***] (UC Case No. 93-173),
and [***] (UC Case No. 93-179) and are covered by Regents' Patent Rights as
defined below;
WHEREAS, the Licensee entered into Secrecy Agreements (U.C. Control
Nos. 92-20-0437) with The Regents effective September 7, 1992, for the purpose
of evaluating the Inventions;
WHEREAS, the development of the Inventions was sponsored at least in
part by the following organizations, and as a consequence this license in
certain respects is subject to overriding obligations to third party sponsoring
organizations:
(a) [***] (UC 92-116);
(b) [***] (UC 93-173);
(c) [***] (UC 93-179).
WHEREAS, the Licensee is a "small business firm" as defined in
15 U.S.C. 632;
WHEREAS, The Regents is desirous that the Inventions be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public;
WHEREAS, the Licensee is desirous of obtaining certain rights from The
Regents for the commercial development, use, and sale of the Inventions, and The
Regents is willing to grant such rights;
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<PAGE> 5
WHEREAS, both parties recognize and agree that royalties due hereunder
will be paid on both pending patent applications and issued patents; and
WHEREAS, both parties recognize and agree that royalties due hereunder
will be paid on products developed through the use of Regents' Technology Rights
and the Licensee is willing to pay such royalties in exchange for the early
access to The Regents' technology granted by this license, regardless of whether
or not some or all of The Regents' technology may have been published or may
become published;
WHEREAS, The Regents previously entered into Letters of Intent dated
[***] (U.C. Control No. [***]), and [***] (U.C. Control No. [***]), with the
Licensee for UC Case No. 92-116 and UC Case No. 92-130, which has been combined
into UC Case No. 92-116, and for UC Case No. 93-173 and UC Case No. 93-179;
- - 00 0 00 - -
the parties agree as follows:
1. DEFINITIONS
1.1 "Regents' Patent Rights" means patent rights assigned to The
Regents to any subject matter claimed in or covered by any of the following:
Pending U.S. Patent Application Serial No. [***], entitled [***], by [***],
filed [***]; pending U.S. Patent Application Serial No. [***] filed on [***],
under the title [***], by [***]; and pending U.S. Patent Application Serial
No.[***]
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<PAGE> 6
filed on [***], under the title "[***]", by [***]; and continuing applications
thereof including divisions and substitutions but including continuation-in-part
applications which contain claims supported in the original application; any
patents issuing on said application or continuing applications including
reissues; and any corresponding foreign applications or patents.
1.2 "Licensed Product" means any material either that is covered by
Regents' Patent Rights, that is identified or produced by the Licensed Method,
or that the use or sale of which would constitute, but for the license granted
to the Licensee pursuant to this Agreement, an infringement of any pending or
issued claim within Regents' Patent Rights.
1.3 "Licensed Method" means any method that is covered by Regents'
Patent Rights or Regents' Technology Rights, the use of which would constitute,
but for the license granted to the Licensee pursuant to this Agreement, an
infringement of any claim within Regents' Patent Rights or a misuse of Regents'
Technology Rights.
1.4 "Net Sales" means the total of the gross invoice prices of
Licensed Products sold by the Licensee, an Affiliate, or a sublicensee, less the
sum of the following actual and customary deductions where applicable: cash,
trade, or quantity discounts; sales, use, tariff, import/export duties or other
excise taxes imposed upon particular sales; transportation charges and
allowances or credits to customers because of rejections, breakage or returns.
1.5 "Affiliate" means any corporation or other business entity in
which the Licensee owns or controls, directly or indirectly, at least fifty
percent (50%) of the outstanding stock or other voting nights entitled to elect
directors; provided, however, that in
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<PAGE> 7
any country where the local law shall not permit foreign equity participation of
at least 50%, then an "Affiliate" shall include any company in which the
Licensee shall own or control, directly or indirectly, the maximum percentage of
such outstanding stock or voting rights permitted by local law.
1.6 "Regents' Technology Rights" means The Regents' interest in know
how and embodiments of know how relating to Regents' Patents Rights, whether or
not covered by Regents' Patent Rights, for example, unpublished patent
applications, notebooks, data, protocols, cell lines and other Biological
Materials (as defined below) which pertain to and/or are necessary for the
exercise of the rights granted herein. Regents' Technology Rights includes such
know how as may be transferred from time to time to personnel of the Licensee
during on site visits to the laboratories of the inventors named herein.
1.7 "[***]" means Regents' Patent Rights and Regents' Technology
Rights relating to UC 93-173 and UC 93-179 as identified herein.
1.8 "[***] Technologies" means Regents' Patent Rights and Regents'
Technology Rights relating to UC 92-116 as identified herein.
2. EXCLUSIVE GRANT
2.1 Subject to the limitations set forth in this Agreement, The
Regents hereby grants to the Licensee a world-wide license under Regents' Patent
Rights and Regents' Technology Rights to make, have made, use, and sell Licensed
Products and to practice Licensed Methods.
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2.2 Except as otherwise provided herein, the License granted in
section 2.1 shall be exclusive for the life of the Agreement and shall be for
all fields of use, except that the Licensee's license under Regents' Technology
Rights shall be Limited to such uses as are necessary for identifying, making,
using, or selling Licensed Products.
2.3 The license granted hereunder shall be subject to all the
applicable provisions of any License to the United States Government executed by
The Regents. The license granted hereunder shall be subject to the overriding
obligations to the U.S. Government set forth in 35 U.S.C. 200-212 and applicable
governmental implementing regulations.
2.4 The Regents expressly reserves the right to use the Inventions and
associated technology for educational and research purposes.
3. SUBLICENSES
3.1 The Regents also grants to the Licensee the right to issue
sublicenses to third parties to make, have made, use, and sell Licensed Products
and to practice Licensed Method, provided the Licensee has current exclusive
rights thereto under this Agreement. To the extent applicable, such sublicenses
shall include all of the rights of and obligations due to The Regents (and, if
applicable, the United States Government) that are contained in this Agreement.
3.2 The Licensee shall provide The Regents with a copy of each
sublicense issued hereunder; collect and Guarantee payment of all royalties due
The Regents from sublicensees, and summarize and deliver all reports due The
Regents from sublicensees.
6
<PAGE> 9
3.3 Upon termination of this Agreement for any reason, The Regents, at
its sole discretion, shall determine whether any or all sublicenses shall be
canceled or assigned to The Regents.
4. LICENSE-ISSUE FEE
4.1 The Licensee agrees to pay to The Regents a LICENSE-ISSUE FEE of
[***] plus issuance of [***] shares of common stock in accordance with the
Shareholders Agreement which is appended hereto as Appendix A and made a part of
this Agreement (the Shareholders Agreement) within seven days after the
execution of this Agreement. The Licensee shall also, at the same time pay to
The Regents extension fees in the amount of [***] in accordance with the Letter
of Intent dated September 16, 1992 (U.C. Control No. 92-30-0436).
4.2 These fees are non-refundable and are not an advance against
royalties.
5. EARNED ROYALTIES AND MILESTONE PAYMENTS
5.1 (a) The Licensee shall also pay to The Regents an EARNED ROYALTY
of [***] of the Net Sales of Licensed Products, provided that the earned royalty
shall be [***] of Net Sales of a Licensed Product if Net Sales of the Licensed
Product are less than [***] per year in any given calendar year of sales.
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<PAGE> 10
5.1(b) Any earned royalty due under Paragraph 5.1(a) shall be reduced
by [***] in the event that a Licensed Product is not covered by Regents' Patent
Rights but is covered by or developed from Regents' Technology Rights.
5.2 Paragraphs 1.1, 1.2, and 1.3 define Regents' Patent Rights,
Licensed Products and Licensed Methods so that royalties shall be payable on
products and methods covered by both pending patent applications and issued
patents, provided that no earned royalties shall be payable under Regents'
Patent Rights on pending claims that are abandoned or that are pending for more
than thirty (30) years from the effective date of this Agreement. In no event
shall any royalty be due under Regents' Patent Rights or Regents' Technology
Rights after the expiration of the last-to-expire patent licensed hereunder
which covers the Licensee's activities.
5.2(a) Paragraphs 1.6, 1.2, and 1.3 define Regents' Technology Rights,
Licensed Products and Licensed Methods so that royalties shall be payable on
products and methods covered by Regents' Technology Rights but not Regents'
Patent Rights, in accordance with Paragraph 5.1(a) and (b). No royalties shall
be payable under Regents' Technology Rights in any country after ten (10) years
from the date of first commercial sale in that country, or after a patent
licensed hereunder that covers the Licensee's activities has expired in that
country, as provided for in Paragraph 5.2 above. No royalties shall be payable
under Regents' Technology Rights on products developed independently of Regents'
Technology Rights.
5.3 Earned royalties shall accrue in each country for the duration of
Regents' Patent Rights or Regents' Technology Rights in that country and shall
be payable to The
8
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<PAGE> 11
Regents when Licensed Products are invoiced, or if not invoiced, when delivered
to a third party. For earned royalties accruing on sales for cash (or the
equivalent thereof) outside the United States, the Licensee may delay payment of
earned royalties until it actually receives payment from its customer, provided
that such delay does not exceed three (3) months from the date of invoice.
5.4 Royalties accruing to The Regents shall be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28
May 31
August 31
November 30
Each such payment will be for royalties which accrued within the Licensee's most
recently completed calendar quarter.
5.5 The Licensee shall pay to The Regents MILESTONE PAYMENTS.
Milestone payments for any particular milestone event shall be made within
thirty (30) days of the date of the milestone event. Milestone payments shall be
made as follows:
(a) [***]
(b) [***]
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[***]
(c) [***]
(d) [***]
5.6 All monies due The Regents shall be payable in United States funds
collectible at par in San Francisco, California. When Licensed Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Licensed
Products were sold and then converted into equivalent United States funds. The
exchange rate will be that rate quoted in the Wall Street Journal on the last
business day of the reporting period.
5.7 Royalties earned with respect to sales occurring in any country
outside the United States shall not be reduced by any taxes, fees, or other
charges imposed by the Government of such country on the remittance of royalty
income. The Licensee shall also be for all bank transfer charges.
Notwithstanding this, all payments made by the response Licensee in fulfillment
of The Regents' tax liability in any particular country shall be credited
against Earned Royalties, royalties or fees due The Regents for that country.
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<PAGE> 13
5.7(a) The Licensee shall not be required to sell Licensed Product in
a particular country if taxes and fees or other charges imposed by the
government make such sales unprofitable to the Licensee. In such event, the
Licensee shall notify The Regents of its intention not to sell in such country,
and the Licensee shall be required to sublicense rights in such country to any
qualified company recommended by The Regents.
5.8 If at any time legal restrictions prevent the prompt remittance of
part or all royalties by the Licensee with respect to any country where a
Licensed Product is sold, the Licensee shall have the right and option to make
such payments by depositing the amount thereof in local currency to The Regents'
account in a bank or other depository in such country. The Regents will use its
best efforts to transfer the monies held in the account specified in Paragraph
5.8 to the United States. If after one year from the date of the first deposit
into that account there are still legal restrictions that prevent The Regents
from transferring the monies, The Regents shall transfer the impounded funds
back to the Licensee, and the Licensee shall convert the amount owed to The
Regents into United States funds and shall pay The Regents directly from its
U.S. source of funds for the amount impounded. The Licensee shall then pay all
future royalties due to The Regents from its U.S. source of funds so long as the
legal restrictions of paragraph 5.8 still apply.
5.9 Notwithstanding anything to the contrary in Paragraph 5.3 hereof,
in the event that any patent or any claim thereof included within the Regents'
Patent Rights shall be rejected or held invalid in a final decision by a patent
office from which no appeal or additional patent prosecution has or can be taken
or by a court of competent jurisdiction and last resort and from which no appeal
has or can be taken, all obligation to pay royalties
11
<PAGE> 14
based on such patent or claim or any claim patentably indistinct therefrom shall
cease as of the date of such final decision. The Licensee shall not, however, be
relieved from paying any royalties that accrued before such decision or that are
based on another patent or claim not involved in such decision, or that are
based on The Regents' Technology Rights as provided for in this Agreement.
5.10 No royalties shall be collected or paid hereunder on Licensed
Products sold to the account of the U.S. Government, any agency thereof, state
or domestic municipal government as provided for in applicable Licenses to the
Government relating to the Karin Technologies.
6. DUE DILIGENCE
6.1 The Licensee, upon execution of this Agreement, shall diligently
proceed with the development, manufacture and sale of Licensed Products and
shall earnestly and diligently endeavor to market the same within a reasonable
time after execution of this Agreement and in quantities sufficient to meet the
market demands therefor.
6.2 The Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting its due diligence obligations hereunder.
6.3 The Licensee shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.
6.4 If the Licensee is unable to perform any of the following:
[***]
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<PAGE> 15
'
[***]
[***]
[***]
[***]
[***]
[***]
(6.4h) reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the exclusive period of
this Agreement;
then, subject to Paragraph 6.5, The Regents shall have the right and option
either to terminate this Agreement or to reduce the Licensee's exclusive license
to a nonexclusive license. This right, if exercised by The Regents, supersedes
the rights granted in Article 2 (GRANT).
6.5 Subject to Paragraphs 6. 1 and 6.2, if the Licensee is unable
to meet any of the dates set forth in Paragraph 6.4, with regard to either the
[***] Technologies or the [***] Technologies, respectively, the parties shall in
good faith re-establish a date or dates that are
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reasonable under the then current circumstances. The Regents shall not exercise
its rights to terminate this Agreement or convert it to a non-exclusive
agreement unless a re-established date is not met. If a re-established date is
more than six months from the original date, The Licensee shall begin making an
annual license maintenance fee for the delayed product of [***] per year. The
annual license maintenance fee shall begin to be payable in [***] for the [***]
Technologies, or [***] for the [***] Technologies, on the anniversary date of
the effective date hereof and shall continue until sales of the delayed product
begin. The annual maintenance fee provided for in this Paragraph shall not
exceed [***] per year per Technology (i.e. the [***] Technologies or the [***]
Technologies, respectively). The re-established date shall not affect the date
when any milestone payment would be due under Paragraph 5.5.
6.6 Either party to this Agreement may refer a dispute arising
under this Agreement to arbitration. Such referral to arbitration shall be made
by so notifying the other party in writing in accordance with the provisions of
Article 19 hereto (NOTICES), stating the nature of the dispute to be resolved.
Any such arbitration shall be controlled by the provisions of the Commercial
Arbitration Rules of the American Arbitration Association then in effect, with
the proviso that the arbitrators shall not be employees of the parties and shall
establish an arbitration timetable resulting in a hearing, in San Francisco,
California, within 120 days of the original request to arbitrate. The decision
of the arbitrators shall be enforceable, but not appealable, in any court of
competent jurisdiction.
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7. PROGRESS AND ROYALTY REPORTS
7.1 Beginning February 28, 1994 and semi-annually thereafter, the
Licensee shall submit to The Regents a progress report covering the Licensee's
activities related to the development and testing of all Licensed Products and
the obtaining of the governmental approvals necessary for marketing. These
progress reports shall be made for each Licensed Product until the first
commercial sale of that Licensed Product occurs in the United States. These
progress reports shall be considered "Data" for all purposes of Article 28,
hereof and shall be subject to the terms thereof.
7.2 The progress reports submitted under section 7.1 should
include, but not be limited to, the following topics:
- summary of work completed
- key scientific discoveries
- summary of work in progress
- current schedule of anticipated events or milestones
- market plans for introduction of Licensed Products, and
- a summary of resources (dollar value) spent in the reporting
period.
7.3 The Licensee shall have a continuing responsibility to keep
The Regents informed of the large/small entity status (as defined by the United
States Patent and Trademark Office) of itself and its sublicensees and
Affiliates.
7.4 The Licensee also agrees to report to The Regents in its
immediately subsequent progress and royalty report the date of first commercial
sale of a Licensed Product in each country.
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<PAGE> 18
7.5 After the first commercial sale of a Licensed Product anywhere in
the world, the Licensee will make quarterly royalty reports to The Regents on or
before each February 28, May 31, August 31 and November 30 of each year. Each
such royalty report will cover the Licensee's most recently completed calendar
quarter and will show (a) the gross sales and Net Sales of Licensed Products
sold by the Licensee during the most recently completed calendar quarter; (b)
the number of each type of Licensed Product sold; (c) the royalties, in U.S.
dollars, payable hereunder with respect to such sales; (d) the method used to
calculate the royalty; and (e) the exchange rates used.
7.6 If no sales of Licensed Products has been made during any
reporting period, a statement to this effect shall be required.
8. BOOKS AND RECORDS
8.1 The Licensee shall keep books and records accurately showing all
Licensed Products manufactured, used, and/or sold under the terms of this
Agreement. Such books and records shall be preserved for at least five (5) years
from the date of the royalty payment to which they pertain and shall be open to
inspection by representatives or agents of The Regents at reasonable times.
8.2 The fees and expenses of The Regents' representatives performing
such an examination shall be borne by The Regents. However, if an error in
royalties of more than five percent (5%) of the total royalties due for any year
is discovered, then the fees and expenses of these representatives shall be
borne by the Licensee.
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9. LIFE OF THE AGREEMENT
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the effective date recited on page one and shall remain in effect
for the life of the last-to-expire patent licensed under this Agreement; or, if
no patent in Regents' Patent Rights issues, for thirty (30) years from the
effective date of this Agreement, or for ten (10) years from the date of first
commercial sales in a given country, if such date is more than thirty (30) years
from the effective date.
9.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
Article 8 Books and Records
Article 12 Disposition of Licensed Products on Hand Upon
Termination
Article 13 Use of Names and Trademarks
Article 18 Indemnification
Article 23 Failure to Perform
Article 28 Secrecy
10. TERMINATION BY THE REGENTS
10.1 If the Licensee should violate or fail to perform any term or
covenant of this Agreement, then The Regents may give written notice of such
default (Notice of Default) to the Licensee. If the Licensee should fail to
repair such default within ninety (90) days of
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<PAGE> 20
the effective date of such notice, The Regents shall have the right to terminate
this Agreement and the licenses herein by a second written notice (Notice of
Termination) to the Licensee. If a Notice of Termination is sent to the
Licensee, this Agreement shall automatically terminate on the effective date of
such notice. Such termination shall not relieve the Licensee of its obligation
to pay any royalty or License fees owing at the time of such termination and
shall not impair any accrued right of The Regents. These notices shall be
subject to Article 19 (Notices).
11. TERMINATION BY LICENSEE
11.1 The Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights or Regents'
Technology Rights by giving notice in writing to The Regents. Such notice of
termination shall be subject to Article 19 (Notices) and termination of this
Agreement shall be effective ninety (90) days from the effective date of such
notice.
11.2 Any termination pursuant to the above paragraph shall not relieve
the Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by the Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
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12. DISPOSITION OF LICENSED-PRODUCTS
ON HAND UPON TERMINATION
12.1 Upon termination of this Agreement pursuant to Article 10 or
Article 11, the Licensee shall have the privilege of disposing of all previously
made or partially made Licensed Products, but no more, within a period of one
hundred and twenty (120) days, provided, however, that the sale of such Licensed
Products shall be subject to the terms of this Agreement including, but not
limited to, the payment of royalties at the rate and at the time provided herein
and the rendering of reports thereon.
13. USE OF NAMES AND TRADEMARKS
13.1 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either party
hereto (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name, "The
Regents of the University of California" or the name of any campus of the
University of California is expressly prohibited.
14. LIMITED WARRANTY
14.1 The Regents warrants to the Licensee that it has the lawful right
to grant this license.
14.2 This license and the associated Inventions are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
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<PAGE> 22
OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION
OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT.
14.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
USE OF THE INVENTIONS OR LICENSED PRODUCTS.
14.4 Nothing in this Agreement shall be construed as:
(14.4a) a warranty or representation by The Regents as to
the validity or scope of any Regents' Patent Rights;
or
(14.4b) a warranty or representation that anything made,
used, sold or otherwise disposed of under any
license granted in this Agreement is or will be free
from infringement of patents of third parties;
or
(14.4c) an obligation to bring or prosecute actions or suits
against third parties for patent infringement except
as provided in Article 17; or
(14.4d) conferring by implication, estoppel or otherwise any
license or rights under any patents of The Regents
other than Regents' Patent Rights as defined herein,
regardless
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of whether such patents are dominant or
subordinate to Regents' Patent Rights; or
(14.4e) an obligation to furnish any know how not provided
in Regents' Patent Rights, except as specifically
provided for under Regents' Technology Rights.
15. PATENT PROSECUTION AND MAINTENANCE
15.1 Provided that the Licensee has paid patent expenses as provided
for in Paragraph 15.5, The Regents shall diligently prosecute and maintain the
United States and foreign patents comprising Regents' Patent Rights using
counsel of its choice, and The Regents shall provide the Licensee with copies of
all relevant documentation so that the Licensee may be informed and apprised of
the continuing prosecution and the Licensee agrees to keep this documentation
confidential. The Regents' counsel will take instructions only from The Regents.
15.2 The Regents shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by the Licensee to protect
the products contemplated to be sold under this Agreement.
15.3 The Licensee shall apply for an extension of the term of any
patent included within Regents' Patent Rights if appropriate under the Drug
Price Competition and Patent Term Restoration Act of 1984 and/or European,
Japanese and other foreign counterparts of this Law. The Licensee shall prepare
all such documents, and The Regents
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agrees to execute such documents and to take such additional action as the
Licensee may reasonably request in connection therewith.
15.4 In the event either party receives notice pertaining to
infringement or potential infringement of any issued patent included within
Regents' Patent Rights pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (and/or European and Japanese counterparts of this Law),
such party shall notify the other party within ten (10) days after receipt of
such notice.
15.5 The costs of preparing, filing, prosecuting and maintaining all
United States patent applications contemplated by this Agreement shall be borne
by the Licensee. Costs billed to The Regents by The Regents' counsel shall be
rebilled to Licensee and shall be due within 30 days of rebilling by The
Regents. This includes patent prosecution costs for these Inventions incurred by
The Regents prior to the execution of this Agreement. Such costs will be due
upon execution of this Agreement and billing by The Regents. Such prior costs
will be approximately Nine Thousand Six Hundred Dollars ($9,600.00).
15.6 The Licensee shall have the continuing responsibility to notify
The Regents if the Licensee or any of its sublicensees is not a small entity
under the provisions of 35 USC 41(h).
15.7 The Licensee shall have the right to request The Regents to
obtain patent protection on the Inventions in foreign countries if available and
if it so desires. The Licensee shall notify The Regents by January 6, 1993 of
its decision to obtain foreign patents. This notice concerning foreign filing
shall be in writing, must identify the countries desired, and reaffirm the
Licensee's obligation to underwrite the costs thereof. The absence
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<PAGE> 25
of such a notice from the Licensee to The Regents shall be considered an
election not to secure foreign rights.
15.8 The preparation, filing and prosecuting of all foreign patent
applications filed at the Licensee's request, as well as the maintenance of all
resulting patents, shall be at the sole expense of the Licensee. Such patents
shall be held in the name of The Regents and shall be obtained using counsel of
The Regents' choice.
15.9 The Licensee's obligation to underwrite and to pay patent
prosecution costs shall continue for so long as this Agreement remains in
effect, provided, however, that the Licensee may terminate its obligations with
respect to any given patent application or patent upon three (3) months written
notice to The Regents. The Regents will use its best efforts to curtail patent
costs when such a notice is received from the Licensee. The Regents may continue
prosecution and/or maintenance of such application(s) or patent(s) at its sole
discretion and expense; provided, however, that the Licensee shall have no
further right or licenses thereunder.
15.10 The Regents shall have the right to file, prosecute or maintain
patent applications at its own expense in any country in which the Licensee has
not elected to file, prosecute, or maintain patent rights in accordance with
this Article 15, and such applications and resultant patents shall not be
subject to this Agreement.
16. PATENT MARKING
16.1 The Licensee agrees to mark all Licensed Products made, used or
sold under the terms of this Agreement, or their containers, in accordance with
the applicable
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patent marking laws.
17. PATENT INFRINGEMENT
17.1 In the event that the Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, the Licensee shall
call The Regents' attention thereto in writing and shall provide The Regents
with reasonable evidence of such infringement. Both parties to this Agreement
agree that during the period and in a jurisdiction where the Licensee has
exclusive rights under this Agreement, neither will notify a third party of the
infringement of any of Regents' Patent Rights without first obtaining consent of
the other party, which consent shall not be unreasonably denied. Both parties
shall use their best efforts in cooperation with each other to terminate such
infringement without litigation.
17.2 The Licensee may request that The Regents take legal action
against the infringement of Regents' Patent Rights. Such request shall be made
in writing and shall include reasonable evidence of such infringement and
damages to the Licensee. If the infringing activity has not been abated within
ninety (90) days following the effective date of such request, The Regents shall
have the right to:
(17.2a) commence suit on its own account; or
(17.2b) refuse to participate in such suit,
and The Regents shall give notice of its election in writing to the Licensee by
the end of the one-hundredth (100th) day after receiving notice of such request
from the Licensee. The Licensee may thereafter bring suit for patent
infringement if and only if The Regents elects
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not to commence suit and if the infringement occurred during the period and in a
jurisdiction where the Licensee had exclusive rights under this Agreement.
However, in the event the Licensee elects to bring suit in accordance with this
paragraph, The Regents may thereafter join such suit at its own expense.
17.3 Such legal action as is decided upon shall be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby shall belong to such party, provided, however, that legal action brought
jointly by The Regents and the Licensee and fully participated in by both shall
be at the joint expense of the parties and all recoveries shall be shared
jointly by them in proportion to the share of expense paid by each party. If the
Licensee pays all legal expenses, it shall have the right to offset one half of
its out-of-pocket legal expenses against any earned royalties payable under
Paragraph 5. 1, provided that earned royalties payable under Paragraph 5.1 shall
not be reduced in any given quarter by more than [***]; any unused credit may be
carried forward until the Licensee has received full credit for its creditable
legal expenses.
17.4 Each party agrees to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit, except that The Regents may be represented by counsel of its choice
pursuant to The Regents' determination in any suit brought by the Licensee, and
The Licensee may be represented by counsel of its choice pursuant to The
Licensee's determination in any suit brought by The Regents.
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18. INDEMNIFICATION
18.1 The Licensee agrees to indemnify, hold harmless and defend The
Regents, its officers, employees, and agents; the sponsors of the research that
led to the Inventions; and the inventors of the patents and patent applications
in Regents' Patent Rights and their employers against any and all claims, suits,
losses, damage, costs, fees, and expenses resulting from or arising out of
exercise of this license or any sublicense. This indemnification will include,
but will not be limited to, any product liability.
18.2 The Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement and obtain, keep in
force and maintain insurance as follows, beginning with the date that materials
to be used on or by the third parties are first manufactured: Comprehensive or
Commercial Form General Liability Insurance (contractual liability included)
with limits as follows:
(a) Each Occurrence $1,000,000
(b) Products/Completed Operations Aggregate $5,000,000
(c) Personal and Advertising Injury $1,000,000
(d) General Aggregate (commercial form only) $5,000,000
It should be expressly understood, however, that the coverages and limits
referred to under the above shall not in any way limit the liability of the
Licensee. The Licensee shall furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates shall:
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(a) Provide for thirty (30) day advance written notice to The Regents
of any modification.
(b) Indicate that The Regents has been endorsed as an additional
insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and will
not participate with nor will be excess over any valid and collectable insurance
or program of self-insurance carried or maintained by The Regents.
18.3 The Regents shall promptly notify the Licensee in writing of any
claim or suit brought against The Regents in respect of which The Regents
intends to invoke the provisions of this Article 18. The Licensee will keep The
Regents informed on a current basis of its defense of any claims pursuant to
this Article 18.
19. NOTICES
19.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to such other address as it shall designate by written notice given to
the other party.
In the case of the Licensee: Signal Pharmaceuticals, Inc.
11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
Attention: Chief Executive Officer
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In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: Director;
Office of Technology Transfer
Referring to: UC Case Nos. 92-116,
93-173, and 93-179
20. ASSIGNABILITY
20.1 This Agreement is binding upon and shall inure to the benefit of
The Regents, its successors and assigns, but shall be personal to the Licensee
and assignable by the Licensee only with the written consent of The Regents,
which consent shall not be unreasonably withheld.
21. LATE PAYMENTS
21.1 In the event royalty payments, rebillings or fees are not
received by The Regents when due, the Licensee shall pay to The Regents interest
charges at a rate of ten (10) percent per annum. Such interest shall be
calculated from the date payment was due until actually received by The Regents.
22. WAIVER
22.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
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23. FAILURE TO PERFORM
23.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
24. GOVERNING LAWS
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of such patent or patent application.
25. PREFERENCE FOR UNITED STATES INDUSTRY
25. 1 Because this Agreement grants the exclusive right to use or sell
the Inventions in the United States, the Licensee agrees that any products
embodying these Inventions or produced through the use thereof will be
manufactured substantially in the United States.
26. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION
26.1 If this Agreement or any associated transaction is required by
the law of any nation to be either approved or registered with any governmental
agency, the Licensee
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shall assume all legal obligations to do so.
27. EXPORT-CONTROL LAWS
27.1 The Licensee shall observe all applicable United States and
foreign laws with respect to the transfer of Licensed Products and related
technical data to foreign countries, including, without limitation, the
International Traffic in Arms Regulations (ITAR) and the Export Administration
Regulations.
28. SECRECY
28.1 With regard to confidential information ("Data"), which can be
oral or written or both, received from The Regents regarding these Inventions,
or received from the Licensee regarding its business, the receiving party
(hereinafter "Recipient") agrees:
(1) not to use the Data except for the sole purpose of
performing under the terms of this Agreement;
(2) to safeguard Data against disclosure to others with
the same degree of care as it exercises with its own
data of a similar nature;
(3) not to disclose Data to others (except to its
employees, agents or consultants who are bound to the
Licensee by a like obligation of confidentiality)
without the express written permission of the
disclosing party, except that the Recipient shall not
be prevented from using or disclosing any of the Data:
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(a) which the Recipient can demonstrate by written
records was previously known to it;
(b) which is now, or becomes in the future, public
knowledge other than through acts or omissions of
the Recipient; or
(c) which is lawfully obtained by the Recipient from
sources independent of the disclosing party;
(4) that the secrecy obligations hereunder are subject to
the California Public Records Act; and
(5) that the secrecy obligations of the Recipient with
respect to Data shall continue for a period ending
five (5) years from the termination date of this
Agreement.
28.2 With regard to biological material received from The Regents,
including any cell lines, vectors, genetic material, derivatives, products
progeny or material derived therefrom ("Biological Material"), the Licensee
hereby agrees:
(1) not to use Biological Material except for the sole
purpose of performing under the terms of this
Agreement;
(2) not to transfer Biological Material to others (except
to its employees, agents or consultants who are bound
to the Licensee by like obligations conditioning and
restricting access, use and continued use of
Biological Material) without the express written
permission of The Regents, except that the Licensee
shall not be prevented from transferring Biological
Material which:
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(a) becomes publicly available other than through acts
or omissions of the Licensee, or
(b) is lawfully obtained by the Licensee from sources
independent of The Regents;
(3) to safeguard Biological Material against disclosure
and transmission to others with the same degree of
care as it exercises with its own biological materials
of a similar nature;
(4) to destroy all copies of Biological Material at the
termination pursuant to Article 10 or Article 11 of
this Agreement; and
(5) that title to the Biological Material shall
automatically transfer to the Licensee at the
expiration of this Agreement.
29. MISCELLANEOUS
29.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
29.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
29.3 No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed on behalf of each party.
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29.4 This Agreement embodies the entire understanding of the parties
and shall supersede all previous communications, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof. The Secrecy Agreements dated September 7, 1992 (U.C.
Control No. 92-20-0437), August 13, 1992 (U.C. Control No. 93-20-0575), August
13, 1993 (U.C. Control No. 93-20-0576), and the Letters of Intent dated
September 16, 1992 (U.C. Control No. 92-30-0436), and June 11, 1993 (U.C.
Control No. 93-30-0379), are hereby terminated.
29.5 In case any of the provisions contained in this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
29.6 This Agreement includes Appendix A which is attached hereto.
Appendix A is a Shareholder's Agreement. As long as The Regents is a shareholder
under the Shareholder's Agreement, or until the Common Stock of the Company (as
defined in Appendix A) is publicly traded, the Licensee agrees that it shall
give The Regents' designated representative notice of all of its Board of
Directors meetings, as it gives to its own board members. The designated
Regents' representative shall be permitted to attend at least one meeting of the
Board of Directors per year (the date and time of which shall be determined by
the Licensee in its sole discretion) and to comment and ask questions during the
proceedings. The Regents' representative shall be selected after consultation
with the
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Licensee, and it is understood that the representative is not a Director and
cannot vote on matters before the Board.
IN WITNESS WHEREOF, both The Regents and the Licensee have executed
this Agreement, in duplicate originals, by their respective officers hereunto
duly authorized, on the day and year hereinafter written.
SIGNAL PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ MARK D. CARMAN By: /s/ WILLIAM T. DAVIS
---------------------------- ----------------------------
(Signature) (Signature)
Name: MARK D. CARMAN Name: William T. Davis
---------------------------
(Please Print)
Title: V.P. OPERATION'S Title: Associate Director;
---------------------------- Office of Technology Transfer
CORPORATE DEV.
Date: 10/14/93 Date: 10/26/93
-------------------------- --------------------------
APPROVAL AS TO LEGAL FORM: /s/ P. MARTIN SIMPSON 10/6/93
------------------------------ ------------
P. Martin Simpson, Jr., Resident Date
Counsel
Office of Technology Transfer
University of California
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<PAGE> 1
EXHIBIT 10.28
UC Case Nos. 92-116, 93-173, and 93-179
FIRST AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT FOR METHODS FOR [***]
THIS FIRST AMENDMENT TO LICENSE AGREEMENT (the "First Amendment") is
effective this 22nd day of June 1997 between The Regents of the University of
California, a California corporation with administrative headquarters at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 ("The Regents"), and
Signal Pharmaceuticals, Inc., a California corporation with an address at 11545
Sorrento Valley Road, Suite 315, San Diego, California 92121 ("Licensee").
BACKGROUND
A. The Regents and Licensee entered into an agreement effective October 26, 1993
(UC Control No. 93-04-0786) which is entitled [***] (the "License Agreement");
B. The Regents and Licensee wish to amend the License Agreement to include
rights to The Regents' undivided interest in pending U.S. Patent Application No.
[***]. Rights granted in this First Amendment are limited to The Regents'
undivided interest because the patent application is the result of a
collaboration between The Regents and The University of Massachusetts Medical
Center (UMMC) and is jointly assigned to both institutions.
C. UMMC has filed conflicting patent applications, which could lead to
interferences with patent applications filed under UC Case No. 93-173 and
increase Licensee's patent prosecution costs under this license.
D. The Regents and Licensee also wish to amend the License Agreement to show
negotiated and agreed upon changes to the terms on sublicensing,
confidentiality, patent enforcement, place of manufacture for Licensed Products,
and dispute resolution.
U.C. AGREEMENT
CONTROL NUMBER
93-04-0786I
1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83 and 230.406
<PAGE> 2
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
E. The parties wish to clarify and bring current the patents and patent
applications that are subject to this agreement, including the addition of
certain continuation-in-part applications.
F. As recited in Paragraph 6.5 of the License Agreement, if the Licensee is
unable to meet any of the dates set forth in Paragraph 6.4 of the License
Agreement, with regard to either the [***] Technologies or the [***]
Technologies, the parties shall in good faith re-establish a date or dates that
are reasonable under the then current circumstances. Since Signal has made
significant progress in the development of both the [***] Technologies and the
[***] Technologies, The Regents wishes to amend the License Agreement to extend
the due diligence dates recited in Paragraph 6.4 by [***] as requested by
Licensee.
Licensee and The Regents agree:
1. Paragraph 1. 1 of Article 1 (Definitions) of the License Agreement is
removed in its entirety and replaced with the following:
1.1 "Regents' Patent Rights" means The Regents' interest in subject
matter claimed in or covered by any of the following:
1.1.(1) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***], [***] by [***] (UC Case 92-116-2), which is
a continuation application to U.S. Patent Application [***] (UC Case
No. 92-116-1);
1.1.(2) Pending U.S. Patent Application Serial [***] entitled
"[***]", filed [***] by [***] (UC Case 92-116-3);
1.1.(3) U.S. Patent No. [***] entitled "[***] [***]", filed on [***]
by [***] (UC Case No. 93-173-1);
1.1.(4) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***] by [***] (UC Case No. 93-173-2);
2
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<PAGE> 3
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
1. 1. (5) U. S. Patent No. [***] entitled "[***]", filed [***] by
[***] (UC Case No. 93-173-3);
1. 1. (6) U. S. Patent No. [***] entitled "[***]", filed on [***] by
[***] (UC Case No. 93-173-4);
1. 1. (7) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***] by [***] (UC Case No. 93-173-5);
1.1.(8) Pending U.S. Patent Application Serial No. [***], entitled
"[***]", filed [***] by [***] (UC Case No. 93-179-1);
1.1.(9) Pending U.S. Patent Application Serial No. [***], entitled
"[***]", filed [***] by [***] (UC Case No. 93-179-2);
and continuing applications thereof including divisions and substitutions
but excluding continuation-in-part applications, except to the extent that
those continuation-in-part applications contain claims supported in the
original application; any patents issuing on said application or
continuing applications including reissues; and any corresponding foreign
applications or patents.
2. Paragraph 3.3 of Article 3 (Sublicensing) of the License Agreement is
removed in its entirety and replaced with the following:
3.3 Upon termination of this Agreement or reduction of its licenses to
non-exclusive, for any reason, The Regents shall accept assignment of
sublicenses, to the extent that it is not unreasonable for The Regents to
do so as a public entity and provided that:
(a) The Licensee was not in breach of this Agreement when entering
into the sublicense;
3
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<PAGE> 4
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
(b) The sublicensee is not in breach of its sublicense agreement at
the time of termination of this Agreement; and
(c) The sublicensee acquires no rights from or obligations on the
part of The Regents other than those that are specifically granted
in this Agreement, and the sublicensee assumes all obligations to
The Regents required of Licensee by this Agreement, including past
due obligations existing at the time of assumption of the
sublicense, as well as any additional payments required by the
sublicense.
3. Paragraph 6.4 of Article 6 (Due Diligence) of the License Agreement is
removed in its entirety and replaced with the following:
[***]
6.4h reasonably fill the market demand for Licensed Products following
commencement of marketing at any time during the exclusive period of this
Agreement;
4
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<PAGE> 5
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
then, subject to Paragraph 6.5, The Regents shall have the right and
option either to terminate this Agreement or to reduce the Licensee's
exclusive license to a nonexclusive license. This right, if exercised by
The Regents, supersedes the rights granted in Article 2 (Grant).
4. The fourth sentence of Paragraph 6.5 of the License Agreement which reads,
"The annual license maintenance fee shall begin to be payable in [***] for the
[***] Technologies, or [***] for the [***] Technologies, on the anniversary date
of the effective date hereof and shall continue until sales of the delayed
product begin," is removed and replaced with the following:
"The annual license maintenance fee shall begin to be payable in [***] for
the [***] Technologies, or [***] for the [***] Technologies, on the
anniversary date of the effective date hereof and shall continue until
sales of the delayed product begin. "
5. Paragraph 6.6 of Article 6 (Due Diligence) of the License Agreement is
removed in its entirety and replaced with the following:
6.6 Either party to this Agreement shall refer a dispute arising under
this Article to mediation prior to commencing litigation with the other
party under this Agreement. The mediation shall be conducted in accordance
with the rules of the Commercial Arbitration and Mediation Center for the
Americas.
6. Article 25 (Preference for United States Industry) of the License
Agreement is removed in its entirety and replaced with the following:
25.1 Because this Agreement grants the exclusive right to use or sell the
Inventions in the United States, the Licensee agrees that any products
sold in the U.S. embodying these Inventions or produced through the use
thereof will be manufactured substantially in the United States.
5
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<PAGE> 6
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
7. Subparagraph 28.1(3) of Article 28 (Secrecy) of the License Agreement is
removed in its entirety and replaced with the following:
28.1(3) not to disclose Data to others (except to its employees, agents,
consultants, investors or collaborators who are bound to the Licensee by a
like obligation of confidentiality) without the express written
permission of the disclosing party, except that the Recipient shall not
be prevented from using or disclosing any of the Data:
(a) which the Recipient can demonstrate by written records was previously
known to it;
(b) which is now, or becomes in the future, public knowledge other than
through acts or omissions of the Recipient; or
(c) which is lawfully obtained by the Recipient from sources independent
of the disclosing party.
8. Licensee and The Regents recognize that the license granted in the License
Agreement to pending U.S. Patent Application No. [***] may be limited by
the outcome of an interference, if one is declared, between The Regents and
UMMC. The Licensee will, however, have a license under any rights remaining to
The Regents following any interference proceeding.
6
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<PAGE> 7
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
9. Except as amended, modified and supplemented by the terms of this First
Amendment, the License Agreement shall remain in full force and effect in
accordance with its terms.
The parties have executed this FIRST AMENDMENT TO THE LICENSE AGREEMENT by their
respective and duly authorized officers, as evidenced by the signatures below.
SIGNAL PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ CARL BOBKOSKI By: /s/ TERENCE A. FEUERBORN
-------------------------------- ---------------------------------
(Signature) (Signature)
Name: /s/ CARL BOBKOSKI Name:
------------------------------ -------------------------------
(Please Print) Terence A. Feuerborn
Title: E.V.P. Title: Executive Director
Research Administration and
Technology Transfer
Date: 6/19/97 Date: 6/22/97
------------------------------ -------------------------------
Approved as to legal form: /s/ SANDRA S. SCHULTZ 6/14/92
----------------------- -------
Sandra S. Schultz, Attorney Date
Office of Technology Transfer
University of California
7
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.29
[UNIVERSITY OF CALIFORNIA LETTERHEAD]
February 2,1998
Carl F. Bobkoski
Executive Vice President
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
RE: Second Amendment to Exclusive License Agreement for:
Methods for Production of Neuroblasts and Testing Drugs...
UC Case No. 92-116 etc.: UC Agreement Control No. 93-04-0786
Dear Carl:
I write regarding a proposed designated sublicense agreement, which Signal
Pharmaceuticals, Inc. "Signal") is negotiating for the [***] Technologies (as
defined in the subject License Agreement) with a certain other party
("Designated Sublicensee"). Signal wishes to issue this sublicense with a
royalty base that differs from the royalty base defined in the License Agreement
and on other terms and conditions which vary from the License Agreement.
Accordingly:
The Regents agrees to waive certain provisions of the License Agreement solely
for this designated sublicense in consideration of Signal agreeing that
(capitalized terms should have the meaning set forth herein, if not specified
herein, the meaning defined in the above referenced License Agreement):
(a) The designated sublicense grant will be confined to a field allowing
the Designated Sublicensee to use the [***] Technologies in connection
with [***]
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<PAGE> 2
Carl F. Bobkoski
February 2, 1998
Page 2
(b) Signal will pay The Regents an earned royalty on Net Sales of
Licensed Product sold by the Designated Sublicensee, its affiliates and
sublicensees as set forth in Appendix A hereto; accordingly, solely for
purposes of the designated sublicense agreement. Paragraphs 5.1 through
5.3 and 5.9 of the License Agreement are hereby superseded by the terms
and conditions set forth in Appendix A.
(c) Upon termination of the License Agreement or reduction of Signal's
license under the License Agreement to non-exclusive, for any reason, The
Regents shall accept assignment of this designated sublicense, as provided
for in the First Amendment to Exclusive License Agreement for [***]
effective June 22, 1997. Notwithstanding the foregoing, The Regents shall
accept assignment of this sublicense even if Signal was in breach of the
License Agreement when entering into the sublicense.
(d) The designated sublicense agreement will require that Sublicensee
(itself or through a designee) develop at least [***] as follows:
- [***]
- [***]
- [***]
- [***]
Notwithstanding the foregoing, the designated sublicense agreement may provide
for reasonable extensions of the foregoing diligence deadlines, if despite
diligent efforts such deadline is or may not be met. However, in the event that
The Regents accepts assignment of the sublicense, The Regents shall not be
required to provide any extension of the diligence deadlines and any extension
of the diligence deadlines shall be at the sole discretion of The Regents.
Apart from the above-specified changes, the subject sublicense agreement will
adhere to all the sublicensing provisions of the License Agreement. However, to
the extent this letter and the License Agreement conflict solely with respect
to the designated sublicense agreement this letter will control.
***Confidential Treatment Requested
<PAGE> 3
Carl F. Bobkoski
February 2, 1998
Page 3
If you agree to the terms of this letter, please sign both enclosed originals
and return them to me. I will return a fully executed original to you for your
records.
Sincerely,
/s/ PATRICIA ANDERSON COTTON, PH.D.
-----------------------------------
Patricia Anderson Cotton, Ph.D.
Licensing Officer
______________________________________________________________________________
SIGNAL PHARMACEUTICALS THE REGENTS OF THE UNIVERSITY
INC.: OF CALIFORNIA:
By: /s/ CARL F. BOBKOSKI By: /s/ TERENCE A. FEUERBORN
------------------------------- -------------------------------
(Signature) (Signature)
Name: Carl F. Bobkoski Name: Terence A. Feuerborn
Title: Executive Vice President Title: Executive Director
Office of Research Administration
and Technology Transfer
Date: Feb. 13, 98 Date: 3-2-98
----------------------------- -----------------------------
[ILLEGIBLE]
/s/ P. Martin Simpson, Jr. 3-Jan 98
----------------------- --------
P. Martin Simpson, Jr. Date
Resident Counsel
Office of Technology Transfer
University of California
<PAGE> 4
APPENDIX A TO SECOND AMENDMENT DATED FEBRUARY 2, 1998
Signal and The Regents agree that solely for purposes of the designated
sublicense agreement:
1. The following terms defined in Paragraphs 1.2, 1.3, 1.4 and 1.5 of the
License Agreement shall have the following meanings:
1.2 "Licensed Product" means any product, composition or material (i) the
sale of which would, but for the licenses granted to the Designated
Sublicensee, infringe a Valid Claim within The Regents' Patent Rights in the
country for which such product, composition or material is sold or (ii) is
manufactured or administered to a patient by a Licensed Method.
1.3 "Licensed Method" means any method (i) the practice of which would,
but for the license granted to Designated Sublicensee, infringe a Valid Claim
within Regents' Patent Rights or (ii) consisting of a method of [***]
1.4 "Net Sales" means the total amount invoiced to third parties on sales of
Licensed Products by Designated Sublicensee, its affiliates or sublicensees,
less the following reasonable and customary deductions to the extent applicable
to such invoiced amounts: (i) all trade, cash and quantity credits, discounts,
refunds or government rebates; (ii) amounts for claims, allowances or credits
for returns, retroactive price reductions, or chargebacks; (iii) packaging,
handling fees and prepaid freight, sales taxes, duties and other governmental
charges (including value added tax); and (iv) provisions for uncollectible
accounts determined in accordance with reasonable accounting practices,
consistently applied to all products of the selling party; provided, however,
that in the case of Patient-Specific Licensed Products, "Net Sales" shall equal
[***] of the foregoing amounts (after the deductions described in (i) through
(iv) above). For purposes of the foregoing, it is understood that Net Sales
shall include only the amount invoiced for materials consisting of Licensed
Products (less the foregoing deductions and adjustments) and shall not include
charges related to services [***] performed in connection with the sale of such
Licensed Products; accordingly, Net Sales shall not include, without limitation,
charges for [***] or the like. For the removal of doubt, Net Sales shall not
include sales by Sublicensee to its affiliates for resale, provided that if
Sublicensee sells a Licensed Product to an affiliate for resale, Net Sales shall
include the amounts invoiced by such affiliate to third parties on the resale of
such Licensed Product.
1.5 "Affiliate" means any corporation or other business entity in which
the Licensee or Designated Sublicensee owns or controls, directly or
indirectly, at least fifty (50%) of the outstanding stock or other voting
rights entitled to elect directors; provided however, that any country where
the local law shall not permit foreign equity participation of at least 50%,
then an
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<PAGE> 5
"Affiliate" shall include any company in which the Licensee or Sublicensee owns
or controls, directly or indirectly, the maximum percentage of such outstanding
stock or voting rights permitted by local law.
2. The following definitions are added to Article I (Definitions) of the
License Agreement:
1.9 [***]
2.0 "Valid Claim" shall mean a claim of an issued and unexpired patent or
a claim of a pending patent application within Regents' Patent Rights which has
not been held unpatentable, invalid or unenforceable by a court or other
government agency of competent jurisdiction and has not been admitted to be
invalid or unenforceable through reissue, re-examination, disclaimer or
otherwise. Notwithstanding the foregoing, if a claim of a pending patent
application within Regents' Patent Rights has not issued as a claim of an
issued patent within Regent's Patent Rights, on or before [***]
such pending claim shall not be a Valid Claim for purposes of the sublicense
agreement unless and until such claim issues.
3. Paragraphs 5.1, 5.2, 5.3 and 5.9 of the License Agreement shall be removed
and replaced with the following:
5.1(a) The Licensee shall pay The Regents an earned royalty of [***] of
the Net Sales of Licensed Product sold by the Designated Sublicensee, its
Affiliates or sublicensees; provided that the earned royalty shall be [***] of
the Net Sales of Licensed Products, if such Net Sales by Licensee, its
Affiliates and sublicensees (including without limitation, Designated
Sublicensee, its Affiliates and sublicensees) are less than [***] per year in
any given calendar year of sales.
5.1(b) The earned royalty due under Paragraph 5.1(a) above with respect
to a Licensed Product which is not covered by any Valid Claim but is
manufactured or administered to patients using a Licensed Method not covered by
a Valid Claim shall be [***].
5.2 Royalties shall continue under Paragraph(s) 5.1(a) and 5.1(b) above
with respect to each Licensed Product, (i) on a country-by-country basis for so
long as the sale of such Licensed Product would, but for the license granted to
Designated Sublicensee, infringe a Valid Claim within the Regents' Patent rights
in such country or (ii) with respect to a Licensed Product(s) not covered by any
Valid Claim but that is manufactured or administered to patients using a
Licensed Method not covered by a Valid Claim for ten (10) years from the date of
first commercialization of the first such Licensed Product in any country.
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<PAGE> 6
5.3 Earned royalties due on Net Sales of Licensed Products by Designated
Sublicensee, its affiliates or sublicensees shall be deemed accrued in the
quarter in which Licensee receives payment from the Sublicensee with respect to
such Net Sales, but in no event later than the quarter following the quarter in
which Net Sales are made by the Sublicensee, its affiliates or sublicensee.
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83 and 230.406
EXHIBIT 10.30
RESTRICTED STOCK PURCHASE AGREEMENT
Agreement made as of this 26th day of October, 1993 by and between Signal
Pharmaceuticals, Inc., a California corporation (the "Company"), and The Regents
of the University of California ("The Regents" or "Purchaser").
Unless otherwise defined herein, all capitalized terms used herein shall
have the same meanings given to them in that certain Exclusive License Agreement
(the "License Agreement") by and between Purchaser and the Company, dated
October 26, 1993, a copy of which is attached hereto as Exhibit 1.
1. PURCHASE OF SHARES
1.1 Purchase. In consideration of Purchaser's grant of certain
patent and technology rights to the Company pursuant to the License Agreement,
the Company shall issue to Purchaser [***] shares of its Common Stock. Upon the
Company's achievement of certain milestones, the Company shall issue additional
shares to Purchaser as follows:
(a) The Company shall issue [***] shares of its Common Stock
(as adjusted for stock splits, subdivisions, combinations, recapitalizations and
distributions of stock) to Purchaser:
(i) [***]
(ii) [***]
provided, however, that only one such issuance shall be made pursuant to each of
(i) and (ii), above, regardless of how many lead compounds utilizing the [***]
or [***] Technologies may subsequently be entered into toxicology studies.
(b) Upon the [***], the Company shall issue [***] shares of
its Common Stock (as adjusted for stock splits, subdivisions, combinations,
recapitalizations and distributions of stock) to Purchaser;
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<PAGE> 2
[***]
(c) [***], the Company shall issue to
Purchaser [***] shares of its Common Stock (as adjusted for stock splits,
subdivisions, combinations, recapitalizations and distributions of stock);
[***]
All shares of the Company's Common Stock issued to Purchaser
pursuant to this paragraph 1.1, shall hereinafter be referred to as the
"Shares". Notwithstanding the foregoing, the Company shall have no obligation to
issue any shares following any termination of the License Agreement.
2. INVESTMENT REPRESENTATIONS
2.1 Exemption from Registration. The Shares have not been
registered under the 1933 Act, and are accordingly being issued to Purchaser in
reliance upon the exemption from such registration provided by Section 4(2) of
the 1933 Act.
2.2 Investment Intent. Purchaser hereby warrants and represents
that it is acquiring the Shares for its own account and not with a view to their
resale or distribution and that it is prepared to hold the Shares for an
indefinite period and has no present intention to sell, distribute or grant any
participating interests in, the Shares. Purchaser hereby acknowledges the fact
that the Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and that the Company is issuing the Shares to it in
reliance on the representations made by it herein.
2.3 Restricted Securities.
(a) Purchaser hereby confirms that it has been informed that
the Shares may not be resold or transferred unless such Shares are first
registered under the 1933 Act or unless an exemption from such registration is
available. Accordingly, Purchaser hereby acknowledges that it is prepared to
hold the Shares for an indefinite period and that it is aware that Rule 144 of
the Securities and Exchange Commission issued under the 1933 Act is not
presently available to exempt the sale of the Shares from the registration
requirements of the Act. Should Rule 144 subsequently become available,
Purchaser is aware that any sale of Shares effected pursuant to the Rule may,
depending upon the status of Purchaser as an "affiliate" or "non-affiliate"
2
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<PAGE> 3
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Shares be sold pursuant to
the Rule until Purchaser has held such Shares for at least two (2) years
following their issuance.
(b) Should the Company not become subject to the reporting
requirements of the Exchange Act, then Purchaser may, provided he/she is not at
the time an affiliate of the Company (nor was such an affiliate during the
preceding three (3) months), sell the Shares (without registration) pursuant to
paragraph (k) of Rule 144 after the Shares have been held for a period of three
(3) years following the payment in cash of the Purchase Price for such shares.
2.4 Disposition of Shares. Except as specifically set forth below,
Purchaser hereby agrees that it shall make no disposition of the Shares, unless
and until:
(a) it shall have complied with all requirements of this
Agreement applicable to the disposition of such Shares;
(b) it shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and conditions
of the proposed disposition; and
(c) unless otherwise waived by the Company, it shall have
delivered to the Company a written opinion of counsel at the Company's expense,
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act or
(ii) all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from registration available
under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 2, nor (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
so transferred.
2.5 Restrictive Legends. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares shall be
endorsed with restrictive legends, including the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been acquired
for investment and may not be sold or offered for sale in the absence of
an effective registration statement for the shares
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<PAGE> 4
under that Act, a 'no action' letter of the Securities and Exchange
Commission as to such sale or offer, or an opinion of counsel to the
Company that registration under such Act is not required for such sale or
offer."
3. TRANSFER RESTRICTIONS
3.1 Transferee Obligations. Each person (other than the Company)
to whom the Shares are transferred must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to the market stand-off provisions of paragraph 3.2 to the
same extent such shares would be so subject if retained by Purchaser.
3.2 Market Stand-Off.
(a) In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering (the "IPO"), Purchaser and all subsequent holders of the Shares who
derive their chain of ownership through a transfer from Purchaser ("Owner")
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any Shares without the prior written consent of the Company or its underwriters.
Such limitations shall be in effect for such period of time from and after the
effective date of the final prospectus for such offering as may be requested by
the Company or such underwriters.
(b) Owner shall be subject to the market standoff provisions
of this paragraph 3.2 provided and only if all of the executive officers and
directors of the Company are also subject to similar arrangements.
(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected as a class without the Company's receipt of consideration, then
any new, substituted or additional securities distributed with respect to the
Shares shall be immediately subject to the provisions of this paragraph 3.2, to
the same extent the Shares are at such time covered by such provisions.
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<PAGE> 5
(d) In order to enforce the limitations of this paragraph
3.2, the Company may impose stop-transfer instructions with respect to the
Shares until the end of the applicable standoff period.
4. REGISTRATION RIGHTS.
4.1 For purposes of this Section 4:
(a) The term "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means the Common Stock
issued pursuant to this Agreement, excluding, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 4 are not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 4.7 hereof.
4.2 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 5.2, the Company shall,
subject to the provisions of Section 4.4, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
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<PAGE> 6
4.3 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 4.2 for each Holder (which right may be assigned as provided
in section 4.7), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto, but excluding underwriting discounts and commissions relating to
Registrable Securities.
4.4 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 4.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (subject to the
rights of other security holders of the Company, including, without limitation,
preferred shareholders, the securities so included to be apportioned pro rata
among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders).
For purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder", and any pro-rata reduction with
respect to such "selling shareholder" shall be-based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder", as defined in this sentence.
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<PAGE> 7
4.5 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 4.
4.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements 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 violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling
7
<PAGE> 8
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 4.6(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 4.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 4.6(b) exceed the gross proceeds from the
offering received by such Holder.
(c) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any indemnified party if a copy of the Final
Prospectus was furnished to such indemnified party and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such Final Prospectus is required to be delivered under the Securities Act if
such loss, claim or damage would have been avoided had the indemnified party
furnished the Final Prospectus to such person.
(d) Promptly after receipt by an indemnified party under
this Section 4.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain
8
<PAGE> 9
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 4.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 4.6.
(e) If the indemnification provided for in this Section 4.6
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(g) The obligations of the Company and Holders under this
Section 4.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 4, and otherwise.
4.7 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 4 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such
9
<PAGE> 10
securities who, after such assignment or transfer, holds at least twenty percent
(20%) of the shares of Registrable Securities originally purchased by such
Holder (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 4.
5. INTERPRETATION
5.1 Purchaser Undertaking. Purchaser hereby agrees to take
whatever additional action and execute whatever additional documents the Company
may in its judgment deem necessary or advisable in order to carry our or effect
one or more of the obligations or restrictions imposed on either Purchaser or
the Shares pursuant to the express provisions of this Agreement.
5.2 Notices. Any notice required or permitted in connection any
matter pertaining to this Agreement shall be given in writing and shall be
deemed effective upon personal delivery or upon deposit in the United States
Mail, registered or certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by 10 days'
advance written notice under this Section 5.2 to the other party to this
Agreement.
5.3 Governing Law. This agreement shall be construed and enforced
in accordance with, and shall be governed by, the laws of the State of
California.
5.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 11
5.5 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first written above.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ LUKE B. EVNIN
------------------------------------
Luke B. Evnin, President
Address: 11545 Sorrento Valley Road
San Diego, CA 92121
THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA
By: /s/ WILLIAM T. DAVIS
------------------------------------
Its: Assoc. Dir OTT
------------------------------------
Address: 1320 Harbor Bay Parkway
------------------------------------
Alameda CA 94502
------------------------------------
Approval as to legal form: P. MARTIN SIMPSON JR. 10/1/93
---------------------------------------------------
P. MARTIN SIMPSON, JR., Resident Counsel Date
Office of Technology Transfer
University of California
11
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83 and 230.406.
EXHIBIT 10.31
LICENSE AGREEMENT
BETWEEN
SIGNAL PHARMACEUTICALS, INC.
AND
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Case No. SD97-026
<PAGE> 2
EXCLUSIVE LICENSE AGREEMENT
This agreement ("Agreement") is made this 18th day of February, 1998
("Effective Date") by and between Signal Pharmaceuticals, Inc., a California
corporation having a principal place of business at 5555 Oberlin Drive, San
Diego, California 92121 ("LICENSEE") and The Regents Of The University of
California, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 ("THE
REGENTS"), represented by its San Diego campus having an address at University
of California, San Diego, Technology Transfer Office, Mailcode 0910, 9500 Gilman
Drive, La Jolla, California 92093-0910 ("UCSD")
RECITALS
Whereas, certain inventions, generally characterized as [***]
("Invention"), Case No. SD97-026, were made in the course of research at UCSD by
[***] ("Inventors") and are covered by Regents' Patent Rights as defined below;
Whereas, U.S. Patent Application, Serial No. [***] was filed in the
United States Patent and Trademark Office by the Inventors on [***]
and such application is included within Regents' Patent Rights;
Whereas, the Inventors are employees of UCSD and as such are under an
obligation to assign their rights to the Invention to THE REGENTS;
Whereas, the development of the Invention was sponsored by Department of
Health and Human Services and as a consequence this license is subject to
overriding obligations to the Federal Government under 35 U.S.C. Sections
200-212 and applicable regulations;
Whereas, LICENSEE and THE REGENTS executed a secrecy agreement,
identified as U.C. Control No. 97-20-0108 and effective on April 17, 1997
("Secrecy Agreement") under which LICENSEE evaluated the Invention;
Whereas, LICENSEE and THE REGENTS executed a letter agreement,
identified as U.C. Control No. 97-30-0130 and effective on June 10, 1997
("Letter Agreement"), under which THE REGENTS and LICENSEE have negotiated the
grant of license under Regents' Patent Rights;
***Confidential Treatment Requested
<PAGE> 3
Page 2 of 25
Exclusive License Agreement
Case No. SD97-026
Whereas, LICENSEE is a "small business concern" as defined in 37 CFR
Section 121-12(a);
Whereas, THE REGENTS is desirous that the Invention be developed and
utilized to the fullest possible extent so that its benefits can be enjoyed by
the general public;
Whereas, LICENSEE is desirous of obtaining certain rights from THE
REGENTS for commercial development, use, and sale of the Invention, and THE
REGENTS is willing to grant such rights;
Whereas, LICENSEE desires to issue common stock of LICENSEE to THE
REGENTS under the agreement appended hereto in Appendix A ("Shareholder's
Agreement") as partial consideration for such rights; and
Whereas, both parties recognize and agree that royalties due hereunder
shall be paid on both pending patent applications and issued patents.
Now, Therefore, the parties agree:
ARTICLE 1. DEFINITIONS.
1.1 "Affiliate" means any corporation or other business entity in which
LICENSEE owns or controls, directly or indirectly, at least fifty percent (50%)
of the outstanding stock or other voting rights entitled to elect directors, or
in which LICENSEE is owned or controlled directly or indirectly by at least 50%
of the outstanding stock or other voting rights entitled to elect directors; but
in any country where the local law does not permit foreign equity participation
of at least 50%, then an "Affiliate" includes any company in which LICENSEE owns
or controls or is owned or controlled by, directly or indirectly, the maximum
percentage of outstanding stock or voting rights permitted by local law.
1.2 "Licensed Method" means any method that is covered by Regents'
Patent Rights, the use of which would constitute, but for the license granted to
LICENSEE under this Agreement, an infringement of any pending or issued claim
within Regents' Patent Rights.
1.3 "Licensed Product" means any material that is either
<PAGE> 4
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Case No. SD97-026
covered by Regents' Patent Rights, that is identified or produced by the
Licensed Method, or that the use of which would constitute, but for the license
granted to LICENSEE under this Agreement, an infringement of any pending or
issued claim within Regents' Patent Rights.
1.4 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold by LICENSEE, an Affiliate, or a sublicensee of LICENSEE, less the
sum of the following actual and customary deductions where applicable: cash,
trade, or quantity discounts, including chargebacks; sales, use, tariff,
import/export duties or other excise taxes imposed on particular sales;
transportation charges and allowances; credits to customers because of
rejections or returns; or bad debts. For purposes of calculating Net Sales,
transfers to an Affiliate or sublicensee for end use by the Affiliate or
sublicensee shall be treated as sales at list price.
1.5 "Regents' Patent Rights" means any of the following: the U.S. patent
application, serial number [***], entitled [***] disclosing and claiming the
Invention, filed by Inventors and assigned to THE REGENTS; and continuing
applications thereof including divisions, substitutions, and
continuations-in-part (but only to extent the claims thereof are enabled by
disclosure of the parent application); any patents issuing on said applications
including reissues, reexaminations and extensions; and any corresponding foreign
applications or patents.
ARTICLE 2. GRANT.
2.1 Subject to the limitations set forth in this Agreement, THE REGENTS
grants to LICENSEE a world-wide license under Regents' Patent Rights to make,
have made, use, sell, have sold, offer for sale and import Licensed Products and
to practice Licensed Methods.
2.2 Except as otherwise provided in this Agreement, the license granted
in Paragraph 2.1 hereof shall be exclusive for the life of the Agreement.
2.3 The license granted in Paragraph 2.1 hereof is subject to all the
applicable provisions of any license to the United
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<PAGE> 5
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Case No. SD97-026
States Government executed by THE REGENTS and is subject to the overriding
obligations to the U.S. Government under 35 U.S.C. Sections 200-212 and
applicable governmental implementing regulations.
2.4 The license granted in Paragraph 2.1 hereof is for all fields of
use.
2.5 THE REGENTS reserves the right to use the Invention and associated
technology for educational and research purposes.
ARTICLE 3. SUBLICENSES.
3.1 THE REGENTS also grants to LICENSEE the right to issue sublicenses
to third parties to make, have made, use, sell, have sold, offer for sale and
import Licensed Products and to practice Licensed Methods, as long as LICENSEE
has current exclusive rights thereto under this Agreement. To the extent
applicable, sublicenses shall include all of the rights of and obligations due
to THE REGENTS (and, if applicable, the United States Government) that are
contained in this Agreement.
3.2 LICENSEE shall promptly provide THE REGENTS with a copy of each
sublicense issued; collect and guarantee payment of all payments due THE REGENTS
from sublicensees; and summarize and deliver all reports due THE REGENTS from
sublicensees.
3.3 In the event that the license granted in this Agreement is
terminated, THE REGENTS shall assume any sublicenses granted by LICENSEE
hereunder, and THE REGENTS shall be held only to the obligations of THE REGENTS
under this Agreement.
ARTICLE 4. LICENSE-ISSUE FEE.
4.1 Within seven days after the Effective Date, LICENSEE shall pay to
THE REGENTS [***], and issue to THE REGENTS [***] shares of LICENSEE's common
stock (collectively, the "License Issue Fee") in accordance with the
Shareholder's Agreement and in the manner provided in paragraph 7.1 hereof.
4.2 The License-Issue Fee payable by LICENSEE as specified in paragraph
4.1 hereinabove is non-refundable, non-cancelable,
***Confidential Treatment Requested
<PAGE> 6
Exclusive License Agreement Page 5 of 25
No. SD971-0426
and is not an advance against royalties.
ARTICLE 5. MILESTONE PAYMENTS.
5.1 Within thirty (30) days following (i) [***] (ii) [***], whichever
occurs first, LICENSEE shall pay to THE REGENTS [***] shares of LICENSEE's
common stock in accordance with the Shareholder's Agreement and in the manner
provided in paragraph 7.1 hereof.
5.2 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.
5.3 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.
5.4 The milestone payments specified in paragraphs 5.1, 5.2 and 5.3
hereinabove are non-refundable and are not an advance against earned royalties.
ARTICLE 6. ROYALTIES.
6.1 Earned Royalties. LICENSEE shall also pay to THE REGENTS an earned
royalty of one percent (1.0%) of the Net Sales, except that in any given
calendar quarter in which the Net Sales
***Confidential Treatment Requested
<PAGE> 7
Exclusive License Agreement Page 6 of 25
Case No. SD97-026
total less than [***] the earned royalty payable by LICENSEE to THE REGENTS
shall be [***] of such Net Sales.
ARTICLE 7. PAYMENT TERMS.
7.1 Stock Payments. The parties understand that THE REGENTS' Patent
Policy (effective November 18, 1985) provides that the Inventors as a group are
entitled to forty-two and one-half percent (42.5%) of net royalties and fees,
whether in the form of cash or equity, received by THE REGENTS for licensing of
the Invention to LICENSEE. The parties further understand that THE REGENTS'
Policy on Accepting Equity When Licensing University Technology (effective
February 16, 1996) provides that each of the Inventors may elect to: (i)
directly receive his or her share of such equity, or (ii) have THE REGENTS
accept his or her share of the equity. Accordingly, with respect to any payment
in the form of equity due to THE REGENTS under this Agreement, THE REGENTS shall
provide written notice to LICENSEE, within thirty (30) days after the execution
of this Agreement by both parties, of the manner in which THE REGENTS would like
any equity payments due under this Agreement distributed.
7.2 Cash Payments. All monies due THE REGENTS are payable in United
States dollars, all checks for such monies shall be made payable to "The Regents
of the University of California", referencing THE REGENTS' taxpayer
identification number, 95-6006144, and such checks shall be delivered to THE
REGENTS pursuant to Article 20 (NOTICES). When Licensed Products are sold for
monies other than United States dollars, LICENSEE shall first determine the
earned royalty in the currency of the country in which Licensed Products were
sold and then convert the amount into equivalent United States funds, using the
exchange rate quoted in the Wall Street Journal on the last business day of the
applicable reporting period.
7.3 Royalties shall accrue in each country for the duration of Regents'
Patent Rights in that country and are payable to THE REGENTS when Licensed
Products are invoiced, or if not invoiced, when delivered to a third party. For
earned royalties accruing on sale for cash (or the equivalent thereof) outside
the United States, LICENSEE may delay payment of earned royalties until it
actually receives payment from its customer, provided that such
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Exclusive License Agreement Page 7 of 25
Case No. SD97-026
delay does not exceed three (3) months from the date of invoice.
7.4 Paragraphs 1.3, 1.4 and 1.6 define Licensed Methods, Licensed
Products and Regents' Patent Rights so that royalties shall be payable on
products and methods covered by pending applications and issued patents,
provided that no earned royalties shall be payable under Regents' Patent Rights
on pending claims once the claims are no longer pending due to abandoning
prosecution thereof or that are pending more than thirty (30) years from the
Effective Date. In no event shall any royalty be due under Regents' Patent
Rights after the expiration of the last-to-expire patent licensed hereunder
which covers LICENSEE's activities.
7.5 LICENSEE shall pay earned royalties quarterly on or before February
28, May 31, August 31 and November 30 of each calendar year. Each such payment
shall be for earned royalties accrued within LICENSEE's most recently completed
calendar quarter.
7.6 Royalties earned on sales occurring in any country outside the
United States may not be reduced by any taxes, fees, or other charges imposed by
the government of such country on the payment of royalty income. LICENSEE is
also responsible for all bank transfer charges. Notwithstanding this, all
payments made by LICENSEE in fulfillment of THE REGENTS' tax liability in any
particular country shall be credited against earned royalties or fees due THE
REGENTS for that country.
7.7 If at any time legal restrictions prevent the prompt remittance of
part or all royalties by LICENSEE with respect to any country where a Licensed
Product is sold, LICENSEE shall have the right and option to make such payments
by depositing the amount thereof in local currency to THE REGENTS' account, if
any, in a bank or other depository in such country. THE REGENTS will use
reasonable efforts to transfer the monies held in the account specified in this
Paragraph 7.7 to the United States. If after one (1) year from the date of the
first deposit into that account, there are still legal restrictions that prevent
THE REGENTS from transferring the monies, THE REGENTS shall transfer the
impounded funds back to LICENSEE, and LICENSEE shall convert the amount owed to
THE REGENTS into United States funds and shall pay THE REGENTS directly from its
U.S. source of funds for the amount impounded. LICENSEE shall then pay all
future royalties
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Exclusive License Agreement Page 8 of 25
Case No. SD97-026
due to THE REGENTS with respect to Net Sales in such country from its U.S.
source of funds so long as the legal restrictions described in this Paragraph
7.7 still apply.
7.8 In the event that any patent or patent claim within The Regents'
Patent Rights is held invalid in a final decision by a patent office from which
no appeal or additional patent prosecution has been or can been taken, or by a
court of competent jurisdiction and last resort and from which no appeal has
been or can be taken, all obligation to pay royalties based on that patent or
claim or any claim patentably indistinct therefrom shall cease as of the date of
such final decision. LICENSEE shall not, however, be relieved from paying any
royalties that accrued before such final decision or that are based on another
patent or claim not involved in such final decision.
7.9 No royalties may be collected or paid on Licensed Products sold to
the account of the U.S. Government or any agency thereof as provided for in the
license to the U.S. Government.
7.10 In the event royalty payments, rebillings or fees payable in cash
are not received by THE REGENTS when due, LICENSEE shall pay to THE REGENTS
interest charges at a rate of ten (10) percent per annum. Such interest shall be
calculated from the date payment was due until actually received by THE REGENTS.
ARTICLE 8. DUE DILIGENCE.
8.1 Upon execution of this Agreement, LICENSEE shall diligently proceed
with the development, manufacture and sale of Licensed Products and shall
earnestly and diligently endeavor to market the same within a reasonable time
after execution of this Agreement.
8.2 LICENSEE shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.
8.3 LICENSEE shall:
(a) [***]
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<PAGE> 10
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Case No. SD97-026
(b) [***]
(c) [***]
(d) [***]
(d) reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the exclusive period of
this Agreement.
8.4 In addition to the obligations set forth above, LICENSEE shall spend
not less than [***] during [***] of this Agreement for the development of
Licensed Products. LICENSEE may, at its sole option, fund the research of [***]
and credit the amount of such funding actually paid to UCSD against its
obligation under this paragraph.
8.5 Subject to paragraphs 8.1, 8.2 and 8.6 hereof, if LICENSEE believes
that it will be unable to perform any of its obligations under paragraphs 8.3 or
8.4 hereinabove, LICENSEE shall deliver notice to THE REGENTS of its belief in
its prospective inability to perform and reasons therefor, at least three (3)
months before the date when such obligation or obligations to perform comes due.
This notice shall be subject to Article 20 (NOTICES). Upon receipt of such
notice, LICENSEE and THE REGENTS shall negotiate in good faith and for a period
not to exceed three (3) months from the date of such notice ("Renegotiation
Period") to re-establish a date or dates for performance of such obligation or
obligations, which date or dates the parties consider reasonable under the
then-current circumstances, and to establish what consideration, if any, THE
REGENTS shall be entitled to in consideration for such re-established date or
dates. If LICENSEE and THE REGENTS are unable to mutually agree within the
Renegotiation Period to a reestablished date or dates for performance by
LICENSEE and/or consideration for THE REGENTS, then THE REGENTS shall have the
*** Confidential Treatment Requested
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Case No. SD97-026
right and option to either terminate this Agreement or reduce LICENSEE's
exclusive license to a nonexclusive license. This right, if exercised by THE
REGENTS, shall supersede the rights granted in Article 2 (GRANT).
8.6 Notwithstanding any other provision of this Article 8, LICENSEE
shall be entitled to exercise its prudent and reasonable business judgment in
the manner in which LICENSEE proceeds to meet its obligations under paragraphs
8.1, 8.2, 8.3 and 8.4 hereinabove.
ARTICLE 9. PROGRESS AND ROYALTY REPORTS.
9.1 Progress Reports.
(a) Beginning February 28, 1998 and semi-annually thereafter,
LICENSEE shall submit to THE REGENTS a progress report covering LICENSEE's (and
any Affiliate's or sublicensee's) activities related to the development and
testing of all Licensed Products and the obtaining of the governmental approvals
necessary for marketing. Progress reports shall be made for each Licensed
Product until the first commercial sale of that Licensed Product occurs in the
United States. These progress reports shall be considered "Confidential
Information" for all purposes of Article 28 (SECRECY) hereof and shall be
subject to the terms thereof.
(b) Progress reports submitted under this paragraph should
include, but are not limited to, the following topics:
(1) summary of work completed;
(2) summary of work in progress;
(3) current schedule of anticipated events or milestones;
(4)market plans for introduction of Licensed Products; and
(5) a summary of resources (dollar value) spent in the
reporting period.
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Case No. SD97-026
(c) LICENSEE shall report to THE REGENTS, in its immediately
subsequent progress report, the date of first commercial sale of a Licensed
Product in each country.
9.2 Royalty Reports. After the first commercial sale of a Licensed
Product anywhere in the world, LICENSEE shall make quarterly royalty reports to
THE REGENTS on or before each February 28, May 31, August 31 and November 30 of
each year. Each royalty report shall cover LICENSEE's most recently completed
calendar quarter and shall show:
(a) the gross sales and Net Sales of Licensed Products sold
during the most recently completed calendar quarter;
(b) the number of each type of Licensed Product sold;
(c) the royalties, in U.S. dollars, payable with respect to
sales of Licensed Products;
(d) the method used to calculate the royalty; and
(e) the exchange rates used.
If no sales of Licensed Products have been made during any reporting period, a
statement to this effect is required.
ARTICLE 10. BOOKS AND RECORDS.
10.1 LICENSEE shall keep accurate books and records showing all Licensed
Products manufactured, used, and/or sold under the terms of this Agreement.
Books and records must be preserved for at least five (5) years from the date of
the royalty payment to which they pertain.
10.2 Books and records shall be open to inspection by representatives or
agents of THE REGENTS at reasonable times. THE REGENTS shall bear the fees and
expenses of examination; but if an error in royalties of more than ten percent
(10%) of the total royalties due for any year is discovered in any examination,
then LICENSEE shall bear the fees and expenses of that examination.
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ARTICLE 11. TERM OF THE AGREEMENT.
11.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the Effective Date and shall remain in effect for the life of the
last-to-expire issued patent licensed under this Agreement; or if no patent in
the Regents' Patent Rights issues, until the date of abandonment of the last
patent application in the Regents' Patent Rights.
11.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
(a) Article 10 (BOOKS AND RECORDS);
(b) Article 13 (DISPOSITIONS OF LICENSED PRODUCT ON HAND UPON
TERMINATION);
(c) Article 14 (USE OF NAMES AND TRADEMARKS);
(d) Article 19 (INDEMNIFICATION);
(e) Article 23 (FAILURE TO PERFORM);
(f) Article 28 (SECRECY); and
(g) Article 29 (DISPUTE RESOLUTION).
ARTICLE 12. TERMINATION.
12.1 Termination by The Regents. If LICENSEE fails to perform or
violates any term of this Agreement, then THE REGENTS may give written notice of
default ("Notice of Default") to LICENSEE. If LICENSEE fails to repair the
default within ninety (90) days of the effective date of Notice of Default, THE
REGENTS may terminate this Agreement and the licenses herein by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is sent
to LICENSEE, this Agreement shall automatically terminate on the effective date
of that notice. Termination shall not relieve LICENSEE of its obligation to pay
any fees owing at the time of termination and shall not impair any accrued right
of THE REGENTS. These notices are subject to
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Article 20 (Notices).
12.2 Termination by Licensee.
(a) LICENSEE has the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to THE REGENTS. Notice of termination shall be subject to
Article 20 (NOTICES), and termination of this Agreement shall be effective
ninety (90) days from the effective date of notice.
(b) Any termination under the above paragraph does not relieve
LICENSEE of any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to THE REGENTS or anything done by
LICENSEE prior to the time termination becomes effective. Termination does not
affect in any manner any rights of THE REGENTS arising under this Agreement
prior to termination.
ARTICLE 13. DISPOSITION OF LICENSED PRODUCTS
ON HAND UPON TERMINATION.
13.1 Upon termination of this Agreement, LICENSEE is entitled to dispose
of all previously made or partially made Licensed Products, but no more, within
a period of one hundred and twenty (120) days provided that the sale of those
Licensed Products is subject to the terms of this Agreement, including but not
limited to the rendering of reports and payment of royalties required under this
Agreement.
ARTICLE 14. USE OF NAMES AND TRADEMARKS.
14.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including contraction,
abbreviation or simulation of any of the foregoing). Unless required by law, the
use by LICENSEE of the name, "The Regents Of The University Of California" or
the name of any campus of the University Of California is prohibited.
14.2 THE REGENTS may disclose to the Inventors the terms and
<PAGE> 15
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conditions of this Agreement upon their request. If such disclosure is made, THE
REGENTS shall require that the Inventors not disclose any such terms or
conditions to others.
14.3 If a third party inquires whether a license to Regents' Patent
Rights is available, THE REGENTS may disclose the existence of this Agreement
and the extent of the grant in Article 2 to such third party, but shall not
disclose the name of LICENSEE or any other term of this Agreement, except where
THE REGENTS are required to disclose such information under either the
California Public Records Act or other requirement of applicable law.
ARTICLE 15. LIMITED WARRANTY.
15.1 THE REGENTS warrants to LICENSEE that it has the lawful right to
grant this license.
15.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.
15.3 IN NO EVENT MAY THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
THE INVENTION OR LICENSED PRODUCTS.
15.4 Nothing in this Agreement shall be construed as:
(a) a warranty or representation by THE REGENTS as to the
validity or scope of any Regents' Patent Rights;
(b) a warranty or representation that anything made, used, sold
or otherwise disposed of under any license granted in this Agreement is or will
be free from infringement of patents of third parties;
(c) an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in Article 18 (PATENT
INFRINGEMENT);
<PAGE> 16
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(d) conferring by implication, estoppel or otherwise any license
or rights under any patents of THE REGENTS other than Regents' Patent Rights as
defined in this Agreement, regardless of whether those patents are dominant or
subordinate to Regent's Patent Rights; or
(e) an obligation to furnish any know-how not provided in
Regents' Patent Rights.
ARTICLE 16. PATENT PROSECUTION AND MAINTENANCE.
16.1 Provided that LICENSEE has paid patent costs as provided for in
Paragraph 16.5, THE REGENTS shall diligently prosecute and maintain the United
States and foreign patents comprising Regents' Patent Rights using counsel of
its choice, and THE REGENTS shall provide LICENSEE with copies of all relevant
documentation so that LICENSEE may be informed of the continuing prosecution and
LICENSEE agrees to keep this documentation confidential. The Regents' counsel
shall take instructions only from THE REGENTS, and all patents and patent
applications under this Agreement shall be assigned solely to THE REGENTS.
16.2 THE REGENTS shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by LICENSEE to protect the
products contemplated to be sold under this Agreement.
16.3 LICENSEE shall apply for an extension of the term of any patent
included within Regents' Patent Rights if appropriate under the Drug Price
Competition and Patent Term Restoration Act of 1984 and/or European, Japanese
and other foreign counterparts of this law. LICENSEE shall prepare all documents
for such application, and THE REGENTS agrees to execute such documents and to
take any other additional action as LICENSEE reasonably requests in connection
therewith.
16.4 In the event THE REGENTS as represented by the licensing associate
at UCSD responsible for the administration of the license granted in this
Agreement receives notice pertaining to infringement or potential infringement
of any issued patent within Regents' Patent Rights pursuant to the Drug Price
Competition Act and Patent Term Restoration Act of 1984 (and/or
<PAGE> 17
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European and Japanese counterparts of such law), THE REGENTS shall notify
LICENSEE within thirty (30) days after receipt of such notice.
16.5 LICENSEE shall bear the costs of preparing, filing, prosecuting and
maintaining all United States and foreign patent applications contemplated by
this Agreement. Costs billed to THE REGENTS by THE REGENTS' counsel shall be
rebilled to LICENSEE and shall be due within 30 days of rebilling by THE
REGENTS. These costs include patent prosecution costs for the Invention incurred
by THE REGENTS prior to the execution of this Agreement and any patent
prosecution costs that may be incurred with respect to the Invention for
patentability opinions, re-examination, re-issue, interferences, or inventorship
determinations. Prior costs shall be due on execution of this Agreement and
billing by THE REGENTS. Such prior costs will be approximately
twenty-two thousand U.S. dollars ($22,000).
16.6 LICENSEE may request THE REGENTS to obtain patent protection on the
Invention in foreign countries if available and if it so desires. LICENSEE shall
notify THE REGENTS of its decision to obtain or maintain foreign patents not
less than sixty (60) days prior to the deadline for any payment, filing, or
action to be taken in connection therewith. This notice concerning foreign
filing shall be in writing, shall identify the countries desired, and shall
reaffirm LICENSEE's obligation to underwrite the costs thereof. The absence of
such a notice from LICENSEE to THE REGENTS shall be considered an election not
to obtain or maintain foreign rights.
16.7 LICENSEE's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect; provided,
however, that LICENSEE may terminate its obligations with respect to any given
patent application or patent upon three (3) months' written notice to THE
REGENTS. THE REGENTS shall use reasonable efforts to curtail patent costs when
such a notice is received from LICENSEE. THE REGENTS may continue prosecution
and/or maintenance of such applications or patent(s) at its sole discretion and
expense; provided, however, that LICENSEE shall have no further right or
licenses thereunder. Non-payment of patent costs may be deemed by THE REGENTS as
an election by LICENSEE not to maintain applications) or Patents).
16.8 THE REGENTS may file, prosecute or maintain patent
<PAGE> 18
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applications and/or patents arising therefrom at its own expense in any country
in which LICENSEE has not elected to file, prosecute, or maintain such patent
applications or patents in accordance with this Article, and those applications
and resultant patents shall not be subject to this Agreement.
ARTICLE 17. PATENT MARKING.
17.1 LICENSEE shall mark all Licensed Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
ARTICLE 18. PATENT INFRINGEMENT.
18.1 If LICENSEE learns of the substantial infringement of any patent
licensed under this Agreement, LICENSEE shall call THE REGENTS' attention
thereto in writing within thirty (30) days after so learning and provide THE
REGENTS with reasonable evidence of such infringement. Neither party shall
notify a third party of the infringement of any of Regents' Patent Rights
without first obtaining consent of the other party, which consent shall not be
unreasonably denied. Both parties shall use reasonable efforts in cooperation
with each other to terminate infringement without litigation.
18.2 LICENSEE may request that THE REGENTS take legal action against the
infringement of Regents' Patent Rights. Such request shall be made in writing
and shall include reasonable evidence of such infringement and damages to
LICENSEE. If the infringing activity has not abated within ninety (90) days
following the effective date of request, THE REGENTS then shall have the right
to:
(a) commence suit on its own account, or
(b) refuse to participate in the suit;
and THE REGENTS shall give notice of its election in writing to LICENSEE by the
end of the one-hundredth (100th) day after receiving notice of such request from
LICENSEE. LICENSEE may thereafter bring suit for patent infringement, at its own
expense, if and only if THE REGENTS elects not to commence suit
<PAGE> 19
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and if the infringement occurred during the period and in a jurisdiction where
LICENSEE had exclusive rights under this Agreement. If, however, LICENSEE elects
to bring suit in accordance with this paragraph, THE REGENTS may thereafter join
that suit at its own expense.
18.3 Such legal action as is decided on shall be at the expense of the
party bringing suit and all recoveries recovered thereby shall belong to the
party bringing suit; provided, however, that legal action brought jointly by THE
REGENTS and LICENSEE and fully participated in by both shall be at the joint
expense of the parties and all recoveries shall be shared jointly by them in
proportion to the share of expense paid by each party. If LICENSEE pays all
legal expenses, it shall have the right to offset one half of its out-of-pocket
legal expense, to the extent they exceed any recoveries recovered by LICENSEE in
such legal action, against any earned royalties payable under Paragraph 6.1;
provided, however, that earned royalties payble under Paragraph 6.1 shall not be
reduced in any given quarter by more than [***]. Any unused credit may be
carried forward until LICENSEE has received full credit for its creditable legal
expenses.
18.4 Each party shall cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party bringing suit. Litigation
shall be controlled by the party bringing the suit, except that THE REGENTS may
be represented by counsel of its choice in any suit brought by LICENSEE.
ARTICLE 19. INDEMNIFICATION.
19.1 LICENSEE shall indemnify, hold harmless and defend THE REGENTS, its
officers, employees, and agents; the sponsors of the research that led to the
Invention; and the Inventors of the patents and patent applications in Regents'
Patent Rights and their employers against any and all claims, suits, losses,
damage, costs, fees, and expenses resulting from or arising out of exercise of
this license or any sublicense. This indemnification will include, but not be
limited to, any product liability.
19.2 LICENSEE, at its sole cost and expense, shall insure its activities
in connection with the work under this Agreement
*** Confidential Treatment Requested
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and obtain, keep in force and maintain insurance as follows, beginning with the
date that Licensed Products or Licensed Methods are to used on or by third
parties are first manufactured:
(a) Comprehensive or commercial form general liability insurance
(contractual liability included) with limits as follows!
(1) Each Occurrence, $1,000,000,
(2) Products/Completed Operations Aggregate, $5,000,000,
(3) Personal and Advertising Injury, $1,000,000, and
(4) General Aggregate (commercial form only), $5,000,000;
and
(b) The coverage and limits referred to under the above do not in
any way limit the liability of LICENSEE. LICENSEE shall furnish THE REGENTS with
certificates of insurance showing compliance with all requirements. Such
certificates shall:
(1) provide for thirty (30) day advance written notice
to THE REGENTS of any modification,
(2) indicate that THE REGENTS has been endorsed as an
additional insured under the coverage referred to above, and
(3) include a provision that the coverage shall be
primary and shall not participate with nor shall be excess over
any valid and collectable insurance or program of self-insurance
carried or maintained by THE REGENTS.
19.3 THE REGENTS shall within a reasonable time notify LICENSEE in
writing of any claim or suit brought against THE REGENTS in respect of which THE
REGENTS intends to invoke the provisions of this Article. LICENSEE shall keep
THE REGENTS informed on a current basis of its defense of any claims under this
Article.
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ARTICLE 20. NOTICES.
20.1 Any notice or payment required to be given to either party shall be
deemed to have been properly given and effective:
(a) on the date of delivery if delivered in person, or
(b) five (5) days after mailing if mailed by first-class
certified mail, postage paid, to the respective addresses given below, or to
such other address as is designated by written notice given to the other party.
In the case of LICENSEE:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, California 92121
Attention: Chief Executive Officer
In the case of THE REGENTS:
University of California, San Diego
Technology Transfer Office, Mailcode 0910
9500 Gilman Drive
La Jolla, CA 92093-0910
Attention: Director
ARTICLE 21. ASSIGNABILITY.
21.1 This Agreement may be assigned by THE REGENTS, but shall be
personal to LICENSEE and assignable by LICENSEE only with the written consent of
THE REGENTS, which consent shall not be unreasonably withheld.
ARTICLE 22. NO WAIVER.
22.1 No waiver by either party of any breach or default of any of the
covenants or agreements set forth in this Agreement shall be deemed a waiver as
to any subsequent and/or similar breach or default.
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ARTICLE 23. FAILURE TO PERFORM.
23.1 In the event of a failure of performance due under this Agreement
and if it becomes necessary for either party to undertake legal action against
the other on account thereof, then the prevailing party shall be entitled to
reasonable attorneys' fees in addition to costs and necessary disbursements.
ARTICLE 24. GOVERNING LAWS.
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of the patent or patent application.
ARTICLE 25. PREFERENCE FOR UNITED STATES INDUSTRY.
25.1 Because this Agreement grants the exclusive right to use or sell
the Invention in the United States, LICENSEE agrees that any products sold in
the U.S. embodying this Invention or produced through the use thereof shall be
manufactured substantially in the United States.
ARTICLE 26. GOVERNMENT APPROVAL OR REGISTRATION.
26.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, LICENSEE shall assume all legal obligations to do so. Licensee shall
notify THE REGENTS if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
shall make all necessary filings and pay all costs including fees, penalties,
and all other out-of-pocket costs associated with such reporting or approval
process.
ARTICLE 27. EXPORT CONTROL LAWS.
27.1 LICENSEE shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products
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and related technical data to foreign countries, including, without limitation,
the International Traffic in Arms Regulations (ITAR) and the Export
Administration Regulations.
ARTICLE 28. SECRECY.
28.1 "Confidential Information" shall mean information regarding the
Invention disclosed by THE REGENTS to LICENSEE, or information regarding
LICENSEE's business disclosed by LICENSEE to THE REGENTS, which if disclosed in
writing shall be marked "Confidential", or if first disclosed otherwise, shall
within thirty (30) days of such disclosure be reduced to writing by the
disclosing party (hereinafter, the "Disclosing Party"), marked as "Confidential"
and sent to the receiving party (hereinafter, the "Recipient")
28.2 Recipient hereby agrees:
(a) not to use the Confidential Information of the Disclosing
Party except for the sole purpose of performing under the terms of this
Agreement;
(b) to safeguard such Confidential Information against disclosure
to others with the same degree of care as it exercises with its own data of a
similar nature; and
(c) not to disclose such Confidential Information to others
(except to its employees, agents or consultants who are bound to Recipient by a
like obligation of confidentiality) without the express written permission of
the Disclosing Party, except that Recipient shall not be prevented from using or
disclosing any of the Confidential Information that:
(1) Recipient can demonstrate by written records was
previously known to it,
(2) is now, or becomes in the future, public knowledge
other than through acts or omissions of Recipient,
(3) is lawfully obtained by Recipient from sources
independent of the Disclosing Party, or
(4) is required to be disclosed by the California
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Public Records Act or other requirement of law.
28.3 The secrecy obligations of Recipient with respect to Confidential
Information shall continue for a period ending five (5) years from the
termination date of this Agreement.
ARTICLE 29. DISPUTE RESOLUTION.
29.1 Mediation. Either party to this Agreement may refer a dispute
arising under this Agreement and which cannot be resolved among themselves
without assistance, to third-party mediation in accordance with the rules of the
American Arbitration Association then in effect or successor thereto. Such
referral to mediation shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereto, stating the
nature of the dispute to be resolved by such mediation. Any resolution of such
dispute arrived at in such mediation shall not be binding on either of the
parties.
29.2 Arbitration.
(a) Any such dispute that is not resolved within ninety (90) days
after the date of such request for mediation in accordance with this Article 29
may be referred to and decided by arbitration, except for disputes based, in
whole or in part, on Article 14 (USE OF NAME AND TRADEMARKS) hereof; Article 15
(LIMITED WARRANTY) hereof; Article 18 (PATENT INFRINGEMENT) hereof; Article 19
(INDEMNIFICATION) hereof; the validity of any claim of any patent or patent
application within Regents' Patent Rights; or infringement by a party hereto, or
a third party, of any claim of any patent within Regents' Patent Rights. Such
referral to arbitration shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereof, stating the
nature of the dispute to be resolved.
(b) The arbitration shall be held in San Diego, California, and
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect or any successor thereto. None
of the arbitrators selected by the parties to conduct such arbitration shall be
employees of the parties. If the parties cannot agree on mutually satisfactory
arbitrators within thirty (30) days of
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the request of any party hereto for arbitration hereunder, such arbitrators
shall forthwith be appointed pursuant to the aforesaid rules of the American
Arbitration Association. The arbitrators shall establish an arbitration
timetable resulting in a hearing, within one hundred and twenty (120) days of
the original request to arbitrate.
(c) The arbitrators as a panel may grant injunctions and any and
all other forms of relief in such dispute permitted under the American
Arbitration Association rules then in effect or successor thereto; provided,
however, that such panel shall not award punitive damages and shall not award
costs and expenses, including attorney's fees and expenses. The decision of the
panel shall be final, conclusive and binding on the parties to such arbitration,
and shall not be appealable. The decision of the panel shall be enforceable in
any court of competent jurisdiction.
ARTICLE 30. MISCELLANEOUS.
30.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
30.2 This Agreement is not binding on the parties until it has been
signed below on behalf of each party. It shall be effective as of the Effective
Date.
30.3 No amendment or modification of this Agreement shall be valid or
binding on the parties unless made in writing and signed on behalf of each
party.
30.4 This Agreement and the Shareholder's Agreement, together, embodies
the entire understanding of the parties and supersedes all previous
communications, representations or understandings, either oral or written,
between the parties relating to the subject matter hereof. The Secrecy Agreement
and Letter Agreement are both hereby terminated.
30.5 In case any of the provisions contained in this Agreement is held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this
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Agreement shall be construed as if the invalid, illegal, or unenforceable
provisions had never been contained in it.
In Witness Whereof, both THE REGENTS and LICENSEE have executed this
Agreement, in duplicate originals, by their respective and duly authorized
officers on the day and year written.
SIGNAL PHARMACEUTICALS, INC.: THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA:
By /s/ CARL BOBKOSKI By /s/ ALAN S. PAAU
---------------------------- -----------------------------------
(Signature) (Signature)
Name: EVP Alan S. Paau, Ph.D
---------------------------
Title Carl Bobkoski Director, Technology
--------------------------- Transfer Office
Date Februaty 23, 1998 Date 2/25/98
---------------------------- -------------------------------
<PAGE> 1
*** Text Omitted and Filed Separately
Under 17 C.F.R. Sections 200.80
200.83 and 230.406
EXHIBIT 10.32
RESTRICTED STOCK PURCHASE AGREEMENT
Agreement made as of this ______ day of ________________, 1998 by and
between Signal Pharmaceuticals, Inc., a California corporation (the "Company"),
and The Regents of the University of California ("The Regents" or "Purchaser").
Unless otherwise defined herein, all capitalized terms used herein shall
have the same meanings given to them in that certain License Agreement (the
"License Agreement") by and between Purchaser and the Company, dated
_____________, 1998 a copy of which is attached hereto as Exhibit 1.
1. PURCHASE OF SHARES
1.1 PURCHASE. In consideration of Purchaser's grant of certain patent
and technology rights to the Company pursuant to the License Agreement, within
seven (7) days of the Effective Date of the License Agreement the Company shall
issue to Purchaser [***] shares of its Common Stock in the manner provided in
paragraph 7.1 of the License Agreement. Upon the Company's achievement of
certain milestones, the Company shall issue additional shares to Purchaser in
the manner provided in paragraph 7.1 of the License Agreement as follows:
(a) Within thirty (30) days following (i) [***] the Company
shall issue [***] shares of its Common Stock (as adjusted for stock splits,
subdivisions, combinations, recapitalizations and distributions of stock) to
Purchaser.
(b) Within thirty (30) days following [***] the Company shall
issue [***] shares of its Common Stock (as adjusted for stock splits,
subdivisions combinations, recapitalizations and distributions of stock) to
Purchaser; provided, however, that only [***].
(c) Within thirty (30) days following [***] the Company shall
issue to Purchaser [***] shares of its Common Stock (as adjusted for stock
splits, subdivisions, combinations, recapitalizations and distributions of
stock); provided, however, that only [***].
All shares of the Company's Common Stock issued to Purchaser
pursuant to this Paragraph 1.1, shall hereinafter be referred to as the
"Shares". Notwithstanding the foregoing, the Company shall have no obligation to
issue any shares following any termination of the License Agreement.
1.
*** Confidential Treatment Requested
<PAGE> 2
2. INVESTMENT REPRESENTATIONS.
2.1 EXEMPTION FROM REGISTRATION. The Shares have not been registered
under the 1933 Act, and are accordingly being issued to Purchaser in reliance
upon the exemption from such registration provided by Section 4(2) of the 1933
Act.
2.2 INVESTMENT INTENT. Purchaser hereby warrants and represents that it
is acquiring the Shares for its own account and not with a view to their resale
or distribution and that it is prepared to hold the Shares for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in, the Shares. Purchaser hereby acknowledges the fact
that the Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and that the Company is issuing the Shares to it in
reliance on the representations made by it herein.
2.3 RESTRICTED SECURITIES. Purchaser hereby confirms that it has been
informed that the Shares may not be resold or transferred unless such Shares are
first registered under the 1933 Act or unless an exemption from such
registration is available. Accordingly, Purchaser hereby acknowledges that it is
prepared to hold the Shares for an indefinite period and that it is aware that
Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is
not presently available to exempt the sale of the Shares from the registration
requirements of the Act. Should Rule 144 subsequently become available,
Purchaser is aware that any sale of Shares effected pursuant to the Rule may,
depending upon the status of Purchaser as an "affiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Shares be sold pursuant to
the Rule until Purchaser has held such Shares for at least one year following
their issuance.
2.4 DISPOSITION OF SHARES. Except as specifically set forth below,
Purchaser hereby agrees that it shall make no disposition of the Shares, unless
and until:
(a) it shall have complied with all requirements of this
Agreement applicable to the disposition of such Shares;
(b) it shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and conditions
of the proposed disposition; and
(c) unless otherwise waived by the Company, it shall have
delivered to the Company a written opinion of counsel at the Company's expense,
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act or
(ii) all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from registration available
under the 1933 Act has been taken.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares shall be
endorsed with restrictive legends, including the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be
2.
<PAGE> 3
sold or offered for sale in the absence of an effective registration
statement for the shares under that Act, a `no action' letter of the
Securities and Exchange Commission as to such sale or offer, or an
opinion of counsel to the Company that registration under such Act is
not required for such sale or offer."
3. TRANSFER RESTRICTIONS
3.1 TRANSFEREE OBLIGATIONS. Each person (other than the Company) to whom
the Shares are transferred must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Agreement and that the transferred shares are subject
to the market stand-off provisions of paragraph 3.2 to the same extent such
shares would be so subject if retained by Purchaser.
3.2 MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering (the
"IPO"), Purchaser and all subsequent holders of the Shares who derive their
chain of ownership through a transfer from Purchaser ("Owner") shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose of or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to, any Shares without
the prior written consent of the Company or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date of
the final prospectus for such offering as may be requested by the Company or
such underwriters (which period shall not exceed 180 days).
(b) Owner shall be subject to the market stand-off provisions of
this paragraph 3.2 provided and only if all of the executive officers and
directors of the Company are also subject to similar arrangements.
(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected as a class without the Company's receipt of consideration, then
any new, substituted or additional securities distributed with respect to the
Shares shall be immediately subject to the provisions of this paragraph 3.2, to
the same extent the Shares are at such time covered by such provisions.
(d) In order to enforce the limitations of this paragraph 3.2,
the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
4. REGISTRATION RIGHTS.
4.1 For purposes of this Section 4:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document.
3.
<PAGE> 4
(b) The term "Registrable Securities" means the Common Stock
issued pursuant to this Agreement, excluding, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 4 are not assigned.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 4.7 hereof.
4.2 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 5.2, the Company shall,
subject to the provisions of Section 4.4, cause to be registered under the 1933
Act all of the Registrable Securities that each such Holder has requested to be
registered.
4.3 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
4.2 for each Holder (which right may be assigned as provided in Section 4.7),
including (without limitation) all registration, filing, and qualification fees,
printers' and accounting fees relating to and apportionable thereto, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
4.4 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 4.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholder to be included in such offering
exceeds the amount of securities sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (subject to the rights of other security holders of the Company,
including, without limitation, preferred shareholders, the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in
4.
<PAGE> 5
such other proportions as shall mutually be agreed to by such selling
shareholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership of corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
4.5 DELAY OF REGISTRATION. No holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 4.
4.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the 1933 Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements 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 violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 4.6 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims,
5.
<PAGE> 6
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the 1933 Act, or the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 4.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6(b) shall not apply to amounts paid in settlements of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
4.6(b) exceed the gross proceeds from the offering received by such Holder.
(c) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to such indemnified party and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such Final Prospectus
is required to be delivered under the 1933 Act if such loss, claim or damage
would have been avoided had the indemnified party furnished the Final Prospectus
to such person.
(d) Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
4.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4.6.
(e) If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of
6.
<PAGE> 7
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(g) The obligations of the Company and Holders under this Section
4.6 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 4 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least twenty
percent (20%) of the shares of Registrable Securities originally purchased by
such Holder (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations), provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 4.
5. INTERPRETATION.
5.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may
reasonably in its judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either
Purchaser or the Shares pursuant to the express provisions of this Agreement.
7.
<PAGE> 8
5.2 NOTICES. Any notice required or permitted in connection with any
matter pertaining to this Agreement shall be given in writing and shall be
deemed effective upon personal delivery or upon deposit in the United States
Mail, registered or certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by 10 days'
advance written notice under this Section 5.2 to the other party to this
Agreement.
5.3 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California.
5.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
SIGNAL PHARMACEUTICALS, INC.
By:_____________________________
Address: 5555 Oberlin Drive
San Diego, California 92121
THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA
By:_____________________________
Its:____________________________
Address: _______________________________
_______________________________
8.
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.33
COLLABORATIVE DEVELOPMENT AND LICENSING
AGREEMENT
AMONG
SIGNAL PHARMACEUTICALS, INC.,
AND
TANABE SEIYAKU CO., LTD.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS................................................................. 1
2. RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD..................... 10
3. PRODUCT DEVELOPMENT. ....................................................... 22
4. PAYMENT..................................................................... 23
5. LICENSES OF TECHNOLOGY...................................................... 25
6. GLOBAL RELATIONSHIP......................................................... 33
7. ARBITRATION................................................................. 34
8. CONFIDENTIALITY, DISCLOSURE AND PUBLICATION................................. 34
9. INDEMNIFICATION............................................................. 37
10. INDEPENDENT CONTRACTORS..................................................... 38
11. NO SOLICITATION OF EMPLOYEES................................................ 38
12. TERM. ..................................................................... 39
13. TERMINATION OF AGREEMENT.................................................... 39
14. PUBLIC ANNOUNCEMENT OF AGREEMENT............................................ 40
15. INVENTIONS AND PATENT MATTERS............................................... 41
16. RESEARCH EXPENSES........................................................... 46
17. REPRESENTATIONS AND WARRANTIES.............................................. 46
18. OPTION TO EXPAND TERRITORY.................................................. 48
19. MISCELLANEOUS............................................................... 48
</TABLE>
i.
<PAGE> 3
COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT
This Agreement is made effective as of the 31st day of March,
1996 (the "Effective Date") by and among Signal Pharmaceuticals, Inc., a
California corporation, with its principal office at 5555 Oberlin Drive, San
Diego, California, USA ("Signal") and Tanabe Seiyaku Co., Ltd., a Japanese
corporation, with its principal office at 2-10 Dosho-machi 3-chome, Chuo-ku,
Osaka 541, Japan ("Tanabe").
RECITALS
WHEREAS, the parties desire to collaborate in the discovery and
development and commercialization of therapeutic products for the prevention and
treatment of inflammation and osteoporosis.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 "Active Development" means, with respect to any Compound,
that Tanabe is using at least such level of effort, in accordance with Tanabe's
business, legal, medical and scientific judgement and Tanabe's normal practices
and procedures, to continue the development of such Compound through preclinical
and clinical studies and other registration directed activities as Tanabe spends
on its own products in pre-clinical and clinical study with similar technical
and commercial potential.
1.2 "Affiliates" means, with respect to any specified Person, a
Person that is controlled by, controlling or under common control with the
Person specified. For the purposes of this definition, control of a corporation
or other business entity shall mean (i) direct or indirect beneficial ownership
of greater than fifty percent (50%) of the voting stock or a greater than fifty
percent (50%) interest in the income of such corporation or other business
entity or (ii) the power to direct or cause the direction of the management of
such corporation or other business entity.
1.3 "Agreement" means this Agreement, all exhibits and
attachments referenced herein and all amendments and modifications hereto and
thereto.
1.4 "Chemical Lead Compound" means any Potential Compound which
(i) the applicable Research and Development Committee determines has met the
requirements set forth on Exhibit A hereto, or (ii) Tanabe has selected in
writing as a Chemical Lead Compound from a Signal Compound Library or a Joint
Compound Library, or (iii) Tanabe has selected, in its sole discretion, from a
Tanabe Compound Library for inclusion in the Collaborative Project.
<PAGE> 4
1.5 "Chemical Modification" means any compound resulting from
process or activity (initiated after the date of this Agreement) of deriving
alternative chemical structures from a Chemical Lead Compound or a chemical
modification of a Chemical Lead Compound, e.g. development of analogs.
1.6 "Collaborative Project" means the joint research and
development collaboration of the Parties described in Article 2 of this
Agreement, in Exhibit C and in the annual workplans prepared in coordination
with the applicable Research and Development Committees, pursuant to which the
parties shall test, evaluate and identify compounds as Potential Compounds,
shall test and evaluate Potential Compounds and chemical modifications of
Potential Compounds as potential Chemical Lead Compounds, and shall chemically
modify, test and evaluate Compounds as potential Clinical Candidates.
1.7 "Compound" means any Chemical Lead Compound and all Chemical
Modifications thereof. A Compound shall be either a Signal Compound, a Tanabe
Compound or a Collaboration Compound.
1.7.1 "Signal Compound" means any Compound which is owned
by or licensed to Signal or its Affiliates (other than from Tanabe
pursuant to this Agreement), together with all Chemical Modifications
thereof developed by Signal, by Tanabe, or by their Affiliates.
1.7.2 "Tanabe Compound" means any Compound which is owned
by or licensed to Tanabe or its Affiliates (other than from Signal
pursuant to this Agreement) together with all Chemical Modifications
thereof developed by Signal, Tanabe, or by their Affiliates.
1.7.3 "Collaboration Compound" means a Compound which is
neither a Signal Compound nor a Tanabe Compound but is contained in a
Joint Compound Library, together with all Chemical Modifications thereof
developed by Signal or Tanabe, or by their Affiliates.
1.8 "Clinical Candidate" means a Compound which (i) Tanabe
determines meets the criteria set forth in Exhibit B or (ii) which Tanabe has
otherwise selected in writing as a Clinical Candidate.
1.9 "IND" means an Investigational New Drug application filed
with the United States Food and Drug Administration, or an equivalent
application filed with a foreign regulatory authority.
1.10 "Inflammation" means a localized protective response or
non-specific immune response, including but not limited to a hypersensitive
response (an "inflammatory response"), elicited by injury, invasion or
destruction of tissues, which
2.
<PAGE> 5
serves to destroy, dilute, or wall off both the injurious agent and the injured
tissue. Inflammation shall include, without limitation, the following generally
recognized categories of inflammation: acute, chronic, subacute, adhesive,
atrophic, catarrhal, croupous, fibrinous, diffuse, disseminated, exudative,
fibroid, focal, granulomatous, hyperplastic, hypertrophic, interstitial,
metastatic, necrotic, obliterative, parenchymatous, pseudomembranous, purulent,
sclerosing, serous, simple, specific, toxic, traumatic, and ulcerative.
Inflammation may be manifested, without limitation, as a condition, symptom,
process or component in those diseases, disease processes, or host conditions
(collectively, "Inflammatory Diseases") in which the inflammatory response is
etiological in the health of the host and/or exacerbates (as opposed to
ameliorates) the severity of the host's disease, disease process, symptom or
condition, and in which the therapeutic goal is to directly intervene in the
host's disease, disease process, symptom or condition by reducing, controlling
or limiting the level or degree of the inflammatory response. Inflammatory
Diseases shall include, without limitation, rheumatism (including arthritis),
lupus (including discoid and systemic erythematosus, pernio and vulgaris),
glomerulonephritis, transplant rejections, allergies, asthma and autoimmune
diseases, but shall exclude osteoarthritis, multiple sclerosis, cardiovascular
disease, oncologic indications and neuro-degenerative diseases, even where such
diseases may have an inflammatory component.
1.11 "Joint Compound Libraries" means all chemical compounds
(excluding Chemical Modifications of Tanabe Compounds or Signal Compounds) owned
jointly by the Parties or licensed jointly to the Parties during the Research
Period which they have the right to select or license for further development
and commercialization pursuant to this Agreement.
1.12 "Joint Inflammation Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party to coordinate the research and development
activities with respect to Compounds for the prevention and treatment of
Inflammation under the Collaborative Project and carry out such other duties as
are agreed to in writing by the Parties from time to time.
1.13 "Joint Invention" has the meaning set forth in Section 15.3.
1.14 "Joint Osteoporosis Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party (with the business representatives on the
Joint Inflammation Committee and the Joint Osteoporosis Committee being for each
party the same individual) to coordinate the research and development activities
with respect to Compounds for the prevention and treatment of Osteoporosis under
the Collaborative Project and carry out such other duties as are agreed to in
writing by the Parties from time to time.
3.
<PAGE> 6
1.15 "Joint Patent" means all patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a discovery or an invention (including any Joint Invention) that is made,
conceived or reduced to practice by one or more employees or agents from each
Party in performing the Collaborative Project, and as to which such employees or
agents would be inventors under the applicable patent laws.
1.16 "Main Activity Compound" means (i) any compound which, with
respect to Inflammation and Osteoporosis, demonstrates, as of the Effective Date
or during the Research Period, potency in an Inflammation Pathway or an
Osteoporosis Pathway, respectively, at a level at least as high as the activity
shown for that compound in any other signaling pathway, and (ii) any analog of
any compound described in clause (i) above from the Signal Compound Libraries,
Tanabe Compound Libraries or Joint Compound Libraries, or any chemical
modification of any compound described in clause (i) above which chemical
modification is identified during the term of this Agreement, in each case which
demonstrates potency in an Inflammation Pathway or an Osteoporosis Pathway,
respectively, at a level at least as high as the activity shown for that
compound in any other signaling pathway.
1.17 "Net Sales" means with respect to any Product, the aggregate
amount invoiced by a Party (including by its Affiliates, licensees and
sublicensees) for or on account of any sale to a non-affiliated purchaser of
such Product, less (i) normal and customary trade discounts, cash discounts,
quantity discounts, rebates and other price reduction programs to purchasers
allowed and taken; (ii) rebates to wholesalers; (iii) credits, allowances,
discounts and rebates to, and chargebacks from the account of, such purchasers
for spoiled, damaged, out-dated and returned Product; (iv) actual freight and
insurance costs incurred or accrued in transporting such Product; (v) sales,
value-added and other direct taxes (other than taxes on income); (vi) customs
duties, surcharges and other governmental charges incurred in connection with
the exportation or importation of such Product; and (vii) contributions made by
Tanabe to the Japanese Fund for Sufferers from Adverse Drug Reactions not to
exceed 1% of what would otherwise be Net Sales (the "Fund Contribution Cap");
provided that in no event shall items (i) and (ii) exceed that amount equal to
the average discount, price reduction or rebate for a similar class of Tanabe
products sold or offered to the same class of customer, such average to be
weighted according to dollar volume ("Discount Ceiling"); provided further that
the Parties agree to discuss in good faith a possible renegotiation of such Fund
Contribution Cap and the Discount Ceiling before the first Product is launched
for commercial sale in the Territory, taking into account then existing market
conditions. In the event that Tanabe shall be required with respect to a Product
to pay royalties to a third party (other than Signal or its licensors) for the
sale of such Product, then Tanabe shall be entitled to deduct the amount of any
such royalty actually paid by
4.
<PAGE> 7
it from the amount that would otherwise constitute "Net Sales," provided such
aggregate deduction shall not exceed 5% of Net Sales. Any commercial use of a
Product by a Party (including its Affiliates, licensees and sublicensees) shall
be considered a sale hereunder for accounting and royalty purposes.
Notwithstanding the foregoing, (i) with respect to a Product
which is sold in combination with one or more therapeutically active ingredients
as a combination product (a "Combination Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Combination
Product by a fraction, as determined by the mutual agreement of the parties,
which represents the proportionate economic value of such Product relative to
the economic value contributed by the other therapeutically active ingredients
in such Combination Product; and (ii) with respect to a Product which is sold
together with any other products and/or services at one unit price, whether
packaged together or separately (a "Bundled Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Bundled Product
by the fraction A/(A+B), where A is the average selling price of such Product if
sold separately, and B is the total average selling price of such other products
and/or such services in such Bundled Product if sold separately; provided,
however, if either the average selling price of such Product or the total
average selling price of such other products and/or such services in such
Bundled Product is not available as of such date, then Net Sales of such Product
shall be determined by multiplying the Net Sales of such Bundled Product by a
fraction, as determined by the mutual agreement of the parties, which represents
the proportionate economic value of such Product relative to the economic value
contributed by the other products and/or such services in such Bundled Product;
and (iii) with respect to a Product which is sold as a pharmaceutical product in
a Delivery System (the "Delivery System Product"), then Net Sales of such
Product shall be determined by reducing the Net Sales of such Delivery System
Product by the amount of the reasonable fully-burdened cost to Tanabe, its
Affiliate, licensee or sublicensee of such Delivery System determined in
accordance with the standard accounting practices of Tanabe, its Affiliate,
licensee or sublicensee (as applicable), consistently applied. For purposes of
this Section 1.17, "Delivery System" means, with respect to a Product, any drug
delivery system comprising the device(s), equipment, instrumentation or other
components (but not solely containers or packaging) designed to accomplish or
assist in the administration of such Product.
1.18 "Osteoporosis" means any disease, disease process and/or
condition involving bone resorption and demineralization of bone (including
abnormal rarefaction of bone and a general reduction in the mass of bone per
unit of volume), bone formation, bone growth, calcium and phosphorus metabolism
(including calcium and phosphorus absorption and reabsorption) and deformities
such as loss of stature and pathological fractures.
1.19 "Party(ies)" means Signal and Tanabe.
5.
<PAGE> 8
1.20 "Person" means an individual, a partnership, a joint
venture, a corporation, a trust, an estate, an unincorporated organization or
any other entity.
1.21 "Phase III Clinical Trials" means those pivotal human
clinical trials in a particular country which are most nearly equivalent to
those described as such in the United States Federal Food, Drug, and Cosmetics
Act, as amended.
1.22 "Potential Compound" means a compound (a) which is identified
prior to or during the term of the Research Period to have potential for the
prevention or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis,
[***]; (b) which was tested, evaluated or derived by either or both Parties
pursuant to the Collaborative Project; and (c) which possesses at least the
following characteristics: (i) [***]
1.23 "Pricing Approval" means the determination of an allowable resale
price for a Product by the applicable governmental authority in any situation in
which commercial sales of such Product are not permitted until such Pricing
Approval has been received.
1.24 "Product" means any composition (whether in the form of drug
substance, bulk drug or final dosage form), which may be used in the prevention
or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis, [***] and
that contains a Compound as an active ingredient.
1.25 "Regulatory Approval" means the granting of all governmental
or regulatory approvals required, if any, for the sale of a Product in a given
country or jurisdiction within the Territory.
1.26 "Research and Development Committee(s)" means the Joint
Inflammation Committee and the Joint Osteoporosis Committee.
1.27 "Research Period" shall have the meaning given in Section
2.1.
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<PAGE> 9
1.28 "Rest of the World" means all of the nations of the world
other than those in the Territory.
1.29 "Signal Compound Libraries" means all chemical compounds
owned by Signal or licensed to Signal (other than by Tanabe) as of the Effective
Date or during the Research Period which Signal has the right to select or
license for further development and commercialization pursuant to this
Agreement.
1.30 "Signal Technical Information" shall mean either "Signal
Lead Identification Information," "Signal Compound Information," or "Signal
Product Information," each as defined below:
(a) "Signal Lead Identification Information" shall mean as
to each Potential Compound, the information in Signal's or its Affiliates'
possession or control which is necessary or useful to allow Tanabe to conduct
its obligations pursuant to the Collaborative Project, and which is necessary or
useful to allow the appropriate Research and Development Committee and Tanabe to
evaluate whether or not such Potential Compound satisfies the Selection Criteria
set forth on Exhibit A or otherwise is desirable for Tanabe to designate as a
Chemical Lead Compound. Such information shall include information regarding
Signal's non-proprietary and/or functional assays useful for confirming
activity, but shall exclude information regarding the design or substance of any
Signal proprietary primary or high throughput screening assays.
(b) "Signal Compound Information" shall mean as to any
Compound, (i) the information in Signal's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee and Tanabe to evaluate whether or
not such Compound satisfies the Selection Criteria set forth on Exhibit B or
otherwise is desirable for Tanabe to designate as a Clinical Candidate, or which
is necessary or desirable to enable Tanabe to determine structure activity
relationship and to synthesize and evaluate Chemical Modifications thereof, and
(ii) provided that the Parties have first entered into a mutually acceptable
written agreement regarding the reciprocal sharing of additional information
(without additional charge, other than direct translation costs) regarding such
Compound, such additional information regarding such Compound as the Parties
mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the preclinical development
of such Compound in the Territory.
(c) "Signal Product Information" shall means as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties
7.
<PAGE> 10
mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the clinical development,
regulatory approval and commercialization of such Compound in the Territory.
1.31 "Signal Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Signal in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.
1.32 "Signal Screens" means any primary or high throughput assays
which are designed to test for activity in the same cell type/signaling pathway
combination as any of the assays being employed by Signal in the Collaborative
Project which assays are set forth in Exhibit C or as subsequently set forth in
an annual workplan approved by the applicable Research and Development Committee
(whether or not such assays are protected by any patent rights, trade secrets or
other intellectual property rights of Signal).
1.33 "Tanabe Compound Libraries" means all chemical compounds
(including organic compounds and extracts of microbial metabolites) owned by
Tanabe or licensed to Tanabe (other than by Signal) as of the Effective Date or
during the Research Period which Tanabe has the right to select or license for
further development and commercialization pursuant to this Agreement.
1.34 "Tanabe Other Screens" means any primary or high throughput
assays, other than Signal Screens, developed or in-licensed by Tanabe (excluding
animal model and functional assays).
1.35 "Tanabe Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Tanabe in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.
1.36 "Tanabe Technical Information" shall mean either "Tanabe
Lead Identification Information," "Tanabe Compound Information," or "Tanabe
Product Information," each as defined below:
8.
<PAGE> 11
(a) "Tanabe Lead Identification Information" shall mean
as to each compound from the Tanabe Compound Libraries which Tanabe, in its sole
discretion, provides to Signal for screening under the Collaborative Project,
the information in Tanabe's or its Affiliates' possession or control which is
necessary or useful to allow Signal to conduct its obligations pursuant to the
Collaborative Project, or which is necessary or desirable to enable Signal to
determine structure activity relationship and to synthesize and evaluate
chemical modifications thereof, and which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Potential Compound satisfies the Selection Criteria set forth on Exhibit A.
(b) "Tanabe Compound Information" shall mean as to any
Compound, (i) the information in Tanabe's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Compound satisfies the Selection Criteria set forth on Exhibit B, and (ii)
provided that the Parties have first entered into a mutually acceptable written
agreement regarding the reciprocal sharing of additional information (without
additional charge, other than direct translation costs) regarding such Compound,
such additional information regarding such Compound as the Parties mutually
agree in writing which is in Tanabe's, its Affiliates' or sublicensees'
possession or control regarding such Compound, and which is necessary or useful
to the preclinical development of such Compound in the Rest of the World.
(c) "Tanabe Product Information" shall mean as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties mutually agree in writing which is in Tanabe's, its
Affiliates' or sublicensees' possession or control regarding such Compound, and
which is necessary or useful to the clinical development, regulatory approval
and commercialization of such Compound in the Rest of the World.
1.37 "Territory" means Japan, China, South Korea, Taiwan,
Thailand, Cambodia, Laos, Vietnam, Indonesia, Nepal, the Philippines, Singapore,
Malaysia, Hong Kong, Myanmar and Brunei; provided that in the event that the
option set forth in Section 18 is exercised, the "Territory" shall also include
Australia, New Zealand and other Oceania countries.
1.38 "Use or Structure Contribution" means, with respect to
Tanabe, Signal or both, an invention or discovery made by Tanabe, Signal or
both, as applicable, regarding the composition of matter or use of any Compound
which invention or discovery is claimed in a pending patent application or
issued patent (a "Contribution
9.
<PAGE> 12
Patent") in any of the following countries: United States, Japan, France,
Germany and the United Kingdom (the "Measurement Countries").
1.39 "Western Pharmaceutical Partner(s)" means one or more
pharmaceutical companies other than Tanabe with which Signal from time to time
agrees to collaborate to develop and/or market products for the prevention or
treatment of Inflammation and/or Osteoporosis outside the Territory.
2. RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD
2.1 Research Period. Unless the Collaborative Project is sooner
terminated pursuant to Section 2.3(f), 13.4 or 13.5, the Collaborative Project
shall terminate upon the date which is four (4) years from the Effective Date in
Inflammation and Osteoporosis, respectively (the "Research Period"); provided
that the Research Period may be extended twice for periods of one (1) year each
by mutual written agreement of the Parties.
2.2 Joint Obligations.
(a) Prioritization of Efforts. The Parties mutually agree
that during the term of the Research Period each of the Parties (i) shall use
its commercially reasonable efforts to carry out its responsibilities under the
Collaborative Project; (ii) shall accord the Collaborative Project at least as
high a priority as its other active research programs at similar stages with
similar technical and commercial potential; and (iii) shall cooperate with each
other in the Collaborative Project for the development of Products for the
prevention or treatment of Inflammation and Osteoporosis.
(b) Exchange of Technical Information During Research
Period. During the term of the Research Period, (i) Signal shall inform the
appropriate Research and Development Committee and Tanabe, to the extent it has
not already done so, of all Signal Lead Identification Information, Signal
Compound Information and Signal Product Information; (ii) Tanabe shall inform
the appropriate Research and Development Committee and Signal, to the extent it
has not already done so, of all Tanabe Lead Identification Information, Tanabe
Compound Information and Tanabe Product Information; and (iii) each Party shall
provide to the other Party, to the extent it has not already done so, summary
written reports regarding such additional information regarding Potential
Compounds, Compounds and Main Activity Compounds which is necessary or useful
for the other Party to monitor the other Party's activities and progress. Each
Party will permit access at reasonable times and with reasonable frequency to
the appropriate personnel of the other Party to accomplish such information
exchange. Each Party shall, at least at each meeting of each Research and
Development Committee, (i) provide the other party with a progress report on its
efforts and results on the Collaborative Project with respect to Inflammation
and Osteoporosis, as appropriate,
10.
<PAGE> 13
and (ii) inform the other Party of any Technical Information obtained by it to
the extent and at the time required by this Section 2.2(b). Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.
(c) Exchange of Technical Information After Research
Period. During the term of this Agreement, but after the expiration or
termination of the Research Period, (i) Signal shall inform Tanabe, to the
extent it has not already done so, of all Signal Compound Information and Signal
Product Information; (ii) Tanabe shall inform Signal, to the extent it has not
already done so, of all Tanabe Compound Information and Tanabe Product
Information; and (iii) each Party shall provide to the other Party, to the
extent it has not already done so, summary written reports regarding such
additional information regarding Potential Compounds, Compounds and Main
Activity Compounds which is necessary or useful for the other Party to monitor
the other Party's activities and progress. Each Party will permit access at
reasonable times and with reasonable frequency to the appropriate personnel of
the other Party to accomplish such information exchange. Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.
2.3 Obligations of Signal.
(a) Screening Efforts. Signal shall screen those compounds
which Tanabe selects in its sole discretion from Tanabe Compound Libraries, all
compounds from Signal Compound Libraries and all compounds from Joint Compound
Libraries using Signal's proprietary and non-proprietary whole-cell and enzyme
assays and carry out its other obligations as set forth in Exhibit C and the
annual workplans submitted hereunder. In performing the screening, Signal shall
use its commercially reasonable efforts to identify a primary Compound and a
back-up Compound for at least one molecular target within each of following
pathways within Inflammation: [***]; and within Osteoporosis: (i) [***]. Signal
shall allocate sufficient time, effort, equipment and facilities to the
Collaborative Project, and shall proceed diligently, to conduct its obligations
under the Collaborative Project and to accomplish the objectives thereof. Signal
shall present all results of its screening of Potential Compounds to Tanabe and
the applicable Research and Development Committee for review and for the
applicable Research and Development Committee to determine whether a Potential
Compound meets the criteria set forth in Exhibit A. When Signal discovers a
Potential Compound during the Research Period that Signal believes may meet the
Selection Criteria set forth on Exhibit A hereto or otherwise determines that a
Potential Compound may be desirable to Tanabe as a Chemical Lead Compound,
Signal shall
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<PAGE> 14
promptly notify the applicable Research and Development Committee and present
the applicable Signal Lead Identification Information. Such Research and
Development Committee shall review the results of Signal's screening of such
Potential Compound and such other information and notify Tanabe and Signal in
writing of its determination within ninety (90) days of the receipt of such
information. If such Research and Development Committee determines that a
Potential Compound meets the criteria set forth in Exhibit A or otherwise
determines that a Potential Compound may be desirable to Tanabe as a Chemical
Lead Compound, Signal promptly shall present and supply such Potential Compound
to Tanabe in accordance with Section 2.4(d). Such presentation shall include all
Signal Lead Identification Information as reasonably necessary to verify the
Potential Compound meets the criteria set forth in Exhibit A and sufficient
quantities of drug substance to allow Tanabe to conduct studies to confirm
Signal's test results. In addition, Signal shall transfer to Tanabe Signal's
non-proprietary functional assays and shall assist Tanabe in implementing such
assays and to confirm the activity of such Potential Compounds in such assays
(provided that Tanabe shall reimburse Signal for its direct out-of-pocket costs
incurred in connection with such transfer or assistance). At the end of the
second year of the Research Period, the Parties will jointly reassess the
appropriateness of the staffing levels and will determine whether any material
changes are appropriate. If so, then the parties will in good faith determine an
adjustment for the following year.
(b) Visiting Tanabe Scientist. During the Research Period,
Signal shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Tanabe
shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Tanabe scientist and Signal shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Tanabe scientist to engage in
research under the Collaborative Project on Signal's premises. The Tanabe
scientist shall, to the extent possible, be included in the activities of
Signal's research team for the Collaborative Project and shall be required to
execute all confidentiality agreements as are used from time to time by Signal.
It is acknowledged and agreed that Signal shall also be conducting research and
development activities outside the scope of the Collaborative Project and shall
be entitled to exclude the Tanabe scientist from participation in projects to
the extent required to protect the confidentiality of such non-Collaborative
Project work.
(c) Ongoing Screening Services. Signal shall, for a period
of one (1) year following the full completion of the Research Period (all four
years), provide to Tanabe, at Tanabe's request, ongoing screening services for
assays developed during (and not before or after) the Research Period on
compounds developed or acquired by Tanabe following the end of the Research
Period. Tanabe shall pay Signal the greater of [***] and shall owe Signal the
same (as applicable) license terms and royalty terms therein as outlined in
Sections 4.3 and 5.4.
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<PAGE> 15
(d) Assistance in Chemical Modification. As and when
requested by the applicable Research and Development Committee, Signal may
conduct any in-vitro screening described on Exhibit A with respect to Chemical
Modifications or chemical modifications of compounds from the Tanabe Compound
Libraries, selected by Tanabe in its sole discretion, for the purpose of
identifying Potential Compounds or Compounds under the Collaborative Project.
(e) Assistance in In-Vitro Studies. As and when requested
by Tanabe, Signal shall study a compound, which originated from a Tanabe
Compound Library and the composition of matter and use of which is characterized
as a Tanabe Use or Structure Contribution, using Signal's proprietary and
non-proprietary assays to attempt to define the mechanism of action of such
compound in the Inflammation Pathways or Osteoporosis Pathways, as applicable.
The data resulting from such studies shall be owned by Tanabe.
(f) Development Obligations During Research Period.
.1 Western Pharmaceutical Partner. Signal shall
enter into a collaborative research and development agreement with respect to
either its Inflammation program or its Osteoporosis program not later than
August 31, 1996 (a "Minimum Partnering Transaction"). If a Minimum Partnering
Transaction has not occurred on or before August 31, 1996, then Tanabe shall
have the right to give Signal advance written notice of, and opportunity to
cure, its failure to complete a Minimum Partnering Transaction. If Signal has
failed to cure such default within such notice period, then Tanabe shall be
entitled to terminate the Collaborative Project with such termination being
effective six (6) months after the expiration, without cure, of such notice
period. The applicable notice period shall be (i) ninety (90) days or (ii)
one-hundred-eighty days in the event that Tanabe has selected at least one (1)
Chemical Lead Compound which is first identified after screening in a Signal
primary or high throughput assay on or before the date of such notice.
.2 Periodic Reviews. At Tanabe's request and not
more frequently than once in every six (6)-month period, Signal shall review
with Tanabe its cash flow and headcount allocations to the Collaborative
Project. As part of such review Signal shall demonstrate to Tanabe's reasonable
satisfaction that (i) Signal has the ability over the following six (6)-month
period to fund the Inflammation program at a level of at least [***] in [***]
and [***] per year in [***] and the Osteoporosis program at a level of at least
[***] in [***] and [***] per year in [***] (or such lesser or greater amount
agreed to by the Parties and reflected in the workplan for that period); and
(ii) Signal is expending effort at an activity level in the Inflammation program
and in the Osteoporosis program consistent with the expenditure levels set forth
in clause (i) above (or such lesser or greater amount agreed to by the Parties
and reflected in the workplan for that period). If Signal defaults in its
obligations under clause (i) or (ii) above, then Tanabe shall have the right to
give
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<PAGE> 16
Signal advance written notice of, and opportunity to cure, its defaults in its
obligations under clause (i) or (ii) above. If Signal has failed to cure such
default within such notice period, then Tanabe shall be entitled to terminate
the Collaborative Project with such termination being effective six (6) months
after the expiration, without cure, of such notice period. The applicable notice
period shall be [***].
.3 Commitment of FTEs. Signal shall allocate at
least that number of research personnel (measured as full-time equivalents
("FTEs") and post-doctoral fellows ("Post-Docs")) to the Inflammation program
and the Osteoporosis program as are set forth in the following schedule
("Minimum Staffing Requirement"):
<TABLE>
<CAPTION>
Inflammation Program Allocated FTEs & Post-Docs
-------------------- --------------------------
<S> <C>
[***] [***]
</TABLE>
<TABLE>
<CAPTION>
Osteoporosis Program Allocated FTEs & Post-Docs
-------------------- --------------------------
<S> <C>
[***] [***]
</TABLE>
If the Minimum Staffing Requirement has not been met during any one year period,
then Tanabe shall have the right to give Signal advance written notice of, and
opportunity to cure, its failure to meet the Minimum Staffing Requirement. If
Signal has failed to cure such default within such notice period, then Tanabe
shall be entitled to terminate the Collaborative Project with such termination
being effective six (6) months after the expiration, without cure, of such
notice period. The applicable notice period shall be [***].
(g) Active Development in Inflammation and Osteoporosis.
Signal must use at least such level of efforts, in accordance with Signal's
business, legal, medical and scientific judgement and Signal's normal practices
and procedures, to continue the development of Compounds, Clinical Candidates or
Products licensed to Signal in this Agreement through pre-clinical and clinical
studies, and other registration directed activities as Signal spends on its own
products in pre-clinical and clinical study with similar technical and
commercial potential in the Rest of the World.
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<PAGE> 17
2.4 Obligations of Tanabe.
(a) Delivery of Compound Library. As soon as reasonably
feasible, but in no event later than sixty (60) days after the execution of this
Agreement, Signal shall request and Tanabe shall deliver to Signal up to [***]
organic compounds and [***] samples of [***] which shall be selected by Tanabe
in its sole discretion from Tanabe Compound Libraries in a high throughput
format reasonably necessary to enable Signal to screen, for use in Signal's
screening activities. Thereafter, Tanabe shall make available such additional
compounds from the Tanabe Compound Libraries as Tanabe determines in its sole
discretion. All compounds from Tanabe Compound Libraries provided to Signal
under this Agreement shall be and remain the sole property of Tanabe, shall
(other than Compounds) be used by Signal solely for the purpose of carrying out
its obligations under this Agreement, and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to Section 6 of this Agreement. Tanabe may request Signal to conduct
chemical modification, structural elucidation and testing of compounds from
Tanabe Compound Libraries. Except to the extent so requested, Signal shall not
undertake any efforts to elucidate the structure of any compound from the Tanabe
Compound Libraries delivered to it by Tanabe for in-vitro testing or make any
chemical modifications thereof until such compound is designated as a Chemical
Lead Compound pursuant to Section 2.4(d) below.
(b) Tanabe Screening Activities. Subject to the provisions
of Sections 5.4(a)(v), (vi), (vii) and (viii) below, during the Research Period,
Tanabe shall have the right to screen any compounds in any assays whatsoever.
(c) Assistance in Screening Activities. As and when
requested by the applicable Research and Development Committee, Tanabe may
conduct any animal studies described on Exhibit A with respect to Potential
Compounds. Tanabe agrees that it will not, in connection with any such studies,
undertake any efforts to elucidate the structure of any Potential Compounds from
the Signal Compound Libraries delivered to it by Signal for animal testing until
such Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) below.
(d) Evaluation Obligations; Chemical Lead Compounds. The
applicable Research and Development Committee shall have a period of ninety (90)
days from the date a Potential Compound is delivered to it pursuant to Section
2.3(a), to review such Potential Compound for the purpose of confirming that
such Potential Compound meets the Selection Criteria set forth on Exhibit A
hereto. Tanabe shall have the right, within thirty (30) days after such ninety
(90) day period, to either (i) designate such Potential Compound for Active
Development as a Chemical Lead Compound or (ii) reject such Potential Compound.
Tanabe shall request samples of such Potential Compound not later than two (2)
months after first notification by Signal to the
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<PAGE> 18
applicable Research and Development Committee of Signal's determination pursuant
to Section 2.3(a) that such Potential Compound may meet the Selection Criteria
set forth on Exhibit A hereto or that a Potential Compound otherwise may be
desirable to Tanabe as a Chemical Lead Compound (to allow Tanabe to set up its
feasibility tests). Provided that Signal has assisted Tanabe in transferring and
implementing such feasibility tests pursuant to Section 2.3(a), Tanabe shall
notify Signal in writing within thirty (30) days after receipt of the drug
substance of a Potential Compound whether it agrees with the determination of
the applicable Research and Development Committee that a Potential Compound
meets the criteria set forth in Exhibit A or that a Potential Compound otherwise
shall be designated by Tanabe as a Chemical Lead Compound. Any Potential
Compound designated by Tanabe (whether or not it meets the Selection Criteria
set forth in Exhibit A) shall thereafter be a "Chemical Lead Compound." Any
Potential Compound which is presented to Tanabe and not designated by Tanabe as
a Chemical Lead Compound shall thereafter no longer be subject to the
Collaborative Project. Prior to the designation of a Potential Compound from a
Signal Compound Library as a Chemical Lead Compound pursuant to Section 2.4(d),
Tanabe shall not engage in any attempts to elucidate the chemical structure of
such Potential Compound, make any chemical modification to such Potential
Compound, or test such Potential Compound for use outside the Inflammation
Pathways or the Osteoporosis Pathways, as applicable.
(e) Development and Qualification of Chemical Lead
Compounds. Once a Potential Compound has been designated as a Chemical Lead
Compound for any of (i) with respect to Inflammation: [***], and (ii) with
respect to Osteoporosis [***], then Tanabe shall promptly conduct any chemical
modifications or studies necessary with respect to such Compound to determine
whether or not any such Compound meets the criteria for a Clinical Candidate as
set forth in Exhibit B or Tanabe otherwise desires to designate such Compound as
a Clinical Candidate. Subject to the limitations of Section 4.3, any Compound
that Tanabe designates as a Clinical Candidate shall thereafter be a "Clinical
Candidate" and such designation shall be subject to the milestone payment as
described in Section 4.3(a) below. If Tanabe files in the Territory a request
for initiation of human clinical studies of a Compound prior to designating such
Compound as a Clinical Candidate, then upon the filing in the Territory of a
request for initiation of human clinical studies for such Compound, such
Compound thereafter shall be a "Clinical Candidate" and such designation shall
be subject to the milestone payment as described in Section 4.3(a) below. All
Potential Compounds from Signal Compound Libraries provided to Tanabe under this
Agreement shall be and remain the sole property of Signal, shall (other than
Compounds) be used by Tanabe solely for the purpose of carrying out its
obligations under this Agreement and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to this Agreement. Tanabe agrees that it will not, in connection with
any such studies, undertake any efforts to elucidate the structure of any
Potential Compounds
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<PAGE> 19
from the Signal Compound Libraries delivered to it by Signal until such
Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) above.
All Chemical Modifications developed from (i) Signal
Compounds shall constitute Signal Compounds, (ii) Tanabe Compounds shall
constitute Tanabe Compounds, and (iii) Collaboration Compounds shall constitute
Collaboration Compounds. To the extent either Party creates a Chemical
Modification, such Party shall endeavor to provide the other Party with [***]
of each Chemical Modification and a summary report describing how such Chemical
Modification was synthesized and characterized.
(f) Reversion of Rights to Compounds. Notwithstanding any
other Section of this Agreement, if Tanabe "abandons its efforts" to conduct
research, pre-clinical and clinical development, application for Regulatory
Approval and commercialization of Compounds, Clinical Candidates and Products
which may be used in the prevention or treatment of Inflammation in the
Territory, then upon ninety (90) days prior written notice from Signal, the
exclusive right and license granted to Tanabe under Section 5.1 in all
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Inflammation in the Territory shall terminate and such exclusive
right and license granted to Tanabe under Section 5.1 shall revert to Signal.
Tanabe shall not have "abandoned its efforts" if Tanabe at any such time either
[***]
Notwithstanding any other Section of this Agreement,
if Tanabe "abandons its efforts" to conduct research, pre-clinical and clinical
development, application for Regulatory Approval and commercialization of
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Osteoporosis in the Territory, then upon ninety (90) days prior
written notice from Signal, the exclusive right and license granted to Tanabe
under Section 5.1 in all Compounds, Clinical Candidates and Products which may
be used in the prevention or treatment of Osteoporosis in the Territory shall
terminate and such exclusive right and license granted to Tanabe under Section
5.1 shall revert to Signal. Tanabe shall not have "abandoned its efforts" if
Tanabe at any such time either [***]
(g) Visiting Signal Scientist. During the Research Period,
Tanabe shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Signal
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shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Signal scientist and Tanabe shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Signal scientist to engage in
research on Tanabe's premises under the Collaborative Project. The Signal
scientist shall, to the extent possible, be included in the activities of
Tanabe's research team for the Collaborative Project and shall be subject to all
confidentiality obligations as are imposed usually by Tanabe. It is acknowledged
and agreed that Tanabe shall also be conducting research and development
activities outside the scope of the Collaborative Project and shall be entitled
to exclude the Signal scientist from participation in projects to the extent
required to protect the confidentiality of such non-Collaborative Project work.
2.5 Research and Development Committees. In order to effectively
coordinate and communicate their respective research and development efforts in
Inflammation and Osteoporosis: (i) Signal and Tanabe shall each promptly appoint
their representatives to the Joint Inflammation Committee and the Joint
Osteoporosis Committee; and (ii) each of Signal and Tanabe shall delegate the
powers and authority to the Joint Inflammation Committee and the Joint
Osteoporosis Committee that each Party deems desirable to allow each Research
and Development Committee to effectively coordinate and communicate the Parties'
respective efforts under the Collaborative Project in Inflammation and
Osteoporosis, respectively; provided, that neither such Research and Development
Committee shall have the power to enter into contracts or otherwise bind either
of the Parties. Without limitation, each Research and Development Committee
shall be responsible for (i) coordinating the research activities with respect
to Compounds for the treatment of Inflammation or Osteoporosis, as applicable;
(ii) working with Signal to prepare annual workplans for the testing, evaluation
and identification of Potential Compounds as potential Chemical Lead Compounds,
and the Chemical Modification, testing, evaluation and identification of
Compounds as potential Clinical Candidates; (iii) assisting Signal in preparing
annual budgets corresponding to such workplans; (iv) monitoring performance
under the Collaborative Project in relation to the annual workplans and
expenditures in relation to the corresponding budgets; and (v) reviewing the
information regarding Potential Compounds and determining whether Potential
Compounds satisfy the criteria set forth in Exhibit A. Each Party may change any
of its representatives at any time and from time to time by written notice to
the other Party prior to appointing a new representative to either Committee.
Any vacancy on a Research and Development Committee caused by death,
resignation, disability or otherwise shall be filled within thirty (30) days
following the occurrence of such vacancy.
2.6 Meetings of the Research and Development Committees. The
Research and Development Committees shall each meet, during the term of the
Research Period, at least every six (6) months beginning as soon as possible
after the Effective Date of this Agreement, and thereafter upon request by
either Party (not to exceed four (4) meetings per year unless mutually agreed
upon), at sites which shall be
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designated by each of the Parties in alternating sequence, with the first
meeting to be held as soon as practicable. Meetings are expected to be held
either at the offices of Signal or Tanabe or at some other mutually agreeable
site. Each Party shall pay its own costs in attending meetings of each Research
and Development Committee. Executive officers from Signal or Tanabe may attend
such meetings at their discretion.
Once during each year, at annual meetings during the Research
Period, the Research and Development Committees will conduct an annual review of
the actual progress of the Collaborative Project with respect to Inflammation or
Osteoporosis, as appropriate (the "Annual Review"), will review and approve the
development plans, workplans and budgets and objectives for the Collaborative
Project for the following year, and will take such mutually agreeable actions as
may be reasonable to facilitate the commercial success of the Collaborative
Project with respect to Inflammation or Osteoporosis, as appropriate.
2.7 Procedure. A hosting Party shall designate a member to act as
Chairman of each Research and Development Committee meeting. Each such Chairman
shall be responsible for developing an agenda for the meeting to be chaired by
him or her and shall distribute such agenda no later than fourteen (14) days
prior to the scheduled meeting. The Chairman shall promptly, after each meeting,
prepare and distribute to the members minutes reflecting the discussions of the
Research and Development Committee. All meetings shall be conducted and records
kept in English.
2.8 Dispute Resolution. In the event that a Research and
Development Committee is unable to resolve any disagreement, either Party shall
do their best efforts to resolve the dispute amicably, and shall prior to
proceeding with any dispute resolution mechanisms conduct a meeting of the
president of Signal and the Senior Executive Director of Research and
Development of Tanabe to attempt in good faith to resolve such dispute.
2.9 Exclusivity.
(a) Signal Obligations.
(i) During the Research Period, Signal shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Signal in
the development of Compounds, including the Western Pharmaceutical Partner, not
to, conduct any research, development or commercialization activities relating
to the discovery or use of compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Territory, for its own benefit, or with or for
the benefit of any other Person, other than to the extent that any
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compounds developed for use in the respective pathways shall be licensed to
Tanabe hereunder in the Territory;
(ii) Following the Research Period but during the
term of this Agreement, Signal shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Signal in the development of Compounds,
including the Western Pharmaceutical Partner, not to, conduct any research,
development or commercialization activities relating to the use of Main Activity
Compounds in an Inflammation Pathway(s) for the prevention or treatment of
Inflammation (to the extent, with respect to any (sub)licensee, such
collaboration involves such Inflammation Pathway(s)), or in an Osteoporosis
Pathway(s) for the prevention or treatment of Osteoporosis (to the extent, with
respect to any (sub)licensee, such collaboration involves such Osteoporosis
Pathway(s)), in the Territory, for its own benefit, or with or for the benefit
of any other Person, other than to the extent that any Main Activity Compounds
developed for use in the respective pathways shall be licensed to Tanabe
hereunder in the Territory;
(iii) During the term of the Agreement and subject
to the provisions of Section 2.4(f), Signal shall not, and shall cause its
Affiliates and (sub)licensees collaborating with Signal in the development of
Compounds, including the Western Pharmaceutical Partner, not to, conduct any
research, development or commercialization activities relating to the use of (a)
Compounds, (b) Potential Compounds or (c) chemical modifications of Potential
Compounds which if they were tested during the Research Period would have been
Potential Compounds, for its own benefit, or with or for the benefit of any
other Person, other than to the extent that any compounds described in clauses
(a) through (c) above developed for use in the respective pathways shall be
licensed to Tanabe hereunder in the Territory; and
(iv) During the term of this Agreement, Signal
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Signal in the development of Compounds, including the Western Pharmaceutical
Partner, not to, conduct any research, development or commercialization
activities relating to the use of any Tanabe Compound other than in the
prevention or treatment of Inflammation or Osteoporosis in the Rest of the
World, for its own benefit, or with or for the benefit of any other Person,
unless such Tanabe Compound first is designated by Tanabe as a Clinical
Candidate or Signal, its Affiliate or sublicensee has [***]
(b) Tanabe Obligations.
(i) During the Research Period, Tanabe shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Tanabe in
the development of Compounds not to, conduct any research, development or
commercialization activities relating to the discovery or use of compounds in an
Inflammation Pathway(s) for the
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prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any
compounds developed for use in the respective pathways shall be licensed to
Signal hereunder in the Rest of the World;
(ii) Following the Research Period but during the
term of this Agreement, Tanabe shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Tanabe in the development of Compounds not to,
conduct any research, development or commercialization activities relating to
the use of Main Activity Compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any Main
Activity Compounds developed for use in the respective pathways shall be
licensed to Signal hereunder in the Rest of the World;
(iii) During the term of the Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of (a) Compounds, (b)
Potential Compounds, (c) chemical modifications of Potential Compounds which if
they were tested during the Research Period would have been Potential Compounds,
or (d) compounds identified from the Tanabe Compound Libraries which if they
were tested during the Research Period would have been Potential Compounds, for
its own benefit, or with or for the benefit of any other Person, other than to
the extent that any compounds described in clauses (a) through (d) above
developed for use in the respective pathways shall be licensed to Signal
hereunder in the Rest of the World; and
(iv) During the term of this Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of any Signal Compound other
than in the prevention or treatment of Inflammation or Osteoporosis in the
Territory, for its own benefit, or with or for the benefit of any other Person,
unless such Signal Compound first is designated by Tanabe as a Clinical
Candidate.
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3. PRODUCT DEVELOPMENT.
3.1 Development Activities. Tanabe shall control all activities
regarding the pre-clinical and clinical development, application for Regulatory
and Pricing Approval and commercialization of all Compounds, Clinical Candidates
and Products in the Territory. Signal shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory Approval and
commercialization of all Compounds, Clinical Candidates and Products in the Rest
of the World. If the parties mutually agree, Signal and Tanabe shall, in mutual
cooperation with one another, establish a development plan for each Compound,
Clinical Candidate and Product with respect to the development and regulatory
approval of such Product on a worldwide basis (the "Development Plan"). In the
event that both Parties are unable to agree on the Development Plan, Tanabe's
decisions shall control all activities regarding the pre-clinical and clinical
development, application for Regulatory and Pricing Approval and
commercialization of all Compounds, Clinical Candidates and Products in the
Territory and Signal's decisions shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory and Pricing
Approval and commercialization of all Compounds, Clinical Candidates and
Products in the Rest of the World; provided that in no event will either Party
(and Signal shall similarly bind its Western Pharmaceutical Partner) knowingly
take any action that will unnecessarily impair the other Party's efforts to have
a Product achieve the relevant Regulatory Approvals. Each Party shall
immediately inform the other at such time as it receives notice of any
governmental or regulatory approvals and disapprovals for Products. Signal shall
not be entitled to share any information received pursuant to this Section 3.1
with its Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have reached an agreement covering such exchange of
information.
3.2 Development Efforts. Once a Clinical Candidate has been
designated by Tanabe, Tanabe shall use its good faith efforts in proceeding with
(i) the development, testing and, where applicable, manufacturing of a Product
based on such Clinical Candidate or Chemical Modification thereof, including,
without limitation, pre-clinical and clinical development, (ii) obtaining
Regulatory and Pricing Approvals in the Territory and (iii) the subsequent
manufacturing, marketing and sale of that Product in the Territory. Tanabe shall
exercise its reasonable efforts and diligence in conducting such activities with
respect to any Compound, Clinical Candidate or Product in accordance with
Tanabe's business, legal, medical and scientific judgment and Tanabe's normal
practices and procedures for compositions having similar technical and
commercial potential for similar uses.
3.3 Inflammation Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Inflammation
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.
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<PAGE> 25
3.4 Osteoporosis Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Osteoporosis
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.
3.5 Synthesized Compounds; Manufacturing. In the event Tanabe
synthesizes Compounds or Clinical Candidates, Tanabe agrees to cooperate with
Signal, based upon its manufacturing and supply capabilities, to make a
reasonable effort to make research quantities of such Compounds or Clinical
Candidates, as the case may be, available to Signal at a reasonable cost plus
shipping charges. Tanabe agrees that, during the term of this Agreement, Tanabe
will at the request of Signal negotiate in good faith with Signal with respect
to entering into a manufacturing and supply agreement pursuant to which Tanabe
would provide Signal with Signal's (but not its Western Pharmaceutical
Partner's, which shall be subject to Tanabe's agreement with such Western
Pharmaceutical Partner) requirements of each Inflammation and Osteoporosis
Compound or Product selected for development hereunder.
4. PAYMENT.
4.1 Initial Payment. Within ten (10) days following execution of
this Agreement, Tanabe shall pay to Signal, in consideration of the licenses
granted by Signal to Tanabe hereunder, [***] by wire transfer of immediately
available funds to the Signal bank account set forth in Section 4.4.
4.2 Research Funding. In consideration of Signal's research
obligations set forth in Section 2 hereof, Tanabe shall pay to Signal the
following amounts: (a) with respect to the Inflammation Program, [***] per year
of the Research Period; and (b) with respect to the Osteoporosis Program, (i)
[***] per annum for the [***] following the Effective Date [***], and (ii) [***]
per year of the Research Period for each year following [***]. The per annum
payments shall be made in two (2) equal semi-annual installments, in advance,
with the first payment being due within ten (10) days following execution of
this Agreement and subsequent payments being due and payable at each six (6)
month interval thereafter by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4. At the end of each year, Signal
shall determine its actual spending with respect to each program on a
fully-allocated cost basis and in the event that the research funding received
from Tanabe exceeds [***] of Signal's actual expenditures in [***] of the
Research Period for Inflammation and in years [***] of the Research Period for
Osteoporosis, then Signal shall refund such excess to Tanabe within ninety (90)
days after the end of each of [***], and shall prepare and provide Tanabe with a
written report in reasonable specific detail of all expenditures by Signal (on a
fully-allocated cost basis determined in accordance with generally accepted
accounting principles consistently applied) under the Collaborative Project
during the
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preceding one (1) year period, compared to the budgeted amounts therefor, and
itemized by program and major cost category for such reporting period. In the
event that Tanabe terminates the Research Period with respect to either
Inflammation or Osteoporosis or both prior to the completion of [***], pursuant
to Section 2.3(f), 13.4 and 13.5 hereof, then Tanabe shall continue to fund its
otherwise applicable funding obligations until the effective date of such
termination. Signal shall keep complete and accurate records in sufficient
detail to properly reflect all expenditures by Signal under the Collaborative
Project. Upon the written request of Tanabe and not more than once in each
calendar year, Signal shall permit an independent certified public accounting
firm of internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, at Tanabe's expense, to have access during normal business
hours to such of the records of Signal as may be reasonably necessary to verify
the accuracy of the research expenditure reports hereunder for any year ending
not more than twenty-four (24) months prior to the date of such request. The
accounting firm shall disclose to Tanabe only whether the reports are correct or
not and the specific details concerning any discrepancies. No other information
shall be shared.
4.3 Milestone Payments. Tanabe shall pay to Signal each of the
amounts set forth below, by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4, upon the first achievement of each
of the milestones set forth below, except that if a Compound is subsequently
approved for indications other than Inflammation or Osteoporosis, the milestone
payment described in Section 4.3(d) if not previously paid with respect to such
Compound will be payable by Tanabe to Signal for such approved indication.
(a) Upon the [***]
(b) Upon the [***]
(c) Upon the [***]
(d) Upon receipt of governmental Pricing Approval for a
Product, but in no event later than the first end user sale of such Product for
any
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[***]
Notwithstanding the foregoing, (i) Tanabe shall not be required to [***], and
(ii) the maximum aggregate amount which Tanabe shall be required to pay pursuant
to this Section 4.3 with respect to all Compounds and Products shall be [***],
and (iii) [***]
4.4 Payment Terms. All payments under this Agreement shall be by
wire transfer of immediately available funds to the bank account set forth below
and shall be non-refundable (except as otherwise set forth herein).
First Interstate Bank of California #657
136 2nd Avenue
P.O. Box 1488
San Mateo, California 94401-0870
Routing: 122000218
Name: Signal Pharmaceuticals, Inc.
Account Number: [***]
5. LICENSES OF TECHNOLOGY; ROYALTIES.
5.1 License to Tanabe.
(a) Subject to the terms and conditions of this Agreement
and the payment in full of any milestone obligations which are owing to Signal
as set forth in Section 4.3, Signal hereby grants to Tanabe an exclusive (even
as to Signal) license under the Signal Patents, the Joint Patents and, to the
extent required to be provided pursuant to Section 2.2 and 2.3, the Signal
Technical Information to develop, make, have made, use, sell, have sold and
import Products in the Territory.
(b) Subject to the terms and conditions of this Agreement,
Tanabe shall have the right to grant licenses or sublicenses to develop, make,
have made, use, sell, have sold, and import Products in the Territory, provided
that such licensees and sublicensees agree in writing to be bound by the
applicable terms, if any, of this Agreement. Tanabe shall be responsible for the
operations and activities of its licensees and sublicensees as if such
operations and activities were carried out by Tanabe. As to each sublicense of a
Signal Patent or a Joint Patent, Tanabe agrees to deliver to Signal notification
of each sublicense granted by Tanabe and termination thereof, within fifteen
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(15) days after execution or termination, setting forth the name of the
sublicensee and the territory as to which the sublicense is effective.
5.2 License to Signal.
(a) Subject to the terms and conditions of this Agreement,
Tanabe hereby grants to Signal an exclusive (even as to Tanabe), license under
the Tanabe Patents, the Joint Patents and, to the extent required to be provided
pursuant to Section 2.2, the Tanabe Technical Information, to develop, make,
have made, use, sell, have sold and import Products in the Rest of the World.
(b) Subject to the terms and conditions of this Agreement,
including, without limitation, Section 6.3 hereof, Signal shall have the right
to grant licenses or sublicenses to develop, manufacture, market and sell all
Products in the Rest of the World provided that such licensees and sublicensees
agree in writing to be bound by the applicable terms, if any, of this Agreement.
Signal shall be responsible for the operations and activities of its licensees
and sublicensees as if such operations and activities were carried out by
Signal. As to each sublicense of a Tanabe Patent or a Joint Patent, Signal
agrees to deliver to Tanabe notification of each sublicense granted by Signal
and termination thereof, within fifteen (15) days after execution or
termination, setting forth the name of the sublicensee and the territory as to
which the sublicense is effective.
5.3 Improvements. Any modification or improvement to the
Compounds and/or Products (including any Tanabe Technical Information or Signal
Technical Information regarding to such modification) licensed under this
Agreement made before the termination of this Agreement shall be included in the
license(s) granted under this Section 5 without additional charge to the
licensing Party. The Parties agree to promptly disclose any such modifications
or improvements.
5.4 Royalty Payments; Reports. Tanabe shall, (i) for a period
equaling the longer of ten (10) years from the date of the initial sale of each
Product for each indication in the Territory or the expiration of the last
Signal Patent, Joint Patent or Tanabe Patent (including in each case patents
deemed to exist as a result of a Use or Structure Contribution by Tanabe, Signal
or both Parties) which claims the use or sale of such Product in the country of
sales, pay to Signal a royalty in U.S. dollars equal to the percentages
("Royalty Rates") set forth in Exhibit D and (ii) for so long as sales of any
Product gives rise to an obligation by Signal to pay patent royalties to a Third
Party, reimburse Signal for any and all such Third-Party patent royalties
("Third-Party Royalties"), subject to Section 5.4(e) below, due by Signal
pursuant to its license ("Reimbursements"). Thereafter, [***] Tanabe shall
remain liable for all royalties payable by its Affiliates or sublicensees.
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(a) The applicable Royalty Rate shall be determined on the
basis of:
(i) [***]
(ii) [***]
(iii) [***]
(iv) [***]
(v) [***]
(A) if the applicable Research and Development
Committee determines that the greater
therapeutically relevant activity of such Compound
is identified in the Tanabe Other Screen, the
screening of such Compound shall constitute a
Signal Use or Structure Contribution (to the
extent there exists either a Signal or a Tanabe
Contribution Patent which claims the use of such
Compound); provided, however, that the applicable
Royalty Rate in the Territory shall be reduced by
[***], the applicable Royalty Rate in the Rest of
the World shall be increased by [***], the
applicable milestone credit shall be increased by
[***]; and
(B) if the applicable Research and Development
Committee determines that the greater
therapeutically relevant activity of
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such Compound is identified in the Signal Screen,
the screening of such Compound shall constitute a
Signal Use or Structure Contribution (to the
extent there exists either a Signal or a Tanabe
Contribution Patent which claims the use of such
Compound).
(vi) If Signal demonstrates to the satisfaction of
the applicable Research and Development Committee that a Compound is Active in a
Signal Screen when screened by Signal, and Tanabe is unable to demonstrate to
the satisfaction of the applicable Research and Development Committee that such
Compound is Active in a Tanabe Other Screen when screened by Tanabe, then for
purposes of calculating the applicable Royalty Rate in the Territory and the
Rest of the World and the applicable milestone credit, the screening of such
Compound shall constitute a Signal Use or Structure Contribution (to the extent
there exists either a Signal or a Tanabe Contribution Patent which claims the
use of such Compound).
(vii) If Signal is unable to demonstrate to the
satisfaction of the applicable Research and Development Committee that a
Compound is Active in a Signal Screen when screened by Signal, and Tanabe
demonstrates to the satisfaction of the applicable Research and Development
Committee that such Compound is Active in a Signal Screen or a Tanabe Other
Screen when screened by Tanabe, then for purposes of calculating the applicable
Royalty Rate in the Territory and the Rest of the World and the applicable
milestone credit, the screening of such Compound shall constitute a Tanabe Use
or Structure Contribution (to the extent there exists either a Tanabe or a
Signal Contribution Patent which claims the use of such Compound).
(viii) For purposes of Sections 5.4(a)(v), (vi) and
(vii), "Active" means, with respect to any Compound in any Signal Screen or
Tanabe Other Screen, that such Compound exhibits at least [***]
in such Signal Screen or Tanabe Other Screen.
(ix) In the event the applicable claim(s) of a
Structure Patent or a Use Patent falls within the scope of the applicable
claim(s) of another Structure Patent or Use Patent, the Parties shall determine
whether any of the claims of one such patent "dominate" the claims of the other
patent(s) and the applicable Royalty Rate shall be determined on the basis of
which patents are "Dominant Patents." For purposes of this Agreement, a
"Dominant Patent" means, with respect to any Compound, a patent application or
issued patent of which the priority date is the earliest among all patent
applications or patents which claim the composition of matter (in the case of
Structure Patents) or the use (in the case of Use Patents) which would be
infringed, absent the ownership thereof or the licenses granted herein, by the
use or sale of a Product containing such Compound as an active ingredient.
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(x) In the event that a majority of the members
of the applicable Research and Development Committee is unable to agree upon any
determination or decision under Section 5.4(a)(v), (vi) or (vii) above, then the
parties first shall attempt to resolve such disagreement pursuant to Section 2.8
above, and if the parties are unable to so resolve such disagreement, such
disagreement shall be finally resolved by binding arbitration pursuant to
Article 7 below.
In the event the applicable claim(s) of a Structure Patent
or a Use Patent falls within the scope of the applicable claim(s) of another
Structure Patent or Use Patent, the Parties shall determine whether any of the
claims of one such patent "dominate" the claims of the other patent(s) and the
applicable Royalty Rate shall be determined on the basis of which patents are
"Dominant Patents." For purposes of this Agreement, a "Dominant Patent" means,
with respect to any Compound, a patent application or issued patent of which the
priority date is the earliest among all patent applications or patents which
claim the composition of matter (in the case of Structure Patents) or the use
(in the case of Use Patents) which would be infringed, absent the ownership
thereof or the licenses granted herein, by the use or sale of a Product
containing such Compound as an active ingredient.
(b) If the Compound originated from a Tanabe Compound
Library which is a "natural product library", then the applicable Royalty Rate
shall [***] unless annual Net Sales of the Product in the Territory are [***]
in which case the Royalty Rate in any such year shall not be reduced.
(c) A [***] Royalty Rate corresponding to [***] shall
apply as follows:
Annual Net Sales Royalty Rate Tier
[***] [***]
[***] [***]
[***] [***]
For example, if a Product contains a Compound which
originated from a compound in a Tanabe Compound Library, was screened by Signal
in its primary assays resulting in a Signal Use or Structure Contribution (and
is claimed or deemed to be claimed in a Signal Use Patent), and was chemically
modified by Tanabe resulting in a Tanabe Use or Structure Contribution (and is
claimed or deemed to be claimed in a Tanabe Structure Patent), then the Royalty
Rates applicable to sales of the Product in the Territory are 6.5% for annual
Net Sales less than $50,000,000 (Tier 1), 7.5% for annual Net Sales between
$50,000,000 and $100,000,000 (Tier 2) and 8.5% for annual Net Sales above
$100,000,000 (Tier 3). With respect to Signal's sales of the Product in
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the Rest of the World, the applicable Royalty Rate is [***].
(d) Tanabe shall be entitled to credit up to the
percentage set forth on Exhibit D of its aggregate milestone payments made
pursuant to Section 4.3 above against up to [***] of any royalty
payment then due Signal (excluding from such credit any pass-throughs of Third
Party Royalties).
(e) Reimbursements payable by Tanabe with respect to
Third- Party Royalties in the Territory shall not exceed (i) [***]
with respect to each Product derived from a Tanabe Compound Library
or (ii) [***] of Net Sales, with respect to each Product derived from a Signal
Compound Library. Any Third Party Royalties payable with respect to a Joint
Compound Library derived Product shall be paid by the Party responsible for the
sale(s) on which a Third-Party Royalty is payable, including sales by its
Affiliates, licensees and sublicensees (other than the other Party).
(f) Tanabe shall provide a royalty report and, if
applicable, a royalty payment to Signal every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Tanabe and its Affiliates and sublicensees.
(g) Tanabe shall provide Signal with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty (30) days prior to the
start of each calendar year.
(h) Signal shall provide to Tanabe a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party royalties, within two (2) months of receiving the
Tanabe royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Tanabe.
(i) Tanabe shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Signal shall have the right, at Signal's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Signal and reasonably
acceptable to Tanabe, and following reasonable notice, to examine such records
during regular business hours during the life of the Tanabe obligation to pay
royalties on Net Sales of each Product, Delivery Systems Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such
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accountants shall report to Signal only as to the accuracy of the royalty
statements and payments. Copies of such reports shall be supplied to Tanabe. In
the event the report demonstrates that Tanabe has underpaid royalties, Tanabe
shall pay such royalties immediately upon request of Signal. If Tanabe has
overpaid royalties, Tanabe may deduct such overpayments from future royalties
owed to Signal. The fees charged by such accounting firm shall be paid by
Signal; provided, however, if the audit discloses that the royalties payable by
Tanabe for the audited period are more than one hundred ten percent (110%) of
the royalties actually paid for such period, then Tanabe shall pay the
reasonable fees and expenses charged by such accounting firm. Signal shall treat
all financial information subject to review under this Section 5.4(i) as
confidential, and shall cause its accounting firm to retain all such financial
information in confidence.
(j) Any tax paid or required to be withheld by Tanabe for
the benefit of Signal on account of royalties payable to Signal under this
Agreement shall be deductible from the amount of royalties otherwise due. Tanabe
shall secure and send to Signal proof of any such taxes withheld and paid by
Tanabe for the benefit of Signal and shall, at Signal's request, provide
reasonable assistance to Signal in recovering said taxes, if possible.
(k) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.
5.5 Signal and its sublicensees shall, (i) for a period equalling
the longer of ten (10) years from the date of the initial sale of each Product
in the Rest of the World or the expiration of the last Signal Patent, Joint
Patent or Tanabe Patent (including in each case patents deemed to exist as a
result of a Use or Structure Contribution by Tanabe, Signal or both Parties)
which claims the use or sale of such Product in the country of sales, pay to
Tanabe a royalty in U.S. dollars equal to the percentages ("Royalty Rates") set
forth in Exhibit D and (ii) [***], reimburse Tanabe for any and all such
Third-Party patent royalties ("Third-Party Royalties"), subject to Section
5.5(b) below, due by Tanabe pursuant to its license ("Reimbursements").
Thereafter, the [***]. Signal shall remain liable for all royalties payable by
its Affiliates or sublicensees.
(a) The applicable Royalty Rate shall be determined on the
basis set forth in Section 5.4(a) above and on Exhibit D.
(b) Reimbursements payable by Signal with respect to
Third- Party Royalties in the Rest of the World (on patent applications or
patents claiming composition of matter or use licensed by Tanabe from a Third
Party) shall not exceed (i) [***] of Net Sales, with respect to each
Product derived from a Signal Compound Library or (ii) [***], with respect
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to each Product derived from a Tanabe Compound Library. Any Third Party
Royalties payable with respect to a Joint Compound Library derived Product shall
be paid by the Party responsible for the sale(s) on which a Third-Party Royalty
is payable, including sales by its Affiliates, licensees and sublicensees (other
than the other Party).
(c) Signal shall provide a royalty report and, if
applicable, a royalty payment to Tanabe every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Signal and its Affiliates and sublicensees.
(d) Signal shall provide Tanabe with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty days prior to the start
of each calendar year.
(e) Tanabe shall provide to Signal a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party Royalties, within two (2) months of receiving the
Signal royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Signal.
(f) Signal shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Tanabe shall have the right, at Tanabe's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, and following reasonable notice, to examine such records
during regular business hours during the life of the Signal obligation to pay
royalties on Net Sales of each Product, Delivery System Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such accountants shall report to Tanabe only as to the
accuracy of the royalty statements and payments. Copies of such reports shall be
supplied to Signal. In the event the report demonstrates that Signal has
underpaid royalties, Signal shall pay such royalties immediately upon request of
Tanabe. If Signal has overpaid royalties, Signal may deduct such overpayments
from future royalties owed to Tanabe. The fees charged by such accounting firm
shall be paid by Tanabe, provided, however, if the audit discloses that the
royalties payable by Signal for the audited period are more than one hundred ten
percent (110%) of the royalties actually paid for such period, then Signal shall
pay the reasonable fees and expenses charged by such accounting firm. Tanabe
shall treat all financial information subject to review under this Section
5.5(f) as confidential, and shall cause its accounting firm to retain all such
financial information in confidence.
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(g) Any tax paid or required to be withheld by Signal for
the benefit of Tanabe on account of royalties payable to Tanabe under this
Agreement shall be deductible from the amount of royalties otherwise due. Signal
shall secure and send to Tanabe proof of any such taxes withheld and paid by
Signal for the benefit of Tanabe and shall, at Tanabe's request, provide
reasonable assistance to Tanabe in recovering said taxes, if possible.
(h) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.
6. GLOBAL RELATIONSHIP.
6.1 Overall Relationship. Signal intends to enter into one or
more relationships with a Western Pharmaceutical Partner(s) to develop
therapeutic products for the prevention or treatment of Inflammation and
Osteoporosis and the Parties agree that the Collaborative Project may benefit
from the joint efforts of Signal, Tanabe and such Western Pharmaceutical
Partner(s). To this end, the Parties agree that in the event that Signal enters
into a collaborative agreement with a Western Pharmaceutical Partner and the
Western Pharmaceutical Partner and Tanabe have each chosen to develop a
therapeutic product for the prevention or treatment of Inflammation and/or
Osteoporosis containing the same Compound in development and having
substantially the same identity for marketing, sales or regulatory purposes (a
"Mutual Product"), the Parties shall consider in good faith whether it is in
their mutual best interest to enter into a global collaboration with such
Western Pharmaceutical Partner.
6.2 Global Development Plan; Coordination. If the Parties and the
Western Pharmaceutical Partner mutually agree in writing to enter into such a
global collaboration, such a global collaboration would be on mutually
acceptable financial and other terms and conditions and evidenced by a separate
mutually acceptable definitive written agreement duly approved, executed and
delivered by Tanabe, Signal and the Western Pharmaceutical Partner. Subject to
the mutual agreement of Tanabe, Signal and the Western Pharmaceutical Partner,
such global collaboration may (i) establish a worldwide development plan for
such Mutual Product with respect to each indication, the pre-clinical and
clinical studies of such Mutual Product, to coordinate their respective
development efforts and to create and maintain a single worldwide safety
database and shall share the results of the clinical trials in order to
facilitate such development, including, when feasible, elimination of duplicate
development efforts; (ii) establish a collaborative committee to coordinate and
communicate the research, development and commercialization efforts under the
collaboration; and (iii) provide that each of Tanabe, Signal and the Western
Pharmaceutical Partner would have certain license or other rights to access
certain technical information (including without limitation Compound Information
and Product Information) of the others, on mutually acceptable license terms and
conditions, for the purpose of developing and commercializing the Mutual
Product. It is understood and agreed that Signal will use its commercially
reasonable
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efforts to negotiate a provision similar to that contained in Section 6.3 below,
in its definitive agreement with its Western Pharmaceutical Partner allowing
disclosure to Tanabe of pre-clinical and clinical data generated by such Western
Pharmaceutical Partner based on any Compound designated by Tanabe which is also
chosen for development by the Western Pharmaceutical Partner.
6.3 Transfer of Information; License Obligations. Once Signal has
identified the Western Pharmaceutical Partner to Tanabe and each of Tanabe and
the Western Pharmaceutical Partner has agreed to accept reciprocity on exchanges
of Technical Information, then during the term of this Agreement, Signal, Tanabe
and the Western Pharmaceutical Partner shall make available, without charge, to
each other the applicable Signal, Tanabe or Western Pharmaceutical Partner such
Compound Information and Product Information, respectively as the three parties
mutually agree, for any Compound which is simultaneously under development by
Tanabe and by such Western Pharmaceutical Partner in whatever form is best
suited to fully deliver such information. Notwithstanding the foregoing, Tanabe,
Signal and the Western Pharmaceutical Partner shall at all times make available
to each other any information required to be disclosed by Section 9.1.
7. ARBITRATION. All disputes arising in any way out of or related to
this Agreement, including, without limitation, its existence, validity, scope,
application, termination or breach of this Agreement and the ownership of any
inventions, the obligations of the Parties or these arbitration provisions shall
be referred to and finally resolved by arbitration at the request of either
Party in accordance with the provisions of the Commercial Rules of Arbitration
of the American Arbitration Association in force at such time, which rules are
deemed to be incorporated by reference into this Agreement.
7.1 Arbitration Tribunal. Unless otherwise agreed to by the
parties, the arbitration tribunal shall consist of three (3) arbitrators,
including two (2) members and a chairman. Tanabe and Signal shall each appoint
one member. The chairman shall be appointed according to the American
Arbitration Association Commercial Arbitration Rules.
7.2 Situs of Arbitration. The arbitration shall be held in Osaka,
Japan.
8. CONFIDENTIALITY, DISCLOSURE AND PUBLICATION.
8.1 Prior Agreement. This Agreement supersedes but does not
invalidate or cancel any and all previous agreements and understandings, whether
oral or written, between the Parties regarding the treatment of confidential
information.
8.2 Confidentiality. During the term of this Agreement and for
ten (10) years thereafter, each Party shall maintain in confidence all
information and materials disclosed by the other Party and marked as
confidential or which such Party knows or
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has reason to know are or contain trade secrets or other proprietary information
of the other, including, without limitation, information relating to the
Technical Information of the other Party, Joint Inventions and inventions of the
other Party, and the business plans of the other Party, including information
provided by either Party to the other Party prior to the Effective Date
(collectively, the "Confidential Information and Materials"), and shall not use
the Confidential Information and Materials of the other Party for any purpose
except as permitted by this Agreement or disclose the same to anyone other than
those of its Affiliates, sublicensees, employees, consultants, agents or
subcontractors as are necessary in connection with such Party's activities as
contemplated in this Agreement. Each Party shall obtain binding agreement from
any such employee, and binding written agreement from each such Affiliate,
sublicensee, consultant, agent and subcontractor, prior to disclosure, to hold
in confidence and not make use of the Confidential Information and Materials of
the other Party for any purpose other than those permitted by this Agreement.
8.3 Exceptions.
(a) The obligation of confidentiality contained in this
Agreement shall not apply to the extent that: (i) either Party (the "Recipient")
is required to disclose Confidential Information or Materials of the other Party
by order or regulation of a governmental agency or a court of competent
jurisdiction, provided that the Recipient shall not make any such disclosure
(other than a filing of information or materials with the U.S. Securities and
Exchange Commission, a similar filing of information or materials with the
National Association of Securities Dealers or state securities regulators or a
filing of information or materials pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder,
as amended or an equivalent filing with a foreign applicable authority) without
first notifying the other Party and allowing the other Party a reasonable
opportunity to seek injunctive relief from (or protective order with respect to)
the obligation to make such disclosure; or (ii) the Recipient can demonstrate
that (A) the disclosed information was at the time of such disclosure to the
Recipient already in (or thereafter enters) the public domain other than as a
result of actions of the Recipient, its Affiliates, employees, sublicensees,
agents or subcontractors in violation hereof; (B) the disclosed information was
rightfully known by the Recipient or its Affiliates (as shown by its written
records) prior to the date of disclosure to the Recipient in connection with the
negotiation, execution or performance of this Agreement; or (C) the disclosed
information was received by the Recipient or its Affiliates on an unrestricted
basis from a source unrelated to any Party to this Agreement and not under a
duty of confidentiality to the other Party; or (D) the disclosed information was
independently developed by the Recipient or its Affiliates (as shown by written
records) by persons without access to or use of the Confidential Information and
Materials of the other Party; or (iii) disclosure is required to be made to a
government regulatory agency as part of such agency's product license approval
process.
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(b) In the event (i) that each of Tanabe and the Western
Pharmaceutical Partner have agreed in writing to accept reciprocity on exchanges
of Technical Information and (ii) that Signal's Western Pharmaceutical Partner
chooses to develop a Product for the prevention or treatment of Inflammation
and/or Osteoporosis based on a Compound and (iii) provided the Western
Pharmaceutical Partner agrees to be bound by the terms specified in Section 6 of
this Agreement, Signal shall have the right to disclose to the Western
Pharmaceutical Partner any applicable Compound Information and Product
Information with respect to such Compound provided to Signal by Tanabe. As a
condition to such disclosure, Signal will require its Western Pharmaceutical
Partner to enter into confidentiality provisions equivalent to those set forth
in this Section 8.
8.4 Publications. Prior to any public disclosure or submission
for publication by or on behalf of the Parties of a manuscript or other document
describing the results of any aspect of the Collaborative Project or other
scientific or clinical activity or collaboration between Tanabe and Signal or
their Affiliates, the Party disclosing or submitting such a manuscript
("Disclosing Party") shall first send a copy of the manuscript to the applicable
Joint Inflammation Committee or the Joint Osteoporosis Committee for their
review for a period of 15 days. If such Research and Development Committee
approves such publication, the Disclosing Party shall then send the other Party
("Responding Party") a copy of the manuscript to be submitted and shall allow
the Responding Party not less than thirty (30) days from the date of receipt in
which to determine whether the manuscript contains subject matter for which
patent protection should be sought prior to publication of such manuscript for
the purpose of protecting an invention of commercial value to the Responding
Party, or whether the manuscript contains confidential information belonging to
the Responding Party or whether such disclosure implicates issues regarding
compliance with applicable securities laws. After the expiration of such thirty
(30) day period, if the Responding Party has not objected in writing, the
Disclosing Party may submit such manuscript for publication and publish or
otherwise disclose to the public such research results. If the Responding Party
believes the subject matter of the manuscript contains confidential information
or a patentable invention of commercial value to the Responding Party, then
prior to the expiration of such thirty (30) day period, the Responding Party
shall notify the Disclosing Party in writing of its determination. Upon receipt
of such written notice from the Responding Party, the Disclosing Party shall
delay public disclosure of such information or submission of the manuscript to
permit preparation and filing of a patent application on the disclosed subject
matter. The Disclosing Party shall thereafter be free to publish or disclose
such manuscript, except that the Disclosing Party may not disclose any
confidential information of the Responding Party in violation of this Section 8
without the prior written consent of the Responding Party and that no
publication of a patentable invention shall be made until a patent application
covering such invention has been filed. Determination of authorship for any
manuscript shall be in accordance with accepted scientific practice. Should any
questions on authorship arise, this will be
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determined by good faith consultation between the members of the appropriate
Research and Development Committee.
9. INDEMNIFICATION. Each Party shall defend, indemnify and hold the
other Party, any Affiliate of the other Party, any officer, director or employee
of such other Party or of any of its Affiliates (individually, an "Exculpated
Party") harmless from and against any damage, loss, liability or expense
(including, without limitation, reasonable attorneys' fees, settlement costs,
litigation costs and costs on appeal regardless of outcome) incurred or suffered
by any Exculpated Party arising out of any claim, demand, action or other
proceeding by any person or entity (other than an Affiliate of the Exculpated
Party) arising out of: (a) the material breach of any covenant or agreement by
such Party; (b) any material misrepresentation or breach of warranty made by
such Party pursuant to this Agreement; (c) any claim arising from the gross
negligence or intentional misconduct of any of such Party's by or on behalf of
such Party or its Affiliates, licensees, sublicensees, employees, consultants,
agents or subcontractors (other than the other Party or its Affiliates) pursuant
to its rights under this Agreement; (d) any claim of any kind whatsoever arising
from the testing, manufacture, use, sale, consumption, distribution or
advertising of any of the Compounds or Products by or on behalf of such Party or
its Affiliates, licensees, sublicensees, employees, consultants, agents or
subcontractors (other than the other Party or its Affiliates) pursuant to its
rights under this Agreement; or (e) the operations or activities of such a
Party's Affiliates, licensees or sublicensees in material contravention of the
requirements of this Agreement (and such Party shall terminate immediately any
such sublicense where a breach of its obligations by a sublicensee cannot be
readily compensated through monetary damages).
9.1 Each Party shall notify the other immediately of any
information concerning any material adverse side effect, injury, toxicity or
sensitivity reaction, whether or not serious or unexpected (collectively, any
"adverse event"), or any unexpected incidence, and the severity thereof,
associated with the clinical uses, studies, investigations, tests and marketing
of any Product, whether or not determined to be attributable to such Product.
Without limiting the generality of the foregoing, each Party shall notify the
other Party of any event or incidence regarding any Product, which it is
required to notify or report to any governmental authority of the country in
which it sells such Product, prior to the date when it is required to give such
notice or to make such report. Each Party further shall immediately notify the
other of any information received regarding any threatened or pending action by
a governmental agency or any other third party arising out of or relating to an
alleged adverse effect or unexpected incidence regarding any Product. Upon
receipt of any such information, the Parties shall consult with each other in an
effort to arrive at a mutually acceptable procedure for taking appropriate
action; provided, however, that nothing contained herein shall be construed as
restricting either Party's right to make a timely report of such matter to any
government agency or take other action that it deems to be appropriate or
required by applicable law or regulation, including the right of a Party to
recall or withdraw such
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Product from marketing and selling. Signal shall cause any Western
Pharmaceutical Partner to agree in writing to be bound by the provisions of this
Section 9.1. The obligations in this Section 9.1 pertaining to Products shall
survive the expiration or termination of this Agreement.
9.2 Either Party (the "Notifying Party") shall promptly notify
the other Party (the "Indemnifying Party") of the existence of any third party
claim, demand or other action giving rise to a claim for indemnification under
this Agreement (a "Third Party Claim") and shall give the Indemnifying Party a
reasonable opportunity to defend the same at its own expense and with its own
counsel, provided that the Notifying Party shall at all times have the right to
participate in such defense at its own expense. If, within a reasonable time
after receipt of notice of a Third Party Claim, the Indemnifying Party shall
fail to undertake to so defend, the Notifying Party shall have the right, but
not the obligation, to defend and to compromise or settle (exercising reasonable
business judgment) the Third Party Claim for the account and at the risk and
expense of the Indemnifying Party. The indemnity obligations under this Article
9 shall not apply to amounts paid in settlement of any claim, demand, action or
other proceeding if such settlement is effected without the consent of the
Indemnifying Party, which consent shall not be withheld unreasonably. The
Indemnifying Party may not settle the action or otherwise consent to an adverse
judgment in such action that diminishes the rights or interests of the
Exculpated Party without the express written consent of the Exculpated Party.
Each Party shall make available to the other at the other's expense such
information and assistance as the other shall reasonably request in connection
with the defense of a Third Party Claim.
9.3 Notwithstanding anything to the contrary in this Agreement,
except as set forth in the first paragraph of this Article 9, neither Party
shall be liable to the other Party for any special, consequential or incidental
damages arising out of or related to this Agreement.
10. INDEPENDENT CONTRACTORS. Both Parties shall act solely as
independent contractors and nothing in this Agreement shall be construed to give
either Party the power or authority to act for, bind or commit the other Party.
Each Party shall indemnify the other and hold it harmless against any claim
based on a representation of authority in excess of that provided herein,
subject to the provisions of Section 9.2.
11. NO SOLICITATION OF EMPLOYEES. During the Research Period and for
[***] thereafter, neither Party shall solicit the other's employees (or
advisors and collaborators who are individuals and are identified in writing at
the time of execution of this Agreement) without the prior written approval of
the other Party. This provision will not preclude any Party from hiring any such
employees, advisors and collaborators if they independently apply for a job
without solicitation or pursuant to a general solicitation not specifically
directed at such employee, advisor or collaborator.
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12. TERM. This Agreement shall become effective as of the Effective Date
first written above and, unless sooner terminated pursuant to the provisions of
Section 13 below, shall remain in full force and effect for so long as Tanabe or
Signal shall be obligated to make royalty or Reimbursement payments to the other
Party pursuant to Section 5.4 or 5.5. Upon a termination of this Agreement
pursuant to this Article 12, (a) Tanabe shall have a non-exclusive, royalty-free
license to continue to make, have made, use, and sell Products in the Territory,
and (b) Signal shall have a non-exclusive, royalty-free license to continue to
make, have made, use, and sell Products in the Rest of the World.
13. TERMINATION OF AGREEMENT.
13.1 Termination by Mutual Agreement. This Agreement may be
terminated in its entirety by mutual written agreement of both Parties.
13.2 Breach of Material Term. This Agreement may be terminated at
the option of either Party upon written notice to the other, if such other Party
is in material breach or default with respect to any material term or provision
hereof (other than any breach or default described in Section 2.3(f) hereof,
which breach or default shall be subject to the provisions of Section 2.3) and
fails to cure the same within sixty (60) days (one-hundred and twenty (120) days
if a cure would be impossible in sixty (60) days but can be accomplished within
the 120 day period) after written notice of said breach or default. Such
termination rights shall be in addition to and not in substitution of any other
remedies that may be available to the Party serving such notice against the
Party in default. Termination pursuant to this Section 13.2 shall not relieve
the Party in default from liability and damages to the other Party for breach of
this Agreement.
13.3 Termination Upon Bankruptcy. This Agreement may be
terminated at the option of either Party upon written notice to the other, if
such other Party is adjudged bankrupt, files or has filed against it any
petition under any bankruptcy, insolvency or similar law, which petition is not
dismissed within sixty (60) days, has a receiver appointed for its business or
property or makes a general assignment for the benefit of its creditors.
13.4 Infringement of Third Party Patents. If, as a result of any
claim, proceeding or litigation by any Third Party against Signal regarding
Signal's proprietary whole-cell and enzyme assays occurring during the term of
this Agreement, Signal or Tanabe is barred from carrying out its future material
obligations herein, Tanabe has a right to terminate the Collaborative Project.
13.5 Termination of the Collaborative Project by Tanabe. Except
as set forth in this Section 13.5, the Collaborative Project with respect to
Inflammation or Osteoporosis or both, may be terminated prior to its four (4)
year period at Tanabe's option upon six (6) months' advance written notice to
Signal. Tanabe may not deliver
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such notice of termination to Signal prior to the completion of two (2) years
from the Effective Date. Tanabe further may not deliver such notice of
termination with respect to the Inflammation program if either (i) Signal has
delivered to Tanabe at least two (2) Potential Compounds, which are first
identified after screening in a Signal proprietary assay, which have been
designated as Chemical Lead Compounds for any one or more Inflammation Pathways,
or (ii) Signal has delivered to Tanabe at least one (1) Potential Compound,
which is first identified after screening in a Signal proprietary assay, which
has been designated as a Clinical Candidate for any one or more Inflammation
Pathways. Tanabe further may not deliver such notice of termination with respect
to the Osteoporosis program if either (i) Signal has delivered to Tanabe at
least two (2) Potential Compounds, which are first identified after screening in
a Signal primary or high throughput assay, which have been designated as
Chemical Lead Compounds for any one or more Osteoporosis Pathways, or (ii)
Signal has delivered to Tanabe at least one (1) Potential Compound, which is
first identified after screening in a Signal proprietary assay, which has been
designated as a Clinical Candidate for any one or more Osteoporosis Pathways.
Additionally, such termination shall not be effective during any period where
Tanabe has failed to meet its obligations pursuant to Section 2.4.
13.6 Effect of Termination; Survival. Termination of this
Agreement for any cause shall not release a Party from any liability, which at
the time of termination has already accrued to another Party, or which
thereafter may accrue in respect of any act or omission prior to such
termination. The obligations and rights established in Sections 4 and 5 (with
respect to Compounds subject to a license to Tanabe) shall survive the
termination of this Agreement by Tanabe pursuant to Section 13.2 or 13.3. The
obligations and rights established in Sections 4 and 5 (with respect to
Compounds subject to a license to Signal) shall survive the termination of this
Agreement by Signal pursuant to Section 13.2 or 13.3. The obligations and rights
established in Sections 7, 8, 9, 11, 15 and 19 shall survive the termination of
this Agreement for any reason.
14. PUBLIC ANNOUNCEMENT OF AGREEMENT. Except as required to comply with
federal and state securities laws or equivalent Japanese laws or any order of a
court or government agency, and except as provided below, neither Party shall
release information concerning this Agreement or the subject matter hereof to
the public, news media, or other media, without first sending the other Party by
express mail or facsimile, a copy of the information to be disclosed and
allowing the other Party a reasonable time (as soon as reasonably possible but
in no event greater than four (4) business days from the date of receipt) in
which to comment on the information. If the other Party objects to the
information to be disclosed and prior to the expiration of the four (4) business
day period, the other Party shall so notify the disclosing Party who shall then
delay public disclosure of the information and make reasonable efforts to
accommodate any request for revisions by the other Party. If no notification is
received during the four (4) business day period, the Party proposing disclosure
shall be free to disclose the information. The Parties designate the following
individuals to receive and approve announcements under this provision: Signal,
its Executive Vice President; Tanabe, its
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President. The Parties agree that Signal may discuss the general terms of the
Agreement with potential Western Pharmaceutical Partners and other potential
investors in Signal without disclosing any Confidential Information of Tanabe or
Tanabe Technical Information without Tanabe's prior written consent; and that
the parties will cooperate in good faith with one another to formulate a form of
announcement that Signal and Tanabe may release as soon as practicable after the
Effective Date.
15. INVENTIONS AND PATENT MATTERS. The ownership rights and other
matters regarding discoveries and inventions (whether or not patentable) first
conceived or reduced to practice under the Collaborative Project pursuant to
this Agreement (together with all patents and other intellectual property rights
thereto) shall be as follows:
15.1 Signal Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Signal or its
Affiliates ("Signal Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Signal, subject to the
licenses granted herein.
15.2 Tanabe Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Tanabe or its
Affiliates ("Tanabe Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Tanabe, subject to the
licenses granted herein.
15.3 Joint Inventions and Patent Rights. All inventions or other
discoveries first made, conceived or reduced to practice by one or more
employees or agents from each party ("Joint Inventions"), together with all
patents and other intellectual property rights thereto, shall be owned by each
party with the other party as equal, undivided property, subject to the licenses
granted herein. Each party shall promptly disclose to the other party and
applicable Research and Development Committee the conception or reduction to
practice of Joint Inventions. Signal shall control the filing, prosecution,
issuance and maintenance of Joint Patents in the Rest of the World. Tanabe shall
control the filing, prosecution, issuance and maintenance of Joint Patents in
the Territory. Each Party shall retain patent counsel reasonably acceptable to
the other Party to assist in the filing, prosecution, issuance and maintenance
of Joint Patents. Each Party shall cause to be provided to the other Party the
text of such patent applications before filing them and consider in good faith
and incorporate the other Party's reasonable requests related thereto. In all
other matters related to the filing, prosecution, issuance and maintenance of
Joint Patents, each Party shall provide to the other Party copies of any
official action or submission and shall confer with the other Party giving due
consideration to the other Party's reasonable requests.
41.
<PAGE> 44
15.4 General Provisions Relating to Prosecution and Maintenance.
(a) Signal shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Signal Invention, and shall pay all costs incurred in
connection therewith. Signal shall use its good faith efforts to provide Tanabe
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Territory before
filing such application in the Territory and shall supply Tanabe with a copy of
such patent application as filed, together with notice of its filing date and
serial number and shall keep Tanabe generally informed regarding the status
thereof. Tanabe shall cooperate with Signal, execute all lawful papers and
instruments and make all rightful oaths and declarations as may be necessary in
the preparation, prosecution and maintenance of all such patent applications
which constitute a Structure Patent or a Use Patent in the Territory. Any
information provided to Tanabe under this Section 15.4(a) shall be deemed
Confidential Information and Materials of Signal. If Signal decides to abandon
or not to maintain a Signal Patent in the Territory, Signal shall first offer to
assign to Tanabe such Signal Patent without charge or obligation at least ninety
(90) days prior to the expiration of any time limit for response or payment due
date.
(b) Tanabe shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Tanabe Invention, and shall pay all costs incurred in
connection therewith. Tanabe shall use its good faith efforts to provide Signal
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Rest of the World
before filing such application in the Rest of the World and shall supply Signal
with a copy of such patent application as filed, together with notice of its
filing date and serial number and shall keep Signal generally informed regarding
the status thereof. Signal shall cooperate with Tanabe, execute all lawful
papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all such patent
applications which constitute a Structure Patent or a Use Patent in the Rest of
the World. Any information provided to Signal under this Section 15.4(b) shall
be deemed Confidential Information and Materials of Tanabe. If Tanabe decides to
abandon or not to maintain a Tanabe Patent in the Rest of the World, Tanabe
shall first offer to assign to Signal such Tanabe Patent without charge or
obligation at least ninety (90) days prior to the expiration of any time limit
for response or payment due date.
(c) For any and all Joint Inventions, the parties shall
exert reasonable efforts in cooperation with each other, through the Research
and Development Committee or otherwise, to investigate, evaluate, and determine
to the mutual satisfaction of both parties the manner of obtaining and
protecting their respective intellectual property rights in such Joint
Inventions, including whether any patent applications are to be filed, by whom,
and where. Patent applications for Joint
42.
<PAGE> 45
Inventions shall be filed initially in the United States or in Japan, unless the
appropriate Research and Development Committee determines for a compelling
business reason that the application should first be filed in another
jurisdiction. Each party shall cooperate and assist the other party in
connection with its filing, prosecution, issuance and maintenance of Joint
Patents. Each party shall keep the other party informed at regular intervals, or
upon request, of the status of all patent applications and patents with respect
to Joint Patents for which it has responsibility. Where appropriate, each party
shall sign or cause to have signed all documents relating to the patent
applications or patents for the Joint Patents and shall cause such patent
applications and patents to be assigned to Signal and Tanabe jointly. In the
event that Signal or Tanabe elect not to file, prosecute, issue or maintain a
Joint Patent, they shall each promptly provide adequate notice to the other
Party and allow the other Party, at its expense, the opportunity to proceed with
a Joint Patent. During the prosecution of patent applications filed on such
Joint Inventions, the party receiving copies of correspondence from the
respective patent office shall keep the other party timely informed of such
communications, thereby providing the other party with a reasonable opportunity
for comment. Such communication is intended to promote coordination and
consistency in the prosecution of patent applications for Joint Inventions
throughout the world.
15.5 Payments; Disputes. With respect to Joint Patent application
filings, each Party shall bear all costs and expenses for fees or other payments
required to submit and maintain joint applications and patents in their
respective territories. In the event there is a dispute as to whether a
particular invention constitutes a Joint Invention or should be the subject of a
Signal Patent or Tanabe Patent, the issue shall be resolved by the appropriate
Research and Development Committee.
15.6 Infringement of Signal Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Territory of any or all of the Signal
Patents, Tanabe Patents or Joint Patents to which the Party having the knowledge
thereof claims an interest pursuant to the Agreement, the Party having the
knowledge thereof shall forthwith give notice thereof to the other Party. Upon
notice of any such infringement, the Parties shall promptly consult with one
another with a view toward reaching agreement on a course of action to be
pursued.
(a) Signal shall take all reasonable steps to defend
Signal Patents against infringement and Tanabe shall in such event give all
reasonable assistance to Signal with respect to patent and legal questions
against reimbursement by Signal to Tanabe of all out-of-pocket costs occasioned
thereby and in case any monetary recovery is obtained, such recovery shall
belong to Signal. In addition, Tanabe shall have the right to join any suit by
Signal covering the enforcement of a Signal Patent in the Territory.
43.
<PAGE> 46
(b) Except as provided in Section 15.6(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.
(c) If Signal declines to bring suit to enforce a Signal
Patent, Tanabe may, subject to the written consent of Signal which shall not be
unreasonably withheld, file an infringement action in the Territory in its name
or on behalf of Signal where necessary, at its own expense. In such case, Tanabe
shall be the sole recipient of the proceeds of any recovery, provided that
Tanabe shall indemnify Signal against any expenses or liability incurred by
Signal relating to such proceedings, excluding however any expenses or
liabilities relating to the defense by Signal of any counterclaim or cross-claim
that may be brought against Signal.
(d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.
15.7 Infringement of Tanabe Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Rest of the World of any or all of the
Signal Patents, Tanabe Patents or Joint Patents to which the Party having the
knowledge thereof claims an interest pursuant to the Agreement, the Party having
the knowledge thereof shall forthwith give notice thereof to the other Party.
Upon notice of any such infringement, the Parties shall promptly consult with
one another with a view toward reaching agreement on a course of action to be
pursued.
(a) Tanabe shall take all reasonable steps to defend
Tanabe Patents against infringement and Signal shall in such event give all
reasonable assistance to Tanabe with respect to patent and legal questions
against reimbursement by Tanabe to Signal of all out-of-pocket costs occasioned
thereby and in case any monetary recovery
44.
<PAGE> 47
is obtained, such recovery shall belong to Tanabe. In addition, Signal shall
have the right to join any suit by Tanabe covering the enforcement of a Tanabe
Patent in the Rest of the World.
(b) Except as provided in Section 15.7(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.
(c) If Tanabe declines to bring suit to enforce a Signal
Patent, Signal may, subject to the written consent of Tanabe which shall not be
unreasonably withheld, file an infringement action in the Rest of the World in
its name or on behalf of Tanabe where necessary, at its own expense. In such
case, Signal shall be the sole recipient of the proceeds of any recovery,
provided that Signal shall indemnify Tanabe against any expenses or liability
incurred by Tanabe relating to such proceedings, excluding however any expenses
or liabilities relating to the defense by Tanabe of any counterclaim or
cross-claim that may be brought against Tanabe.
(d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.
15.8 Alleged Infringement of Patents. In the event of dispute
concerning a third party's patent rights in the Territory, Signal and Tanabe
will proceed as follows:
(a) While a dispute concerning an alleged infringement of
a third party's patent rights is in progress, the Party which had a claim
brought against it by a third party (the "Defendant Party") will use its
commercially reasonable best efforts to defend against the infringement claim
and resolve the dispute; and the Defendant Party will pay all of its attorneys'
fees and expenses associated with the resolution of this dispute. Additionally,
the other Party will assist and use its commercially reasonable best
45.
<PAGE> 48
efforts to help the Defendant Party resolve the dispute on favorable terms, with
the other Party to bear its own expenses.
(b) In the event the dispute is resolved against Signal
and Tanabe, with a finding of an infringement, then each Party shall bear its
own costs and expenses; provided the Party who made, manufactured or sold the
Product in the area where the infringement was deemed to have occurred, shall
bear the entire responsibility for all damages to the third party and shall
indemnify and hold harmless the other Party for the payment of such damages.
16. RESEARCH EXPENSES. Except as otherwise expressly provided by this
Agreement, each Party shall bear its own internal research, development and
regulatory costs.
17. REPRESENTATIONS AND WARRANTIES. Signal and Tanabe each represent and
warrant to the other as set forth below:
17.1 Representations and Warranties of Signal. Signal represents
and warrants that:
(a) The execution, delivery and performance of this
Agreement by Signal will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Signal is a party
or by which it is bound, or to Signal's knowledge, any statute, rule or
governmental regulation applicable to Signal.
(b) Signal has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Signal hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the research and development of Compounds and
Products as contemplated by this Agreement. All corporate action on the part of
Signal, its officers and directors necessary for the grants of licenses pursuant
hereto and the performance of Signal's obligations hereunder has been taken.
This Agreement constitutes a valid and binding obligation of Signal, enforceable
in accordance with its terms, except as: (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar law as affecting
the enforcement of creditors' rights generally; (ii) the availability of
equitable remedies (e.g., specific performance, injunctive relief and other
equitable remedies) may be limited by equitable principles or general
applicability; (iii) to the extent the indemnification provisions contained in
this Agreement may be limited by applicable federal or state securities law; and
(iv) that no representation is made regarding the effect of laws relating to
competition, antitrust or misuse or the effect of Tanabe's or third parties'
intellectual property rights.
46.
<PAGE> 49
(c) All employees of Signal who are expected to
participate in the Collaborative Project have signed agreements regarding
proprietary information and inventions with Signal in a form reasonably
considered by Signal and its counsel to assure Signal's title to any Joint
Inventions, Signal Technical Information or Signal Patents that may arise or be
developed by such employees hereunder. Such agreements are legal, valid and
binding obligations of Signal and its employees and are enforceable in
accordance with their terms, except as limited by applicable bankruptcy laws and
other similar laws affecting the creditors' rights and remedies generally and
except insofar as the availability of equitable remedies may be limited.
17.2 Representations and Warranties of Tanabe. Tanabe represents
and warrants that:
(a) The execution, delivery and performance of this
Agreement by Tanabe will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Tanabe is a party
or by which Tanabe is bound, or to Tanabe's knowledge, any statute, rule or
governmental regulation applicable to Tanabe.
(b) Tanabe has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Tanabe hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the development and the marketing/sales of the
Products as contemplated by this Agreement. All corporate action on the part of
Tanabe and its officers and directors necessary for the grants of licenses
pursuant hereto and the performance of Tanabe's obligations hereunder has been
taken. This Agreement constitutes a valid and binding obligation of Tanabe,
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar law
as affecting the enforcement of creditors' rights generally, (ii) the
availability of equitable remedies (e.g., specific performance, injunctive
relief, and other equitable remedies) may be limited by equitable principles or
general applicability, (iii) to the extent the indemnification provisions
contained in this Agreement may be limited by applicable law and (iv) and that
no representation is made regarding the effect of laws relating to competition,
antitrust or misuse or the effect of Signal's or third parties' intellectual
rights.
(c) All employees of Tanabe who are expected to
participate in the Collaborative Project have agreements regarding proprietary
information and inventions with Tanabe in a form reasonably considered by Tanabe
and its counsel to assure Tanabe's title to any Joint Inventions or Tanabe
Technical Information that may arise or be developed by such employees
hereunder. Such agreements are legal, valid and binding obligations of Tanabe
and its employees and are enforceable in accordance with their terms, except as
limited by applicable bankruptcy laws and other similar laws
47.
<PAGE> 50
affecting the creditors' rights and remedies generally and except insofar as the
availability of equitable remedies may be limited.
17.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
SIGNAL AND TANABE MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
18. OPTION TO EXPAND TERRITORY. If Signal's Western Pharmaceutical
Partner or its Affiliates do not have operations in Australia or New Zealand and
if the Western Pharmaceutical Partner does not require rights in Australia or
New Zealand in order for Signal to complete a research collaboration with such
Western Pharmaceutical Partner in Signal's judgment, Signal will grant to Tanabe
the exclusive option set forth below to acquire exclusive rights to
commercialize Compounds or Products in Australia, New Zealand and other Oceania
countries (the "Marketing Option") on terms and conditions to be negotiated.
Prior to entering into any agreement with a third party to grant exclusive
rights to commercialize a Compound or a Product in Australia, New Zealand and
other Oceania countries, Signal shall notify Tanabe in writing of the terms of
any such proposed agreements. Such notice shall be deemed an offer to Tanabe to
enter into agreements on the proposed terms and conditions. Tanabe shall have
thirty (30) days to accept the offer contained in such notice. Upon acceptance
by Tanabe, the parties will negotiate in good faith to draft and execute
definitive agreements within two (2) months of acceptance. Signal and Tanabe
shall negotiate in good faith with respect to the option described in this
Section 18. In the event that Signal and Tanabe are not able to negotiate an
agreement on mutually agreeable terms within two (2) months of the beginning of
negotiations with respect to the Marketing Option, Signal hereby agrees that if
Signal intends to accept any offer from a third party which is not more
favorable to it than Tanabe's last offer, Signal shall promptly notify Tanabe
and Tanabe shall have the right to enter into an agreement with Signal on the
terms and conditions of such third party offer. This right of first refusal
shall survive termination of negotiations pursuant to this Section 18 for a
period of nine (9) months.
19. MISCELLANEOUS.
19.1 Successors and Assigns. This Agreement shall be binding on
the Parties hereto and their respective successors and assigns. Neither of the
Parties hereto shall be entitled to assign this Agreement or any of its rights
or obligations hereunder, including an assignment to one of its Affiliates,
without the consent of the other. If either Party is acquired or merged with
another entity, that entity shall succeed to all of the rights and obligations
of the disappearing Party; provided in the event either Party is acquired or
merged with another entity, such acquiring or successor entity shall expressly
assume in writing the due and punctual performance and observance of all
obligations under this Agreement of the Party it has acquired or with which it
has merged, with the
48.
<PAGE> 51
same effect as if such entity had originally been such Party hereunder; and
further provided if such acquiring or successor entity does not so assume the
obligations of the Party it has acquired or with which it has merged, the other
Party may terminate this Agreement pursuant to Section 13 hereof.
Notwithstanding the foregoing, nothing contained in this Section 19.1 shall be
construed as preventing either Party from sublicensing its rights to any
Products granted hereunder.
19.2 Further Assurances. Signal and Tanabe shall cooperate with
each other and execute and deliver to each other such other instruments and
documents and take such other actions as may be reasonably requested from time
to time in order to carry out, evidence and confirm the rights and intended
purposes of this Agreement.
19.3 English Language. This Agreement is entered into in the
English language. All meetings and correspondence between the Parties are to be
in English. In the event of any dispute concerning the construction or meaning
of this Agreement, reference shall be made only to this Agreement as written in
English and not to any translation into any other language.
19.4 Governing Law. Disputes arising out of or based upon this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, United States of America, as applied to agreements among
California residents entered into and to be performed entirely within
California.
19.5 Notices. Notices, demands or other communications required
or permitted to be given or made hereunder shall be in writing and delivered
personally or sent by private overnight mail delivery, with recorded delivery or
by legible telefax or by any other lawful means addressed to the intended
recipient at its address set forth below in this Section or to such other
address or telefax number as any Party may from time to time duly notify to the
other. Any such notice, demand or communication shall, unless contrary as
proved, be effective upon receipt. Correspondence to Signal shall be addressed
to:
Carl F. Bobkoski
Executive Vice President
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Telefax number: (619) 558-7513
49.
<PAGE> 52
with a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: J. Stephan Dolezalek
Telefax number: (415) 496-2736
Correspondence to Tanabe shall be addressed to:
Tanabe Seiyaku Co., Ltd.
2-10 Dosho-machi 3-chome
Chuo-ku, Osaka 541, Japan
Attn: President
Telefax number: (06) 205-5509
19.6 Entire Agreement. This Agreement, together with the
schedules, appendices and exhibits hereto, constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior representations, understandings and agreements between the Parties
regarding the subject matter hereof. Except as otherwise expressly provided no
modification, amendment or waiver of any of the provisions of this Agreement
shall be effective unless made in writing specifically referred to this
Agreement and duly signed and delivered by the Parties hereto.
19.7 No Waiver. No failure or delay on the part of Signal or
Tanabe in exercising any right under this Agreement, irrespective of the length
of time for which such failure or delay shall continue, will operate as a waiver
of, or impair, any such right. No single or partial exercise of any such right
will preclude any other or further exercise thereof or the exercise of any other
right. No waiver of any such right will be effective unless given in a signed
writing. No waiver of any such right will be deemed a waiver of any other right
hereunder or thereunder.
19.8 Severability. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the Parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
19.9 Force Majeure. Neither Party shall be held liable or
responsible to the other Party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any terms of
this Agreement to the extent, and for so long as, such failure or delay is
caused by or results from fires, floods, embargoes, government regulations or
administrative guidance, prohibitions or interventions, war,
50.
<PAGE> 53
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts, acts of God, or any other cause beyond their
respective reasonable control, but they shall make every reasonable effort to
remove any such cause of their failure or delay as soon as possible.
19.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
51.
<PAGE> 54
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the Effective Date written above.
SIGNAL PHARMACEUTICALS, INC.
By: [SIG]
-------------------------------------
Name: (Illegible)
Title: PRESIDENT
TANABE SEIYAKU CO., LTD.
By: /s/ TETSUYA TOSA
-------------------------------------
Tetsuya Tosa, Ph.D.
Senior Executive Director
Research and Development
Representative Director
[SIGNATURE PAGE TO COLLABORATIVE DEVELOPMENT
AND LICENSING AGREEMENT]
52.
<PAGE> 55
EXHIBIT A
SELECTION CRITERIA FOR A CHEMICAL LEAD COMPOUND
A. Definition
A Chemical Lead Compound is a [***]:
Tanabe may designate a specific compound as a Chemical Lead Compound
even if the compound fails to meet one or more such criteria.
B. [***]
A-1
***Confidential Treatment Requested
<PAGE> 56
C. [***]
A-2
***Confidential Treatment Requested
<PAGE> 57
EXHIBIT B
SELECTION CRITERIA FOR THE CLINICAL CANDIDATE
[***]
B-1
***Confidential Treatment Requested
<PAGE> 58
EXHIBIT C
INFLAMMATION PROGRAM
[***]
C-1
***Confidential Treatment Requested
<PAGE> 59
EXHIBIT D
[***]
***Confidential Treatment Requested
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.34
AMENDMENT TO
COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT
THIS AMENDMENT TO THE COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT (the
"Amendment") is entered into as of March 31st, 1998 by and between SIGNAL
PHARMACEUTICALS, INC., a California corporation with its principal office at
5555 Oberlin Drive, San Diego, California USA ("Signal"), and TANABE SEIYAKU
CO., LTD., a corporation incorporated under the laws of Japan with its principal
office at 2-10 Dosho-machi 3-chome, Chuo-ku, Osaka, Japan ("Tanabe").
RECITALS
WHEREAS, Signal and Tanabe entered into that certain Collaborative
Development and Licensing Agreement dated as of March 31, 1996 (the "Agreement")
to collaborate in the discovery, development and commercialization of
therapeutic products for the prevention and treatment of inflammation and
osteoporosis (capitalized terms used but not otherwise defined in this Amendment
shall have the meanings given such terms in the Agreement); and
WHEREAS, Signal and Tanabe wish to amend the Agreement in the manner set
forth in this Amendment and otherwise to provide for certain agreements by the
Parties as set forth herein.
AGREEMENT
Now THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Parties hereto agree as follows:
1. TERMINATION OF AGREEMENT. The Parties hereby agree to terminate the
Agreement pursuant to Section 13.1 thereof, effective as of March 31, 1998 (the
"Effective Date"). Except as otherwise expressly set forth herein, following the
Effective Date, the Agreement shall be of no further force or effect.
1
<PAGE> 2
2. SELECTION OF CHEMICAL LEAD COMPOUND.
(a) Tanabe hereby selects one compound which was derived from the
Collaborative Project as a Chemical Lead Compound ("Selected Compound"). The
chemical structure of the Selected Compound shall be attached hereto as ANNEX A.
(b) Notwithstanding the provisions of Section 1.5 of the Agreement,
the term "Chemical Modification" shall mean any compound resulting from any
process or activity (initiated after the Effective Date) of deriving alternative
chemical structures from the Selected Compound or a chemical modification of the
Selected Compound, e.g. development of analogs.
3. LICENSE TO TANABE. Subject to the terms and conditions of this Amendment
and the payment in full of all milestone and royalty obligations hereunder,
effective as of the Effective Date, Signal hereby grants to Tanabe an exclusive
(even as to Signal) license, with the right to grant sublicenses, under the
Signal Patents, the Joint Patents and the Signal Technical Information to
develop, make, have made, use, sell, have sold, offer for sale and import
Products containing a Compound which is either (i) the Selected Compound or (ii)
a Chemical Modification made by or on behalf of Tanabe or Signal of the Selected
Compound in each case, in the Territory (as defined below) ("License"). The
patent application number of the Signal Patents which cover the Selected
Compound or any Chemical Modification and which is existing at the Effective
Date shall be attached hereto as ANNEX B. For the purpose of the License, the
following terms shall have different meanings from those set forth in the
Agreement:
(a) Notwithstanding the provisions of Section 1.24 of the Agreement,
for purposes of this Amendment the term "Product" shall mean any composition
(whether in the form of drug substance, bulk drug or final dosage form), which
may be used in any indication whatsoever, and that contains a Compound as an
active ingredient.
(b) Notwithstanding the provisions of Section 1.37 of the Agreement,
for purposes of this Amendment the term "Territory" shall mean the entire world.
4. REPORT OF RESEARCH & DEVELOPMENT OF THE SELECTED COMPOUND. Once each
calendar year, Tanabe shall provide Signal with summary report regarding the
research and development progress of the Selected Compound or any Chemical
Modifications.
2
<PAGE> 3
5. TERM OF THE LICENSE. The License shall become effective as of the
Effective Date and, unless sooner terminated pursuant to the Section 6 hereof
shall remain in full force and effect for so long as Tanabe shall be obligated
to make royalty payment to Signal pursuant to Section 5.4 of the Agreement.
6. TERMINATION OF LICENSE BY TANABE. In case Tanabe determines that it will
not pursue the development and commercialization of the Product, the License
shall be terminated with written notice to Signal. In such case, the License
terminates and the rights to the Compound under the Signal Patents, the Joint
Patents and the Signal Technical Information shall automatically revert to
Signal.
7. PAYMENT OBLIGATIONS AND PATENT MATTERS.
(a) Within one (1) week from the Effective Date, Tanabe shall pay to
Signal a nonrefundable license fee of [***] in consideration of the License
granted to Tanabe hereunder. Any tax paid or required to be withheld by Tanabe
for the benefit to Signal on account of such payment shall be deductible from
the amount otherwise due. Tanabe shall secure and send to Signal proof of any
such taxes withheld and paid by Tanabe for the benefit of Signal and shall, at
Signal's request, provide reasonable assistance to Signal in recovering said
taxes, if possible.
(b) The obligations and rights established in Sections 4.3, 4.4, 5.4
and 15 of the Agreement with respect to Compounds subject to the License shall
survive the termination of the Agreement. Notwithstanding the foregoing, the
following Sections 15.4(a) and 15.8(b) of the Agreement is hereby amended as
follows:
15.4(a) Signal shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Signal Invention, and shall pay all costs incurred in
connection therewith. Tanabe shall cooperate with Signal, execute all lawful
papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all such patent
applications which constitute a Structure Patent in the Territory. Any
information provided to Tanabe under this Section 15.4(a) shall be deemed
Confidential Information and Materials of
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<PAGE> 4
Signal. Promptly after the Effective Date, Signal shall inform Tanabe of the
list of countries which it intends to file any application for the Signal Patent
which covers the Selected Compound. Tanabe may propose additional countries to
file such Signal Patent. If Signal decides not to file the patent application
(i) proposed by Tanabe or (ii) listed by Signal, or decides to abandon or not to
maintain a Signal Patent, in any country in the Territory, Signal shall first
offer to assign to Tanabe such Signal Patent in such country without charge or
obligation at least ninety (90) days prior to the expiration of any time limit
response or payment due date. Signal shall cooperate with Tanabe in such
assignment along with the preparation, prosecution and maintenance of all such
patent and applications therefor.
15.8(b) In the event the dispute is resolved against Tanabe,
with a finding of an infringement, then Tanabe shall bear its own costs and
expenses; provided in case (i) Tanabe is obligated to make any payment in terms
of damage, royalty or otherwise, or (ii) Signal Patent covering the Selected
Compound is held to be invalid or otherwise unenforceable by a court or other
legal or administrative tribunal from which no appeal can be taken, the Parties
shall discuss and agree in good faith as to the downward adjustment of the
royalty payments set forth in Section 5.4 of the Agreement.
(c) Tanabe may register, in Japan and any applicable country in the
Territory, exclusive patent license with the Japanese Patent Office and other
applicable governmental agencies in such country. Upon Tanabe's request, Signal
shall assist Tanabe in effecting such registration by executing any formal
license agreements and delivering all other necessary instruments and documents
to Tanabe which are consistent with the License granted hereunder.
(d) Signal represents and warrants to Tanabe that, to the best of
Signal's knowledge, it has all right, title and interest in the Signal Patents
required in order to grant the rights contemplated by the License and that there
is no existing Reimbursement necessary therefor.
8. PROVISION OF STATEMENT OF EXPENDITURE AND STUDY RESULT REPORT.
Notwithstanding the termination of the Agreement, Signal shall prepare and
provide Tanabe with a written statement in reasonable specific detail of all
expenditures by Signal for year 2 and study result report for second half-year
of year 2 of the Collaboration Project within thirty (30) days of the Effective
Date.
4
<PAGE> 5
9. OTHER REVISIONS.
(a) For the avoidance of doubt, all Research and Development
Committees have been dissolved. Where there is reference to "the determination
or approval of the Research and Development Committee" in the surviving clause
of the Agreement, it shall be revised to read "the agreement of the Parties".
(b) The bank account set forth in Section 4.5 shall be amended by
the bank account set forth below:
Bank: [***]
ABA#: [***]
Account#: [***]
(c) Correspondence of Signal (with copy to:) set forth in Section
19.5 of the Agreement shall be amended as follows:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA
92121-2128
FAX 619 453-3555
9. PUBLIC ANNOUNCEMENT. Except as required to comply with federal and state
securities laws or equivalent Japanese laws or any order of a court or
government agency, and except as provided below, neither Party shall release
information concerning this Amendment, the Amendment or the subject matter
hereof or thereof to the public, news media or other media, without first
sending the other Party by express mail or facsimile a copy of the information
to be disclosed and allowing the other Party a reasonable time (as soon as
reasonably possible but in no event greater than four (4) business days from the
date of receipt) in which to comment on the information. If the other Party
objects to the information to be disclosed prior to the expiration of the four
(4) business day period, the other Party shall so notify the disclosing Party
who
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<PAGE> 6
shall then delay public disclosure of the information and make reasonable
efforts to accommodate any request for revisions by the other Party. If no
notification is received during the four (4) business day period; the Party
proposing disclosure shall be free to disclose the information. The Parties
designate the following individuals to receive and approve announcements under
this provision: Signal, its Executive Vice President; Tanabe, its President. The
Parties agree that Signal may discuss the general terms of the Amendment and the
Agreement with potential collaborative partners and other potential investors in
Signal without disclosing any Confidential Information of Tanabe or Tanabe
Technical Information without Tanabe's prior written consent; and that the
Parties will cooperate in good faith with one another to formulate a form of
announcement that Signal and Tanabe may release as soon as practicable after the
Effective Date.
10. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that
it has all, requisite legal and corporate power and authority to enter into this
Amendment and to carry out and perform its obligations under the terms of this
Amendment. All corporate action on the part of each Party and its officers and
directors necessary for the performance of such Party's obligations hereunder
has been taken. This Amendment will constitute a valid and binding obligation of
each Party, enforceable in accordance with its terms, except (a) as the
enforceablility hereof may be limited by bankruptcy, insolvency, moratorium or
other similar law as affecting the enforcement of creditors' rights generally,
(b) as the availability of equitable remedies (e.g., specific performance,
injunctive relief and other equitable remedies) and (c) to the extent the
indemnification provisions contained in this Amendment may be limited by
applicable law.
11. EFFECT OF TERMINATION; SURVIVAL. This Amendment shall not release a
Party from any liability which, as of the Effective Date, has already accrued to
another Party or which thereafter may accrue in respect of any act or omission
prior to the Effective Date. In addition to those obligations and rights that
survive termination of the Agreement in accordance with Section 4(b) hereof, the
obligations and rights established in Sections 7, 8 (excluding Section 8.4), 9
(excluding Section 9.1), 11 and 19 of the Agreement shall survive the
termination of the Agreement. In addition to the foregoing, the obligation of
confidentiality for the information relating to the Compound shall survive the
termination of the License for ten (10) years thereafter.
6
<PAGE> 7
12. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California, United States of America,
as applied to agreements among California residents entered into and to be
performed entirely within California,
13. COUNTERPARTS. This Amendment 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.
IN WITNESS WHEREOF, the Parties have executed this Amendment on the day and year
first written above.
SIGNAL PHARMACEUTICALS, INC. TANABE SEIYAKU CO., LTD.
By: /s/ ALAN J. LEWIS By: /s/ TOSHIO TANAKA
Name: Alan J. Lewis, Ph.D. Name: Toshio Tanaka
President and
Title: President & CEO Title: Chief Executive Officer,
Representative Director
Attachment:
ANNEX A=Chemical Structure of the Selected Compound
ANNEX B=Patent Application Number of Signal Patent
7
<PAGE> 8
ANNEX A
[***]
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<PAGE> 9
ANNEX B
[***]
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<PAGE> 1
EXHIBIT 10.35
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of March 31, 1996, by
and between Signal Pharmaceuticals, Inc., a California corporation, (the
"Company"), and Tanabe Seiyaku Co., Ltd., a Japanese corporation (the
"Investor").
A. The Investor desires to acquire 500,000 shares of the Company's
Series D Preferred Stock, no par value per share (the "Shares") upon the terms
and conditions hereinafter described.
B. In consideration of the mutual covenants and conditions contained
herein, the parties agree as follows:
1. Purchase and Sale of Shares.
1.1 Sale and Issuance of Shares.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Closing (as defined below) and the Company
agrees to sell and issue to the Investor at the Closing, the Shares at the price
of $4.00 per share for an aggregate purchase price of Two Million U.S. Dollars
(U.S.$2,000,000) (the "Purchase Price").
1.2 Closing. The consummation of the purchase and sale of the
Shares shall take place at the offices of Brobeck Phleger & Harrison, 550 West C
Street, San Diego, California, at 4:00 p.m. (Pacific Time), on April 2, 1996, or
at such other time and place as the Company and the Investor mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to the Investor a certificate
representing the Shares. In consideration of such delivery, Investor will make
payment therefor by wire transfer payable to the Company in the amount of the
Purchase Price. The date of the Closing shall be referred to as the "Closing
Date."
1.3 Issuance of Additional Shares Upon Certain Events.
(a) In the event that the Company shall issue and sell
Series E Preferred Stock to a venture capital investor at a per share price of
less than $2.80 per
<PAGE> 2
share (subject to adjustment for stock splits, reverse stock splits,
recapitalizations and the like after the date hereof), then the Company shall be
obligated to issue, and the Investor shall be entitled to receive, without
payment of any additional consideration, a number of shares of fully paid,
nonassessable Series D Preferred Stock of the Company equal to the excess of (a)
the quotient obtained by dividing (i) $2,000,000 by (ii) the Reduced Purchase
Price (defined below); over (b) 500,000 (as adjusted for stock splits, reverse
stock splits, recapitalizations and the like in the same manner as outstanding
shares would be adjusted). The "Reduced Purchase Price" shall mean (a) the
product obtained by multiplying $4.00 times the Series E per share price divided
by (b) $2.80, rounded to the nearest hundredth. As an example, in the event that
the Company shall issue and sell Series E Preferred Stock to a venture capital
investor for $2.00 per share, the Investor would receive an additional 199,300
shares of Series D Preferred Stock. Such issuance shall be deemed to be
effective immediately after the closing of the sale of Series E Preferred Stock,
and duly executed certificates representing such Series D Preferred Stock shares
shall be delivered to the Investor immediately after such closing.
(b) In the event that the Company shall issue and sell
Series E Preferred Stock to a pharmaceutical or biotechnology company (the
"Corporate Partner") in connection with a transaction involving technology
licensing, research or development activities, the distribution or manufacture
of the Company's products or the like (a "Technology Transaction") at a per
share purchase price of less than $4.00 per share (subject to adjustment for
stock splits, reverse stock splits, recapitalizations and the like after the
date hereof), then the Company shall be obligated to issue, and the Investor
shall be entitled to receive, without payment of any additional consideration, a
number of shares of fully paid, nonassessable shares of Series D Preferred Stock
of the Company equal to the excess of (a) the quotient obtained by dividing (i)
$2,000,000 by (ii) the Corporate Partner Purchase Price (defined below); over
(b) 500,000 (as adjusted for stock splits, reverse stock spits,
recapitalizations and the like in the same manner as outstanding shares would be
adjusted). The term "Corporate Partner Purchase Price" shall mean the per share
purchase price of the Series E Preferred Stock being paid by the Corporate
Partner. As an example, in the event that the Corporate Partner Purchase Price
shall be $3.00 per share, the Investor would receive an additional 166,667 of
Series D Preferred Stock. Such issuance shall be deemed to be effective
immediately after the closing of the sale of Series E Preferred Stock, and duly
executed certificates representing such Series D Preferred Stock shares shall be
delivered to the Investor immediately after such closing.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on a Schedule
of Exceptions attached hereto as Exhibit B, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.
<PAGE> 3
2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this Agreement
and any other agreement to which the Company is a party the execution and
delivery of which is contemplated hereby (the "Ancillary Agreements"), to issue
and sell the Series D Preferred Stock and the Common Stock issuable upon
conversion thereof (collectively, the "Securities"), and to carry out the
provisions of this Agreement, the Restated Articles and any Ancillary Agreement.
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its business, properties, prospects or financial condition.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors, and shareholders necessary for the
authorization, execution and delivery of this Agreement and any Ancillary
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance), sale,
and delivery of the Series D Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion thereof has been taken or will be taken prior to
the Closing, and this Agreement and any Ancillary Agreement constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies or (iii) as to the enforceability of Section 7.3 of this Agreement
against Investor.
2.3 Valid Issuance of Preferred and Common Stock. The Series D
Preferred Stock that is being purchased by the Investor hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and, based in part upon the representations of the Investor in
this Agreement, will be issued in compliance with all applicable federal and
state securities laws and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
D Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable securities laws, as
presently in effect, of the United States and each of the states whose
securities laws govern the issuance of any of the Series D Preferred Stock and
will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.
3.
<PAGE> 4
2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement, the
offer, sale or issuance of the Series D Preferred Stock by the Company or the
issuance of Common Stock upon conversion of the Series D Preferred Stock, except
(i) the filing of the Restated Articles with the Secretary of State of the State
of California, and (ii) such filings as have been made prior to the Closing,
except that any notices of sale required to be filed with the Securities and
Exchange Commission under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
2.5 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Closing, of:
(i) Preferred Stock. Fourteen Million, Seven Hundred
Ninety Three Thousand, Three Hundred Twenty Five (14,793,325) shares of
Preferred Stock, no par value (the "Preferred Stock"), of which Two Million, Six
Hundred Twenty Six Thousand, Eight Hundred Ninety Two (2,626,892) shares have
been designated Series A Preferred Stock, all of which are issued and
outstanding, and Two Million, Eight Hundred Seventy Five Thousand (2,875,000)
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, Eight Million, Seven Hundred Ninety One Thousand, Four Hundred
Thirty Three (8,791,433) shares have been designated Series C Preferred Stock,
all of which are issued and outstanding, and Five Hundred Thousand (500,000)
shares have been designated Series D Preferred Stock, up to all of which will be
sold pursuant to this Agreement. The rights, privileges and preferences of the
Series A, Series B, Series C and Series D Preferred Stock will be as stated in
the Restated Articles.
(ii) Common Stock. 20,000,000 shares of common stock
("Common Stock"), no par value, of which 1,985,574 shares are issued and
outstanding.
(iii) The outstanding shares of Series A, Series B, and
Series C Preferred Stock and Common Stock are owned by the stockholders and in
the numbers specified in Exhibit C hereto.
(iv) The outstanding shares of Series A, Series B, and
Series C Preferred Stock and Common Stock are all duly and validly authorized
and issued, fully paid and nonassessable, and have been issued in accordance
with the registration or qualification provisions of the Securities Act of 1933
and any relevant state securities laws or pursuant to valid exemptions
therefrom.
4.
<PAGE> 5
(v) Except for (A) the conversion privileges of the Series
A, Series B, Series C and Series D Preferred Stock, (B) the rights provided in
paragraph 2.3 of an Investors' Rights Agreement by and among the Company and
certain investors, (C) currently outstanding options to purchase 1,252,500
shares of Common Stock reserved for issuance to employees, directors and
consultants pursuant to the Company's 1993 Stock Option Plan (the "Option Plan")
and options to purchase 657,426 shares of Common Stock reserved for issuance to
certain employees and consultants pursuant to the Option Plan, (D) currently
outstanding options to purchase 73,000 shares of Common Stock reserved for
issuance to certain founders pursuant to the Company's Founders Option Plan (the
"Founders Plan") and options to purchase 122,000 shares of Common Stock reserved
for issuance to certain founders pursuant to the Founders Plan and (E) the
Warrants to be issued to the Investor pursuant to this Agreement, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company.
2.6 Subsidiaries. The Company does not own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement, or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.8 Patents and Trademarks. The Company has sufficient title and
ownership or license rights of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and believes it will be able to
develop such intellectual property such that it can operate its business as
proposed to be conducted without any
5.
<PAGE> 6
conflict with or infringement of the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his
best efforts to promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, to its knowledge, of
any provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties, except that the foregoing may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
2.10 Agreements; Action.
6.
<PAGE> 7
(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $100,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) positions on the Scientific Advisory Board or any other consultancies,
except as set forth in the Schedule of Exceptions.
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Amended and Restated Articles of Incorporation or Bylaws, which adversely
affects its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
2.11 Related-Party Transactions. No employee, officer, or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
7.
<PAGE> 8
2.12 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.13 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
2.14 Disclosure. Except such confidential information which is
proprietary to the Company and is not material to making an investment decision
in the Company, the Company has fully provided the Investor with all the
information which the Investor has requested for deciding whether to purchase
the Series D Preferred Stock and all information which the Company believes is
reasonably necessary to enable such Investor to make such decision. Neither this
Agreement, the Investors' Rights Agreement, nor any other statements or
certificates made or delivered in connection herewith or therewith when taken
together contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
2.15 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.16 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investors), the Amended and
Restated Articles of Incorporation and Bylaws of the Company are in the form
previously provided to the Investors.
2.17 Title to Property and Assets. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
8.
<PAGE> 9
2.18 Financial Statements. The Company has delivered to the
Investor its unaudited Financial Statements at December 31, 1995 (the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects. Except as set forth in the Financial Statements, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the Financial Statements
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
2.19 Changes. Since December 31, 1995 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company, except changes which have not
been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except which is not
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted);
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any officer of the Company; or
(g) to the Company's knowledge, any other event or
condition of any character which might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted).
9.
<PAGE> 10
2.20 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.21 Tax Returns, Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith which are
listed in the Schedule of Exceptions. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.22 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.23 Minute Books. The minute books of the Company contain a
complete summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.24 Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
2.25 Section 83(b) Elections. To the best of the Company's
knowledge, elections and notices pursuant to Section 83(b) of the Internal
Revenue Code
10.
<PAGE> 11
and any analogous provisions of applicable state tax laws have been timely filed
by all individuals who have purchased shares of the Company's Common Stock which
are subject to vesting or other risk of forfeiture.
2.26 Real Property Holding Company. The Company is not a "United
States real property holding corporation" (as that term is defined in Treasury
Regulation Section 1.897-2(b)). If at any time in the future the Company shall
become a "United States real property holding corporation," the Company shall,
as promptly as practicable, notify each foreign Investor of such change in
status. Within 30 days after receipt of a request from a foreign Investor, the
Company shall prepare and deliver to such foreign Investor the statement
required under Treasury Regulation Section 1.897-2(h)(l)(i) and either or both
of the following documents: (i) an affidavit in conformance with the
requirements of Section 1445(b)(3) of the Code or (ii) a notarized statement,
executed by an officer having actual knowledge of the facts, that the shares of
Company stock held by such foreign Investor are of a class that is regularly
traded on an established securities market, within the meaning of Section
1445(b)(6) of the Code. If the Company is unable to provide either document
described in (i) or (ii) above, if requested, it shall promptly notify such
foreign Investor in writing of the reasons for such inability. Finally, upon the
request of a foreign Investor and without regard to whether either document
described in (i) or (ii) above has been requested, the Company shall cooperate
fully with the efforts of such foreign Investor to obtain a "qualifying
statement," within the meaning of Section 1445(b)(4) of the Code, or such other
documents as would excuse a transferee of a foreign Investor's interest from
withholding of income tax imposed pursuant to Section 1445(a) of the Code.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies or (iii) as to the
enforceability of Section 7.3 of this Agreement against Investor.
3.2 Organization. The Investor is a corporation duly organized
and validly existing and in good standing under the laws of Japan, with all
requisite power and authority to own its properties and conduct its business as
now being conducted.
3.3 Purchase Entirely for Own Account. This Agreement is made
with the Investor in reliance upon representation to the Company, which by
Investor's execution of this Agreement it hereby confirms, that the Series D
Preferred Stock to be received by Investor and Common Stock issuable upon
conversion thereof will be
11.
<PAGE> 12
acquired for investment for Investor's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Investor represents that it has full power and authority to enter
into this Agreement.
3.4 Disclosure of Information. Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series D Preferred Stock. Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series D Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Investor to rely thereon.
3.5 Restricted Securities. Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the United States federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, the Investor represents that it is familiar with Rule 144 of the Act
promulgated by the Securities and Exchange Commission (the "SEC"), as presently
in effect, and understands the resale limitations imposed thereby and by the
Act.
3.6 Accredited Investor. Investor is an "accredited investor"
within the meaning of paragraph (a) of Rule 501 of Regulation D promulgated by
the SEC and an "excluded purchaser" within the meaning of Section 25102(f) of
the California Corporate Securities Law of 1968, as amended, and Section
260.102.13 of the California Code of Regulations, Title 10.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Series D Preferred Stock
unless:
(a) the disposition is made as part of a firmly
underwritten public offering of the Company's stock or
(b) until the transferee has agreed in writing for the
benefit of the Company to be bound by this Section 3 and Section 7 hereof, and
the (i) Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed
12.
<PAGE> 13
disposition, and (ii) if reasonably requested by the Company, the Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended, or any State Securities law and such
securities may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California or Delaware or any other applicable state securities law, including
any legend required by the California Department of Corporations.
3.9 Compliance with Law. Investor is not a party to any agreement
or instrument, or subject to any charter or other corporate restriction or, to
its actual knowledge, any judgment, order, decree, law, ordinance, regulation or
other governmental restriction which would prevent or impede, or be breached or
violated by, the transactions contemplated in this Agreement.
4. California Commissioner of Corporations.
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under this Agreement are subject to the fulfillment on or before
the Closing of each of the following conditions unless otherwise waived by the
Investor:
13.
<PAGE> 14
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement and
the Ancillary Agreements that are required to be performed or complied with by
it on or before the Closing, all corporate or other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and in substance to counsel for
Investor and the Investors shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
5.3 Compliance Certificate. The President of the Company shall
have delivered to the Investor a certificate certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that there
shall have been no adverse change in the business, affairs, properties, assets
or conditions of the Company since the date of the Financial Statements.
5.4 Qualifications. There shall not be in effect any law, rule or
regulation prohibiting or restricting the sale and issuance of the Shares or the
Common Stock issuable upon conversion thereof, or requiring any consent or
approval of any person or governmental entity which shall not have been obtained
to issue the Shares.
5.5 Opinion of Company Counsel. Investor shall have received from
Brobeck, Phleger & Harrison LLP, Palo Alto, California, counsel for the Company,
an opinion, dated as of the Closing, in substantially the form attached hereto
as Exhibit D, which opinion is incorporated herein by this reference.
5.6 Investor Rights. The Company and the Investor shall have
executed and delivered that certain Investor Rights Agreement of even date
herewith providing certain rights to Investor to have shares of Common Stock
registered for sale and providing for certain information rights.
5.7 Common Stock Warrants. The Company shall have delivered to
Investor Warrants attached as Exhibit E (the "Warrants") entitling Investor to
purchase such number of shares of Common Stock (at the price at which the
Company first sells any shares of its Common Stock to the public in a registered
public offering, the "IPO Price") as equals $2,000,000 U.S. divided by such IPO
Price. Such Warrants shall be exercisable only in connection with such initial
public offering, shall expire upon completion of such offering, and shall be
subject to compliance with applicable securities laws and regulations (including
but not limited to the rules and policies of the National Association of
Securities Dealers, Inc.). The Company shall use its best efforts to
14.
<PAGE> 15
include the issuance of the shares of Common Stock upon exercise of the Warrants
(the "Warrant Shares") in such initial public offering. In the event that the
inclusion of such issuance is not permitted pursuant to the Act or the rules and
regulations promulgated thereunder, the Company shall use its best efforts to
effect a registration of the issuance and/or resale of the Warrant Shares on the
earlier of (a) if Form S-3 is available to the Company for such registration, as
soon as practicable following the date on which such form is available to the
Company with respect to the registration of the issuance and/or resale of the
Warrant Shares or (b) in all other events, one (1) year following the initial
public offering.
5.8 Collaborative Agreement. The Company and the Investor shall
have executed and delivered that certain Collaborative Development and Licensing
Agreement of even date (the "Collaborative Development and Licensing Agreement")
and made payment to the Company of the initial semi-annual installment of
research payments thereunder.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have delivered
the Purchase Price specified in Section 1.
6.3 Qualifications. There shall not be in effect any law, rule or
regulation prohibiting or restricting the sale and issuance of the Shares or the
Common Stock issuable upon conversion thereof, or requiring any consent or
approval of any person or governmental entity which shall not have been obtained
to issue the Shares.
6.4 Investor Rights. The Company and the Investor shall have
executed and delivered that certain Investor Rights Agreement of even date
herewith providing certain rights to Investor to have shares of Common Stock
registered for sale and providing for certain information rights.
6.5 Collaborative Agreement. The Company and the Investor shall
have executed and delivered the Collaborative Development and Licensing
Agreement and the Investor shall have paid the initial semi-annual installment
of research payments thereunder.
7. Covenants of the Investor.
15.
<PAGE> 16
7.1 Standstill Provisions. Commencing as of the Closing and for
the period until the later of (i) six (6) months following the end of the
Research Period (as defined in the Collaborative Development and Licensing
Agreement) or (ii) the first anniversary of the consummation of the Company's
initial public offering of shares of Common Stock, registered under the Act
pursuant to a registration statement on Form S-1, Investor (including all
Affiliates or agents of Investor) shall not acquire beneficial ownership of any
shares of Common Stock of the Company, any securities convertible into or
exchangeable for Common Stock, or any other right to acquire Common Stock,
except by way of stock dividends or other distributions or offerings made
available to holders of Series D Preferred Stock (or Common Stock issued upon
conversion thereof) generally, from the Company or any other person or entity,
without the prior written consent of the Company, which consent may be withheld
in the Company's sole discretion, if such acquisition should cause Investor
(including all Affiliates of Investor) to beneficially own more than 9.99% of
the Company's outstanding voting stock (assuming the full conversion and
exercise of all convertible and exercisable securities of the Company held by
Investor and its Affiliates); provided, however, that in no event shall (i) the
original purchase of securities pursuant to this Agreement including the
Warrants described in Section 5.7, or (ii) any reduction in the outstanding
shares of the Company's capital stock (or rights or options), cause a violation
of this Section 7.1.
7.2 Transfer Restriction. In addition to the market stand-off
agreement set forth in Section 1.15 of the Investor Rights Agreement, Investor
hereby agrees that during the time periods commencing as of the Closing until
six (6) months following the end of the Research Period (the "Restricted
Period") that neither it nor any Affiliate shall, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any of the Shares, securities purchased
pursuant to the Warrants or shares issuable upon conversion or exercise thereof
("Restricted Securities") at any time during the Restricted Period. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Restricted Securities held by Investor or any
Affiliate (and the Restricted Securities of every other person subject to the
foregoing restriction) until the end of such period.
7.3 Voting Agreement. Investor agrees that it shall, so long as
it holds shares of the Company's Series D Preferred Stock or the Common Stock
issued upon conversion thereof, vote such shares with respect to any proposed
merger or combination of the Company with any other entity in the same
proportion as the shares of other parties who are not themselves a party to any
such merger or combination.
8. Right of First Refusal.
8.1 Right of First Refusal.
16.
<PAGE> 17
(a) In the event that the Investor or a direct or indirect
transferee of the Investor (the "Transferring Shareholder") proposes to sell,
pledge or otherwise transfer the Series D Preferred Shares, securities purchased
in accordance with to Section 7.1 (or shares of Common Stock issued or issuable
upon conversion or exercise thereof) or any portion thereof, acquired under or
the purchase of which is contemplated by this Agreement, or any interest in such
securities to any person or entity, the Company shall have a right of first
refusal with respect to such securities ("Offered Stock"). If the Transferring
Shareholder desires to transfer Offered Stock, the Transferring Shareholder
shall give a written notice (the "Transfer Notice") to the Company describing
fully the proposed transfer, including the number of shares proposed to be
transferred, the proposed transfer price and the name and address of the
proposed transferee.
(b) The Company (or its assigns) shall have the
irrevocable and exclusive option (but not the obligation) for a period of thirty
(30) days from the date of receipt of the Transfer Notice to elect to purchase
all, but not less than all, of the Offered Stock at a price per share and upon
the terms specified in the Transfer Notice.
(c) The option of the Company to purchase shares of
Offered Stock under this Section 8 shall be exercised by giving written notice
to the Transferring Shareholder within such thirty day option period.
8.2 Failure to Give Notice. Failure by the Company to give the
notice provided for in subsections 8.1(b) and (c), within the time periods for
the exercise of its option provided for therein shall be deemed an election not
to purchase any shares of the Offered Stock and the option given to the Company
in Section 8.1 shall be deemed to have expired.
8.3 Non-Exercise of Right. If the Transfer Notice shall have been
duly given to the Company and the Company does not exercise the purchase option
referred to in this Section 8 to purchase the Offered Stock, then the
Transferring Shareholder shall be free to sell the Offered Stock in accordance
with this Section 8.3. The Offered Stock to be sold as contemplated by this
Section 8.3 shall be sold at not less than the price per share set forth in such
Transfer Notice and upon substantially the same terms but no less favorable to
the Transferring Shareholder than the terms set forth in the Transfer Notice
(except that the form of consideration need not be in cash so long as the value
of such consideration is equivalent to the purchase price set forth in the
Transfer Notice and not subject to forgiveness or other reduction), subject to
the purchaser of the Offered Stock agreeing in writing to be bound by the terms
of this Agreement; provided, however, that if the sale of the Offered Stock
shall not be consummated within ninety (90) days immediately following the
expiration of the Company's purchase option set forth in Section 8.1, the shares
of the Offered Stock shall
17.
<PAGE> 18
again be subject to the terms and conditions of this Agreement in the same
manner as if the Transfer Notice had not been given.
8.4 Closing, Failure to Close. In the event that the Offered
Stock is to be purchased by the Company pursuant to this Section 8, then such
purchase shall, unless the parties thereto otherwise agree, be completed at the
principal office of the Company on or before the sixtieth (60th) day following
the receipt of the Transfer Notice by the Company from the Transferring
Shareholder pursuant to Section 8.1.
8.5 Binding Effect. The Company's right of first refusal shall
inure to the benefit of its successors and assigns and shall be binding upon any
transferee of the Offered Stock acquired pursuant to this Agreement (including
shares of Common Stock issued or issuable upon conversion of the Series D
Preferred Stock).
8.6 Exempt Transfers. The right of first refusal shall not apply
to (i) transfers to affiliates of Investor provided the transferee agrees to be
bound by the obligations of this Agreement and the Collaborative Development and
Licensing Agreement by and between the parties dated of even date with this
Agreement is still then in full force and effect, (ii) transactions involving a
merger, reorganization or sale of all or substantially all of the business or
capital stock of the Company approved by the Company's board of directors, (iii)
the sale from time to time of any Offered Stock to the public following the
Company's initial public offering involving registered shares or pursuant to
Rule 144 or pursuant to a registered public offering, or (iv) transactions
involving a merger, reorganization or sale of all or substantially all of the
business, assets or capital stock of Investor provided the transferee agrees to
be bound by the obligations of this Agreement.
8.7 Termination. The right of first refusal of the Company under
this Section 8 shall terminate on the earlier of (i) consummation of the
Company's initial public offering or (ii) such time as Investor and its
Affiliates in the aggregate beneficially own less than five percent (5.0%) of
the Company's Common Stock (assuming the full conversion and exercise of all
convertible and exercisable securities of the Company).
9. Covenants of the Company.
9.1 Subsequent Issuance of Capital Stock with Anti-dilution
Protection. In the event that (a) the Company, within the first twelve (12)
months following the Closing, shall (i) issue securities with an aggregate issue
price not greater than $10,000,000 to (ii) a Corporate Partner in connection
with a Technology Transaction (collectively, (i) and (ii) shall be known as the
"Corporate Partner Transaction") and (b) in connection with the Corporate
Partner Transaction, the Company implements contractual or charter provisions
which provide to the securities issued thereunder anti-dilution protection
against the issuance of securities subsequent to the Corporate Partner
Transaction at a price per share less than the price per share at
18.
<PAGE> 19
which such securities are issued in the Corporate Partner Transaction (the
"Anti-Dilution Protection"), then the Investor shall be entitled to receive the
identical benefit afforded to the Corporate Partner in the Corporate Partner
Transaction with respect to the Anti- Dilution Protection.
9.2 Subsequent Grant of Piggyback Registration Rights. In the
event that the Company, within the first twelve (12) months following the
Closing, shall (i) grant piggyback registration rights to (ii) a Corporate
Partner in connection with a Technology Transaction (collectively, (i) and (ii)
shall be known as the "Registration Rights Transaction"), then the Investor
shall be entitled to receive the identical benefit afforded to the Corporate
Partner in the Registration Rights Transaction with respect to the piggyback
registration rights.
10. Miscellaneous.
10.1 Survival of Warranties. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company.
10.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the Shares sold hereunder or any Common Stock issued upon
conversion thereof). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
10.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
10.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively
19.
<PAGE> 20
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the following addresses or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties:
If to the Company:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, California 92121
Attn: President
With a Copy to:
J. Stephan Dolezalek, Esq.
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
If to the Investor:
Tanabe Seiyaku Co., Ltd.
2-10 Dosho-Machi 3-Chome
Chuo-ku, Osaka 541
JAPAN
Attn: President
10.7 Finder's Fee. Investor represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
10.8 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay its own and Investor shall pay its own costs and expenses
with respect to the negotiation, execution, delivery and performance of this
Agreement and any Ancillary Agreements. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Restated
Certificate, the prevailing party
20.
<PAGE> 21
shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
10.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
10.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
10.11 Aggregation of Stock. All shares of Series D Preferred
Stock held or acquired by Investor or Affiliates of Investor shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
21.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: INVESTOR:
SIGNAL PHARMACEUTICALS, INC., TANABE SEIYAKU CO., LTD.,
a California corporation a corporation formed under the
laws of Japan
By: [SIG] By: /s/ TETSUYA TOSA
------------------------ ------------------------------
Tetsuya Tosa, Ph.D.
Title: President Senior Executive Director
--------------------- Research and Development
Representative Director
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
22.
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 16 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.36
AGREEMENT
THIS AGREEMENT is made this ____ day of July, 1996 (the "Effective
Date") between N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the
Netherlands (hereinafter referred to as "Organon") and SIGNAL PHARMACEUTICALS,
5555 Oberlin Drive, San Diego, California 92121, USA (hereinafter referred to as
"Signal").
INTRODUCTION
A. Signal has considerable experience in making biological assays useful
for screening compounds:
B. Organon has experience in medicinal chemistry and has certain
proprietary technology regarding the optimization of lead compounds arising from
screening in assay systems.
C. Organon wishes to retain the services of Signal to assist Organon in
the discovery and development of new assays for the targets which are selected
as provided below.
THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
1.1. "Affiliate" means in the case of each party any entity that
directly or indirectly controls, is controlled by, or is under common control
with that party. For such purpose the terms "control" means ownership or control
of at least 50% of the voting interest in the entity in question.
1.2. "Compound Patent" means a patent or patent application claiming an
invention or discovery specific to a Lead Compound and a genus of compounds
reasonably expected to have the same or similar activity, which Lead Compound or
genus of compounds result from the use of a Research Assay.
1.3. "Development Compound" means a compound which has undergone
preclinical animal studies, formulation and production work necessary to
commence formal animal toxicology studies, and is selected for formal animal
toxicology studies in preparation for the submission of an U.S. IND or an
equivalent foreign filing.
1.4. "Executive Committee" means the committee to be established
pursuant to Article 2 hereof.
1.5. "FTE" means the full time equivalent effort, for one year, of one
person who participates directly in the research and development activities
contemplated under
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this Agreement. Such participation includes, without limitation, production of
chemical, biological and/or other materials or reagents provided for use under
this Agreement (and the resupply thereof if shelf stock is provided, as
reasonably determined by Signal).
1.6. "Gene/gen products Patents" means a patent or patent application
claiming an invention or discovery specific to [***], having been identified
under the Target Research.
1.7. "Lead Compound" will have the meaning assigned in Section 3.2.
1.8. "Library" means a library or mixture of compounds, including the
compounds contained or proposed to be contained therein.
1.9. "Net Sales" means the total revenue from commercial sales received
by a party hereto, its Affiliates and/or licensees from the sale of an Organon
Product to independent third parties less the following amounts:
(i) discounts, including cash discounts, trade allowances or
rebates actually allowed or granted and taken,
(ii) credits or allowances actually granted upon claims or
returns, regardless of the party requesting the return,
(iii) separately itemized freight charges paid for delivery and
(iv) taxes or other governmental charges levied on or measured
by the invoiced amount, whether absorbed by the billing party or the billed
party.
1.10. "Organon Compound" means a compound selected from an Organon
Library, Organon internal development or otherwise from a third party source
other than Signal engaged by Organon to provide compounds.
1.11. "Organon Library" means a Library designed and/or synthesized or
acquired by Organon (alone or with third parties)
1.12. "Organon Product" means any product in the Target Research Field
which contains one or more active compounds (i) selected by use of a Research
Assay (ii) derived from one or more compounds so selected or (iii) significantly
altered or advanced to the next stage of development by use of a Research Assay
(a "Selected Compound"). Organon shall inform Signal about all compounds
identified as having biological activity in any Research Assays and whether such
compounds are Selected
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Compounds or were selected by Organon through other means prior to running such
compounds in a Research Assay. If such compounds were selected by Organon
through other means prior to running such compounds in a Research Assay, Organon
will provide Signal access to its lab journals and demonstrate to Signal's
reasonable satisfaction that such compounds were selected by Organon through
other means prior to running such compounds in a Research Assay. All Organon
Products, containing the same active compound, or a compound which is derived
from the active compound (such as a different salt, ester, crystal form or the
like), regardless of other differences, such as dose, dosage form, indication
and the like shall be considered a single Organon Product, as the case may be,
unless such Organon Product also contains another active compound that is
selected by use of a Research Assay or is derived from such a compound. Organon
Product shall exclude any compound that was already "in active development" by
Organon before screening such compound in a Research Assay or was already
selected by Organon prior to screening with the Research Assays as described
above, except as set forth below. The compound will be deemed to be in "active
development" after (i) toxicology studies have been finished, and/or (ii)
efficacious results in an animal model have been obtained, and/or (iii)
efficacious results in at least two in vitro models have been obtained.
Notwithstanding the foregoing, such a compound shall be an Organon Product if
the compound's development is significantly altered by the results of screening
the compound in a Research Assay.
1.13. "Research Assay" means an assay based on [***].
1.14. "Research Assay Patent" means a patent or patent application
claiming a Research Assay.
1.15. "Research Committee" means a team to be established for the
purposes of the Target Research pursuant to Section 3.1.2 hereof.
1.16. "Research Plan" shall mean the research activities to be conducted
by the parties pursuant to the Target Research. The initial Research Plan is
attached as Exhibit A which may be amended from time to time upon the mutual
agreements of the parties.
1.17. "Research Term" shall mean the term of the Target Research
referenced in Article 3.
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1.18. "Signal Compound" means a compound selected from a Signal Library,
Signal internal development or otherwise from a third party source engaged by
Signal to provide compounds.
1.19. "Signal Library" means a Library designed and/or synthesized or
acquired by Signal (alone or with third parties).
1.20. "Signal Technology" means all inventions, know-how, trade secrets,
and other proprietary information (whether patented or not), which are owned by
Signal as of the Effective Date or developed during the Research Term, as to
which Signal has the right to grant to Organon a license hereunder, and
consisting of methods and materials for the production and/or use of biological
assays. Signal Technology shall not include any inventions covered by any
Research Assay Patent, Gene/gen product Patent or Compound Patent.
1.21. "Signal Technology Patents" means all patents and patent
applications (including provisionals, divisionals, continuations, continuations
in part, reissues, re-examinations, substitutions, additions and any extensions
to such patents) claiming Signal Technology. Signal Technology Patents shall not
include any Research Assay Patent, Gene/gen product Patent or Compound Patent.
1.22. "Target Research" means the research and development program
directed toward the Target Research Field conducted by the parties pursuant to
Article 3 of this Agreement.
1.23. "Target Research Field" means [***], for human therapeutic and/or
diagnostic use; provided, however, the Target Research shall exclude [***].
2. EXECUTIVE COMMITTEE
2.1. The parties will establish an Executive Committee for the purposes
of developing, reviewing and monitoring research plans, research budgets and
changes thereto, and supervising the Target Research within the parameters
established in this Agreement. The Executive Committee shall have such even
number of members as the parties shall agree, half of the members being
appointed by each party, with each of Signal and Organon having one vote. In the
event of deadlock on any issue, such issue shall be referred for decision to a
senior officer designated by each party, which officer shall have the
appropriate responsibility and authority to represent and bind such party with
respect to such issue or dispute. During the Research Term, the Executive
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Committee shall meet not less than twice per year, and the location of such
meetings shall alternate between San Diego and Oss, all unless otherwise agreed
by the parties.
3. TARGET RESEARCH
The Target Research shall commence upon the Effective Date and shall
continue for three years thereafter, extendible for up to two additional years
under substantially the same FTE funding and other terms as are set forth
herein, with mutual consent. If the milestone described in Exhibit B is not met
within 8 months after the Effective Date Organon at its sole discretion may
forthwith terminate the Target Research by written notice effective as of the
first anniversary of the Effective Date. If the milestone described in Exhibit C
is not met within 18 months after the Effective Date Organon at its sole
discretion may terminate the Target Research effective as of the second
anniversary of the Effective Date. For purposes of this Agreement, the "Research
Term" shall be the period from the Effective Date until the Target Research
expires or is terminated pursuant to this Article 3. Under the Target Research
Signal shall use reasonable efforts to deliver up to [***] Research Assays to
Organon.
If Organon elects to terminate the Target Research (a) at the end of the
first year as provided above or (b) prior to receiving the [***] and paying the
first milestone under Section 3.2.1(a), whichever is earlier, then this
Agreement and all licenses granted hereunder shall terminate, except that the
provisions listed in Section 9.3(b) shall survive. Otherwise, this Agreement
shall survive termination or expiration of the Target Research.
3.1. RESEARCH PROGRAM
3.1.1. The parties agree to execute the Research Plan subject to
the following:
(a) Signal agrees that, during the Research Term, Signal
shall collaborate exclusively with Organon within the Target Research Field.
(b) Signal will not actively participate with third
parties in the design of new Research Assays, for use within the Target Research
Field, during the Research Term or for one year after termination of the Target
Research by Organon pursuant to Section 3 above. If the Target Research
continues for the full three year term, Signal will refrain from such activities
for one year after the end of the Research Term, provided, however, if any
milestone payments pursuant to Sections 3.2.1(b) or 3.2.1(c) are made during
such four-year period, then Signal will refrain from such activities for five
years after the end of the Research Term, and if any royalties are paid under
Section
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3.2.3 during such five-year period, then Signal will refrain from such
activities for the term of this Agreement.
(c) Organon shall, at its discretion, provide access to
its proprietary technologies and know-how, as may be useful in connection with
the Target Research. For clarity of understanding, Signal shall not have the
right to utilize such technologies and know-how other than in connection with
the Target Research.
3.1.2. The Target Research shall be implemented by the Research
Committee which shall be comprised of an equal number of members, but not more
than four, from each party.
Membership of the Research Committee will be determined according
to the needs of the particular project. The leaders of the Research Committee
shall be nominated by the Executive Committee. In the event of deadlock on any
matter the Research Committee shall refer such matter to the Executive
Committee.
The Research Committee shall meet as often as may be required for
the purposes of the Target Research but in any event not less than four times
per year, again unless otherwise agreed by the parties. Written reports of such
meetings and of the status of the individual projects shall be submitted to the
Executive Committee. Unless otherwise agreed, meetings shall alternate between
the relevant sites of Signal and Organon.
3.1.3. In consideration of the exclusive rights given to it
Organon shall pay, within five (5) days after the Effective Date, to Signal a
fee of One Million Dollars (U.S. $1,000,000).
3.1.4. In addition, Organon shall pay Signal's fully-burdened costs per
year per FTE actively engaged in the Target Research. The initial rate shall be
[***] per FTE per year, this amount to be increased annually, effective January
1 of each calendar year, commencing January 1, 1998, based on increases in the
United States Consumer Price Index for all Urban Consumers, all items not
seasonally adjusted (sources Bureau of Labor Statistics) for the previous
calendar year. This payment also compensates Signal for all ordinary travel
expenses incurred by such FTE's in attending meetings or the Research Committee
and/or Executive Committee.
Unless otherwise agreed in writing, Signal shall make available,
on average, the FTEs as set forth in Exhibit D. Such FTEs shall include a
balanced group of Ph.D. or equivalent, scientists and other technical support
personnel.
The annual cost of such FTEs shall be due and payable in equal
quarterly installments in advance, on the following schedule. The first such
payment shall be due
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and payable upon the Effective Date, and shall cover the FTE cost from such date
through the end of the then current quarterly period, on a prorated basis.
Thereafter, for the remainder of the Target Research, FTE payments for each
quarterly period shall be due and payable on each January 15, April 15th, July
15th and September 15th in U.S. dollars by bank wire transfer. Signal shall
submit corresponding invoices to Organon no later than forty-five (45) days
before the date upon which payment is due, with the last payment also being
prorated. Such payments shall be subject to reconciliation in accordance with
Section 3.1.5 herein.
3.1.5. Signal will keep records of the time spent by its FTEs on
the Target Research, Organon shall have the right to have these records audited,
in the same manner as is set forth in Section 6.4. Signal will report the level
of FTE effort to Organon on a quarterly basis. During the course of the Target
Research, Signal will notify Organon if it becomes apparent that the level of
effort at Signal is expected to deviate from the level required under Section
3.1.4.
If the level of effort is less than an average, on an annual
basis, of the number of FTE's required pursuant to Section 3.1.4, Organon will
be entitled to additional FTE effort in subsequent quarterly periods, such that
the required annual average is restored. Conversely, if the average annual level
of effort by Signal exceeds the number of FTE's required and funded pursuant to
Section 3.1.4, Signal will be entitled to reduce the FTE effort in subsequent
quarterly periods, such that the required annual average is restored. At the end
of the Target Research the parties will restore any such imbalance between
actual and funded FTE's either through appropriate payments or refunds, or
through the extension of the Target Research until the balance is restored, as
mutually agreed to by the parties.
3.2. DEVELOPMENT AND COMMERCIALIZATION
The provisions of this Section 3.2 shall apply to all compounds (the
"Lead Compounds") which result from the use of Research Assays.
3.2.1. ORGANON MILESTONE PAYMENTS.
(a) Organon shall pay Signal [***].
(b) [***].
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(c) For Development Compounds, the following milestone
payments shall be made by Organon to Signal.
(i) [***]
(ii) [***]
(iii) [***]
For clarity of understanding the milestones referred
to in Section 3.2.1(c) shall each be payable only once for each compound; such
that the maximum aggregate milestone payments for a single compound will be
[***].
(d) If more than one Organon Product is commercialized
originating from the same selection criteria and Research Assay(s) as a back-up
to another Organon Product for which milestones have already been paid, and
which is approved for the same therapeutic indication as such Organon product,
Organon shall pay Signal retroactively the payments under Section 3.2.1(b) and
(c) upon the date of first commercial sale of each such second or further
Organon Product.
3.2.2. THIS SECTION INTENTIONALLY LEFT BLANK
3.2.3. ROYALTIES
As a further compensation for providing the Research Assays to
Organon, on each Organon Product Organon shall pay the following royalties to
Signal:
(a) For each Organon Product which contains an Organon
Compound, or an analog, derivative or homolog of an Organon Compound and not an
analog, derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product do not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for the Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Organon Product exceed [***].
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For each Organon Product which contains a Signal Compound, or an analog,
derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product does not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for such Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for such Organon Product exceed [***].
(b) In addition to the royalties set forth above, Organon
shall pay to Signal all royalties owed by Signal, pursuant to its agreements
with third parties, for the use of Signal Compounds, Compound Patents, Signal
Technology, Signal Technology Patents, Research Assay Patents or Gene/gen
product Patents in the Target Research or otherwise under this Agreement.
Notwithstanding the foregoing, Signal shall notify the Research Committee before
using in the Target Research, any Signal Technology or invention covered by
Signal Technology Patents, Research Assay Patents or Gene/gen product Patents
(but not Signal Compounds or Compound Patents) which is subject to such a
royalty obligation to a third party. If the Research Committee elects to make
use of such technology or inventions, Organon shall pay such royalties as
provided above. If the Research Committee elects not to make use of such
technology or invention, no such royalties shall be owed by Organon and neither
party shall apply such technology or invention to the Target Research. As of the
date of this Agreement, Signal has no agreements with third parties pertaining
to the use of Signal Compounds, Compound Patents, Signal Technology, Signal
Technology Patents, Research Assay Patents or Gene/gen product Patents under
which royalties will be due for the use of such compounds, technology or patents
in the manner contemplated under this Agreement.
(c) Royalties shall be paid until the later of
(i) the expiration or disclaimer of the last Research
Assay Patent Genes/Receptor Patent Compound Patent, a Signal Technology Patent
that covers the relevant Organon Product or the manufacture or use thereof for
an approved indication on a country by country basis or
(ii) ten (10) years from the first commercial
launch in each country.
Each party acknowledges and agrees that the Signal
Technology generally, and the Research Assays in particular, constitute highly
valuable materials and information, as reflected for example in the payments to
be made by Organon under Section 3.2.1(a), as well as those to be made under
Sections 3.1.3 and 3.1.4. Signal has made every effort to retain such materials
and information in
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confidence. Irrespective of whether the Research Assays, for example, are
covered by Research Assay Patents, access to such assays will provide Organon
with substantial competitive advantage in the discovery and development of
products in the Target Research Field. In order to induce Signal to make such
assays available to Organon, in addition to other payments provided in this
Agreement, Organon agrees to pay, even if no Research Assay Patents or other
patents cover such Organon Product, (i) royalties on Net Sales in North America
at the rate set forth above for [***] from commercial launch of each Organon
Product in each North American country, and (ii) a royalty of [***] on Net Sales
in each other country for [***] from commercial launch of each Organon Product
in each such country.
3.2.4. Lead Compound Development; Abandoned Products
(a) Organon agrees to use commercially reasonable
diligence to develop and commercialize Lead Compounds for development and
commercialization as an Organon Product. Organon will keep Signal informed of
the progress of its development of products under this Section 3.2, at each
meeting of the Executive Committee during the Research Term, and not less
frequently than once per year thereafter.
(b) If at any time Organon has conducted no significant
development activity with regard to a particular Signal Compound for a period of
twelve months, Signal will have the right to develop and commercialize products
incorporating such Signal Compound ("Abandoned Products"), subject to the
following. Signal shall not develop or commercialize any Abandoned Product so
long as Organon is developing an Organon Product with demonstrated activity in
the same Research Assay (or set of Research Assays) as the Abandoned Product
demonstrates activity in. Signal may not commence development of any Abandoned
Product until the first anniversary of the conclusion of the Target Research.
(c) For the one year period commencing on the date Signal
first obtains the right to develop an Abandoned Product, Organon shall have the
following right of first negotiation to re-acquire rights to such Abandoned
Product. Upon notice by either party during such one year period, the parties
shall negotiate in good faith for up to sixty (60) days to reach a Term Sheet
providing for Organon to re-acquire such rights. If a Term Sheet can be agreed
upon, the parties shall negotiate in good faith for up to sixty (60) additional
days to reach a definitive agreement. If no definitive agreement is executed
within such time period, Signal shall be free to pursue such Abandoned Product
alone or with third parties subject only to royalties at the following rates:
[***] of Net Sales if aggregate annualized worldwide Net Sales for the Abandoned
Product do not exceed [***], [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Abandoned Product are greater than [***] and do not
exceed [***],
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and [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Abandoned Product exceed [***], which shall be paid in accordance with the
mechanisms set forth in Sections 3.2.3(c) and Section 6 with respect to Organon
Products.
3.3. TITLE TO NEW INVENTIONS AND PATENT RIGHTS
3.3.1. Inventions and discoveries made by inventors employed by
Signal shall be owned by Signal, Inventions and discoveries made by inventors
employed by Organon shall be owned by Organon. Inventions and discoveries made
by both inventors employed by Signal as inventors employed by Organon shall be
jointly owned.
Each party shall provide the other party with any and all
available information and documentation needed to prepare, file, prosecute,
re-examine patent applications. Both parties shall refrain from any action that
might endanger possible patent rights arising from the Target Research.
3.3.2. PATENT COMMITTEE. The parties shall form a joint Patent
Committee to review the preparation and prosecution of patents arising from the
Target Research. The Patent Committee shall include a patent attorney designated
by each party and the chemistry program head designated by each party. All
patent applications arising from the Target Research shall be evaluated in
accordance with the following process:
(a) The designated patent attorneys from each party shall
advise the Executive Committee on inventorship issues related to patents arising
from the Target Research.
(b) Unless otherwise agreed, patents and patent
applications owned by one party shall be drafted, filed, prosecuted and
maintained by the party that owns the patent rights, as provided in Section
3.3.1 at that party's expense. The Patent Committee shall decide which party
will draft and prosecute joint patents in consultation with the other party: the
expenses for the drafting and prosecution of such patent shall be shared equally
between the parties. In all cases, each party shall keep the other party
informed as to the status and progress of all relevant patents and patent
applications; and shall draft, file, prosecute and maintain joint patents and
patent applications in consultation with the other party.
(c) If there is a dispute between Signal and Organon
related to patents arising from the Target Research, including, without
limitation, issues regarding patent claims, the scope of patent claims; and
inventorship, the parties shall refer the matter to an independent patent
attorney acceptable to both parties for resolution.
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3.4. LICENSES AND OPTION RIGHTS
Subject to the terms and conditions of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, during the Research Term
only under the Signal Technology within the Target Research Field to conduct
research in accordance with the Research Plan. Subject to the terms of this
Agreement, Signal hereby grants to Organon a world-wide exclusive license, for
the period following the end of the Research Term until this Agreement expires
or is terminated, to use the Signal Compounds and under the Research Assay
Patents, Gene/gen product Patents and Compound Patents to research, develop,
make, have made, use and sell Organon Products; provided, however, that any
compound from any source that is useful for the [***] shall be specifically
excluded from the scope of the foregoing license. If, however, a compound has
been selected in the Target Research Field that potentially is useful for the
[***], the parties shall negotiate in good faith, together with any of Signal's
licensee(s) in such field, a possible extension of the foregoing license with
regard to such compound. Subject to the terms of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, for the period following
the end of the Research Term until this Agreement expires or is terminated, to
use the Signal Technology and Signal Technology Patents for any purpose in the
Target Research Field. Organon shall have the right to grant sublicenses under
its exclusive license rights, with the prior written consent of Signal, not to
be unreasonably withheld; provided that such consent shall not be required for
sublicenses to Organon's Affiliates.
4. PATENT ENFORCEMENTS
4.1. INFRINGEMENT ACTION BY A THIRD PARTY
4.1.1. NOTICE. Each party shall promptly notify the other party
if any legal proceedings are commenced against any party or any purchaser of a
Organon Product, claiming that the manufacture, use or sale of such Organon
Product is an infringement of a third party's patent or other intellectual
property rights.
4.1.2. DEFENSE OF CLAIMS INVOLVING ORGANON PRODUCT. Organon shall
have the right, and to the extent required by Section 5.1, the obligation to
assume and solely manage the defense of any such infringement claim relating to
the Organon Product in its own name or in the name of Signal, if necessary, in
such event.
(i) Signal shall take all appropriate or necessary
actions to assist in the defense of such action or claim
(ii) Organon shall bear all costs and expenses
associated with such action or claim (including, without limitation, legal fees
and expenses).
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(iii) Organon shall not settle any such claim in any
manner which adversely affects Signal without Signal's prior written consent.
4.2. INFRINGEMENT ACTION AGAINST A THIRD PARTY
4.2.1. NOTICE. Each party shall promptly notify the other party
if it becomes aware of any infringement of any Signal Patents or Organon Patents
by any third party.
4.2.2. MAINTENANCE OF LAWSUITS INVOLVING SIGNAL PATENTS. Signal
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Signal Patents by any third party, in its own
name or in the name of Organon, if necessary. If Signal exercises its right to
file and maintain such a lawsuit, Signal shall promptly notify Organon thereof
and Organon shall have the right to join Signal in such action. Within 30 days
of the date of such notice,
(i) Organon shall exercise or waive its right to join Signal in such
action; and
(ii) representatives of Signal and Organon shall meet and confer
(whether or not Organon joins Signal in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement.
Organon shall give Signal all reasonable assistance and cooperate in any
such proceedings filed by Signal, including the entry into additional agreements
necessary to perfect Signal's right to bring or maintain such lawsuits. If
Signal does not exercise its rights to enforce a patent covering Organon Product
within 90 days after the date of such notice of infringement under Section
4.2.1, Organon shall have the right to file and maintain such infringement
action at its own cost and expense, provided that the third party product which
is the subject of such infringement action is a competing product with respect
to the Organon Product. [***] of the costs incurred by Organon in maintaining
such infringement action shall be credited against Organon's royalty obligation
with respect to sales of Organon Product in such country pending the conclusion
of such infringement action, provided that such credit shall not exceed [***] of
the royalty otherwise payable by Organon in any quarter (the "Royalty Offset").
Any monetary recovery in connection with any such infringement action shall
first be applied to reimburse the party bringing such suit for all costs and
expenses incurred by such party, both internal and external, including
attorney's fees and expenses (excluding any amounts funded out of the Royalty
Offset). In the event that Signal declines to file and maintain a lawsuit for
infringement of Signal Patents and Organon assumes the maintenance of such
claim, then any sums withheld by Organon by virtue of the Royalty Offset shall
be reimbursed to Signal pro rata with Organon's recovery of its costs and
expenses which were not covered
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by the Royalty Offset. Any remaining recovery shall be divided equally between
the parties unless Organon elects not to bear [***] the expenses of a suit
brought by Signal, in which case Signal shall retain any remaining recovery,
unless otherwise agreed by the parties as a part of a cost recovery agreement
between the parties.
4.2.3. MAINTENANCE OF CLAIMS INVOLVING ORGANON PATENTS. Organon
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Organon Patents by any third party in its own
name or in the name of Signal, if necessary. If Organon exercises its right to
file and maintain such a lawsuit, and the infringer is developing or marketing a
product that would compete with an Abandoned Product which Signal is developing
or commercializing, then Organon shall promptly notify Signal thereof and Signal
shall have the right to join Organon in such an action. Within 30 days of the
date of such notice
(i) Signal shall exercise or waive its right to join Organon in such
action; and
(ii) representatives of Signal and Organon shall meet and confer
(whether or not Signal joins Organon in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement. In any case, Signal
shall give such Organon all reasonable assistance and cooperation in any such
proceedings filed by Organon, including the entry into additional agreements
necessary to perfect Organon's right to bring or maintain such lawsuits. If
Organon does not exercise its right to enforce an Organon Patent within 90 days
after the date of such notice of infringement under Section 4.2.1, then Signal
shall have the right to file and maintain such infringement action at its own
cost and expense, provided that the third party product which is the subject of
such infringement action is a competing product with respect to the Abandoned
Product which Signal is developing or commercializing. [***] of the costs
incurred by Signal in maintaining such infringement action shall be credited
against Signal's royalty obligations with respect to sales of such Abandoned
Product in such country pending the conclusion of such infringement action,
provided that such credit shall not exceed [***] of the royalty otherwise
payable by Organon in any quarter (the "Royalty Offset"). Any monetary recovery
in connection with any such infringement action first will be applied to
reimburse the party bringing such suit for all costs and expenses incurred by
such party, both internal and external, including attorneys' fees and expenses
(excluding any amounts funded out of the Royalty Offset). In the event that
Organon declines to file and maintain a lawsuit for infringement of such an
Organon Patent, and Signal assumes the maintenance of such claim, then any sums
withheld by Signal by virtue of the Royalty Offset shall be reimbursed to
Organon pro rata with Signal's recovery of its costs and expenses which were not
covered by the Royalty Offset. Any remaining recovery shall be divided equally
between the parties unless Signal elects not to bear [***] the expenses of a
suit brought by Organon, in which case Organon shall retain any remaining
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recovery, unless otherwise agreed by the parties as a part of a cost recovery
agreement between the parties
5. INDEMNITY; NO WARRANTIES
5.1. ORGANON PRODUCTS
5.1.1. Organon agrees to indemnify, defend and hold harmless
Signal, and its respective officers, directors, shareholders, and employees from
and against all claims, losses, costs, damages and liability of any kind,
including without limitation attorneys fees, (collectively "Liabilities")
arising in connection with the development, manufacture, use or sale of Organon
Products, except for Liabilities arising as a result of breach by Signal of its
obligations under this Agreement, or any manufacturing, marketing or other
agreement between the parties with respect to the product in question. Signal
shall not make any admission of liability nor take any other action which could
prejudice the defense of such claim or lawsuit by Organon.
5.1.2. Signal shall promptly notify Organon of receipt of any
claim or lawsuit subject to Section 5.1.1 and shall cooperate with Organon in
connection with the investigation and defense of such claim or lawsuit. Organon
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.
5.2. ABANDONED PRODUCTS
5.2.1. Signal agrees to indemnify, defend and hold harmless
Organon, and its respective officers, directors, shareholders, and employees
from and against all Liabilities arising in connection with the development,
manufacture, use or sale of Abandoned Products, except for Liabilities arising
as a result of breach by Organon of its obligations under this Agreement, or any
manufacturing, marketing or other agreement between the parties with respect to
the product in question. Organon shall not make any admission of liability nor
take any other action which could prejudice the defense of such claim or lawsuit
by Signal.
5.2.2. Organon shall promptly notify Signal of receipt of any
claim or lawsuit subject to Section 5.2.1 and shall cooperate with Signal in
connection with the investigation and defense of such claim or lawsuit. Signal
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.
5.3. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF
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MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY
LIBRARIES OR OTHER BIOLOGICAL OR CHEMICAL MATERIALS OR INFORMATION PROVIDED TO
THE OTHER PARTY PURSUANT TO THIS AGREEMENT OR THE PATENTABILITY OR FREEDOM FROM
INFRINGEMENT OF ANY OF THE FOREGOING.
6. PAYMENTS AND ACCOUNTING
6.1. All payments hereunder shall be made in U.S. Dollars.
6.2. Organon shall keep true and correct accounts of sales of all
products in respect of which royalties are payable to Signal pursuant to this
Agreement, and the calculation of Net Sales and royalties with respect thereto,
and shall deliver to Signal written statements thereof in such form as both
shall agree upon within sixty (60) days following the end of each calendar
quarter and at the same time shall pay to Signal the amount of such royalties
shown to be due.
6.3. All royalties shall be earned in the local currency of the country
where the applicable Net Sales are made, but shall be converted for payment into
U.S. Dollars, in accordance with the standard procedures used by the Organon in
converting currencies of world-wide product sales for its products generally.
If royalties cannot be remitted from a country, the parties will
work together to arrive at an equitable solution for paying such royalties to
Signal. Unless the parties mutually agree to the contrary, such obligation shall
be satisfied if royalty payments are paid to an account of the party in the
country in question.
Any withholding or other tax that Organon is required by law to
withhold and pay on behalf of Signal with respect to the royalties payable to
Signal under this Agreement shall be deducted from said royalties and paid
contemporaneously with the remittance to Signal; provided, however, that in
regard to any tax so deducted, Organon shall furnish Signal with proper evidence
of the taxes paid on its behalf.
6.4. Signal shall have the right to have an independent certified public
accountant of its own selection and at its own expense, except one to whom
Organon may have reasonable objection, examine the relevant books and records of
account of Organon during reasonable business hours, to determine whether
appropriate accounting and payment have been made hereunder. Said independent
certified public accountant shall treat as confidential, and shall not disclose
to Signal any other information not pertaining to the royalty amounts payable
under this Agreement. Such examination can be undertaken at any time within two
years after the date on which such royalty amounts were due and payable.
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7. PUBLICITY AND PUBLICATION
7.1. The parties will mutually agree on a press release to be issued
upon execution of this Agreement. Neither party shall make any subsequent public
announcement concerning the terms of this Agreement not previously made public
without the prior written approval of the other party with regard to the form,
content and precise timing of such announcement, except such as may be required
to be made by either party in order to comply with applicable law, regulations
or court orders. Such consent shall not be unreasonably withheld or delayed by
the other party. Prior to any such public announcement, the party wishing to
make the announcement will submit a draft of the proposed announcement of the
other party in sufficient time to enable the other party to consider and comment
thereon. Nothing in this section shall preclude disclosures by either party to
third parties under confidentiality restrictions in order to carry out the
purposes of this Agreement or to define the scope of rights which may be granted
to a third party without violating this Agreement.
7.2. PUBLICATIONS. Neither party will publish or publicly disclose
results arising from the Target Research without the prior consent of the other
party, which consent shall not be unreasonably withheld. With respect to any
proposed publication or public disclosure of such results, the following shall
apply:
7.2.1. The Research Committee shall review any proposed
publication with respect to the content, authorship, acknowledgment, and shall
either approve release of the publication, or propose revisions to the
publication. Any disputes relating to the contents or authorship of any
publication(s) prepared by Signal and Organon scientists participating in the
Target Research shall be referred to the Executive Committee for resolution.
7.2.2. The proposed publication shall be reviewed by the patent
departments and any other departments of Organon and Signal in accordance with
their customary procedures.
7.2.3. At such time as the proposed publication has been reviewed
and approved by the Research Committee and the patent and/or other departments
of Organon and Signal, the publication may be submitted for publishing.
8. CONFIDENTIALITY
8.1. Except as specifically authorized under the terms of this Agreement
each party shall, for the term of this Agreement and for five (5) years after
its termination for any reason whatsoever, treat any proprietary information
disclosed to it by the other party as strictly confidential, and shall not
disclose such proprietary information to third parties or use it for purposes
other than those authorized therein.
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Except as set forth in the exceptions hereinafter any
information, data or material, including without limitation, software,
technology, business plans or information, communicated to the other which is
identified as confidential, or which the other party has reason to believe is
confidential, will be deemed and treated as Proprietary Information.
Proprietary Information also includes proprietary chemical,
physical or biological materials, identified as confidential, exchanged pursuant
to this Agreement. Access to such Proprietary Information will be limited to
those employees or consultants of the party receiving such information or of
such party's Affiliates or sublicensees, who reasonably require such information
in order to carry out activities authorized pursuant to this Agreement. Such
employees or consultants will be advised of the confidential nature of the
Proprietary Information and the related confidentiality undertaking.
Proprietary Information shall not include, and the above
confidentiality undertaking shall in no event restrict or impair each party's
right to use or disclose any information which:
(a) at the time of disclosure is in the public domain or
thereafter becomes part of the public through no fault of the party receiving
such information;
(b) the party receiving such information can conclusively
establish that it was in its possession prior to the time of disclosure;
(c) is independently made available to the party receiving
such information by a third party who is not thereby in violation of a
confidential relationship with the other party; or
(d) the receiving party can establish was independently
developed without use of the Proprietary Information of the other party.
The receiving party shall not be restricted from disclosing such
information as is required to be disclosed by law, regulation, or court or
governmental order, provided that the receiving party reasonably notifies the
disclosing party prior to such disclosure of such requirement.
Upon termination of this Agreement, and provided the Proprietary
Information is still of a confidential nature, the party recipient of the
Proprietary Information will upon request from the disclosing party either
return any such information or destroy the same.
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9. TERM AND TERMINATION
9.1. The Research Term shall be as set forth in Article 3.
9.2. Unless terminated earlier under Section 9.3, this Agreement shall
continue in full force and effect until the expiration of all milestone and
royalty obligations or Organon under Article 3. Upon expiration of this
Agreement under this Section 9.2, Organon shall have fully paid-up licenses,
respectively, under Section 3.4.1, and the provisions identified in Section
9.3(a) shall survive expiration hereof.
9.3. Early termination.
(a) In the event of material breach of this Agreement by
either party, the matter shall be submitted for resolution to the chief
executive officers of each party. If, 30 days after submission to the respective
chief executive officers, no resolution is achieved, then the non-breaching
party may send written notice of the alleged default to the breaching party. If
the material breach is not cured with sixty (60) days following receipt of such
notice, the non-breaching party may terminate this Agreement immediately upon
written notice to the breaching party.
(b) The parties acknowledge that under this Agreement,
each party holds a complex series of ongoing technology rights and licenses,
development rights and obligations, and economic rights and obligations; the
breach of which may not be adequately compensated in monetary damages alone. The
parties therefore agree that each may be entitled to remedies in the nature of
specific performance of the obligations of the other.
(c) In all cases of early termination or expiration of
this Agreement, the following provisions shall survive, together with any other
obligations of either party which have accrued as of the effective date of
termination or expiration: Articles 5, 7, 8, 9 and 10 and Section 6.4.
9.4. All licenses granted under this Agreement and deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"intellectual property" as defined in Section 101 of such Code. The parties
agree that Organon may fully exercise all of its rights and elections under the
Bankruptcy code. The parties further agree that, in the event Organon elects to
retain its rights as a licensee under such Code, Organon shall be entitled to
complete access to any technology licensed to it hereunder and all embodiments
of such technology. Such embodiments of the technology shall be delivered to
Organon not later than:
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(a) the commencement of bankruptcy proceedings against
Signal, upon written request, unless Signal elects to perform its obligations
under the Agreement, or
(b) if not delivered under (a) above, upon the rejection
of this Agreement by or on behalf of Signal, upon written request by Organon.
9.5. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST
PROFITS OR ANY CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THE OTHER PARTY,
HOWEVER CAUSED, IN CONNECTION WITH THIS AGREEMENT, PROVIDED THAT NOTHING IN THIS
SECTION 9.5 SHALL LIMIT THE INDEMNIFICATION OBLIGATIONS OF EITHER PARTY PURSUANT
TO ARTICLE 5 AS TO CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THIRD
PARTIES FOR WHICH THE INDEMNITEES MAY BE LIABLE.
10. MISCELLANEOUS
10.1. Neither party shall have the right to assign its rights or
obligations under this Agreement to any third party, other than an Affiliate of
such party, or a successor in a change of control by way of merger, acquisition
or otherwise, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. The foregoing notwithstanding,
Organon's prior written consent shall be required during the period beginning
with the Effective Date and ending on the date that is one year following the
Research Term, with regard to assignment under this Agreement to a successor to
Signal which is a direct competitor with Organon. If Organon withholds consent
to an assignment to such a direct competitor, Signal shall have the right to
terminate the Target Research and Organon shall retain all rights as if the
Target Research Program had continued for the full term. This Agreement shall be
binding on, and inure to the benefit of, the permitted successors and assigns of
the parties. All permitted sublicenses and/or assignments by either party of any
of its rights under this Agreement shall be subject to all of the terms and
conditions of this Agreement, which shall be binding on the sublicensees and/or
assignees.
10.2. The parties hereto are independent contractors. Nothing contained
herein shall constitute either party the agent of the other party for any
purpose whatsoever, or constitute the parties as partners or joint venturers.
Employees of each party remain employees of said party and shall be considered
at no time agents of or render a fiduciary duty to the other party. Neither
party hereto shall have any implied right or authority to assume or create any
obligations on behalf of or in the name of the other party or to bind the other
party to any other contract, agreement or undertaking with any third party.
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10.3. No amendment, waiver of modification of this Agreement shall be
valid or binding on either party unless made in writing and signed by both
parties. The failure of either party to enforce any provision of this Agreement
at any time shall not be construed as a present or future waiver of such or any
other provision of this Agreement. The express waiver by either party of any
provision or requirement hereunder shall not operate as a future waiver of such
or any other provision or requirement.
10.4. In the event that any provision in this Agreement shall be held to
be unlawful or invalid in any jurisdiction, the meaning of such provision shall
be construed to the greatest extent possible so as to render it enforceable. If
no such construction can render such provision enforceable, it shall be severed,
and the remainder of the Agreement shall remain in full force and effect, only
to the extent that such remainder is consistent with the intentions of the
parties as evidenced by this Agreement as a whole. The parties shall use best
efforts to negotiate in good faith a reasonable substitute, valid and
enforceable provision effective in such jurisdiction.
10.5. Any notice required or permitted to be given by either party under
this Agreement shall be in writing, addressed, in the case of Signal, to its
Chief Executive Officer, with copy to its General Counsel, and in the case of
Organon, to its President with copy to its General Counsel, at the respective
addresses of the parties shown in the first paragraph of this Agreement, or such
other address as may from time to time be indicated in a notice given under this
Section 10.5. All notices shall be sent by certified or registered first class
mail, telefax confirmed by certified or registered first class mail, or personal
delivery, and shall be effective on receipt at the address referenced above.
10.6. Neither party will be deemed in breach of this Agreement as a
result of default, delay or failure to perform by such party which is due to
causes beyond the reasonable control of such party, including without
limitation, fire, earthquake, act of God, severe weather, act of war, strikes,
lockouts or other labor disputes, riots, civil disturbances, actions or
inactions of governmental authorities (except in response to a breach by such
party), or epidemics. In the event of any such force majeure, the party affected
shall promptly notify the other party, shall use all reasonable efforts to
overcome such force majeure, and shall keep the other party informed with
respect thereto.
10.7. All headings and captions used in this Agreement are for
convenience only, and are not intended to have substantive effect.
10.8. This Agreement may be executed by the parties in one or more
identical counterparts, all of which together shall constitute this Agreement.
10.9. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
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10.10. DISPUTE RESOLUTION
10.10.1. All disputes of all types under this Agreement shall be
referred to the Executive Committee for resolution. The Executive Committee
shall use all reasonable efforts to resolve such matters within thirty (30) days
after such referral, including referral of questions to outside independent
experts where the Executive Committee deems appropriate.
10.10.2. If the Executive Committee is unable to resolve such
dispute the dispute shall be referred to the Chief Executive Officers ("CEOs")
of the parties for resolution.
10.10.3. In the event the CEOs are not able to resolve such
dispute within thirty (30) days after the matter is referred to them, the
following shall apply:
(a) Prior to entering into binding arbitration in
accordance with the provisions of Section 10.10.3(b) below, the parties shall
enter into non-binding mediation. The mediation shall be conducted by an
independent mediator acceptable to both parties. Either party may serve upon the
other party a written demand for mediation. Such mediation shall commence within
thirty (30) days of the other party's receipt of such demand, unless otherwise
agreed in writing by the parties. Each party shall make available to the
mediation an authorized representative with the capacity to bind such party, and
the mediation shall be conducted as deemed appropriate by the mediator.
(b) In the event that the dispute cannot be resolved by
the mediation mechanism referenced in Section 10.10.3(a) the dispute shall be
referred to arbitration in accordance with the rules then prevailing of the
Center for Public Resources ("CPR") 680 Fifth Avenue, New York, New York 10019
unless otherwise mutually agreed. The arbitration shall be conducted in New York
City, New York. Unless otherwise agreed by the parties the arbitration panel
shall consist of arbitrator selected in accordance with the CFR rules.
This section 10.10.3 shall not limit the rights of any
party to seek in court of competent jurisdiction interim relief and only such
interim relief, as may be needed to maintain the status quo or otherwise protect
the subject matter of the dispute until the arbitrators have been appointed and
shall have had an opportunity to act.
10.11. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all previous agreement,
understandings and negotiations, whether oral or written, with respect to such
subject matter. All information exchanged pursuant to the Confidentiality
Agreement dated _________, 199_ shall be governed by Article 8.
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Executed and effective as of the date first set forth above.
N.V. ORGANON SIGNAL PHARMACEUTICALS, INC.
By:________________________ By:_________________________________
Title:_____________________ Title:______________________________
By:________________________
Title:_____________________
23.
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EXHIBIT A
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EXHIBIT B
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EXHIBIT C
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EXHIBIT D
[***]
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Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.37
FIRST AMENDMENT TO AGREEMENT
THIS FIRST AMENDMENT (the "First Amendment") to the Agreement by and
between N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the Netherlands
(hereinafter referred to as "Organon"), and SIGNAL PHARMACEUTICALS, INC., 5555
Oberlin Drive, San Diego, California 92121, USA (hereinafter referred to as
"Signal"), dated as of July 30, 1996 (the "Agreement") is entered into as of
March 17, 1998 (the "First Amendment Date"). Capitalized terms used but not
otherwise defined in this First Amendment shall have the meanings given such
terms in the Agreement.
RECITALS
WHEREAS, Organon and Signal entered into the Agreement to collaborate in
the discovery and development of new assays for the targets selected as provided
in the Agreement; and
WHEREAS, Organon and Signal wish to amend the Agreement in the manner
set forth in this First Amendment and otherwise to provide for certain
agreements by the parties as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. AMENDMENT AND RESTATEMENT OF SECTION 3. The first and second paragraphs of
Section 3 of the Agreement are hereby amended and restated in their entirety as
follows:
"3. TARGET RESEARCH.
The Target Research shall commence upon the Effective Date and
shall continue for three years thereafter, extendible for up to two
additional years under substantially the same FTE funding and other
terms as are set forth herein, with mutual consent. If the milestone
described in Exhibit B is not met within 9 months after the First
Amendment Date, Organon at its sole discretion may forthwith terminate
the Target Research by written notice effective as of the first
anniversary of the Effective Date. If the milestone described in Exhibit
C is not met within 12 months after the First Amendment Date, Organon at
its sole discretion may terminate the Target Research effective as of
the end of the 18th month following the First Amendment Date. For
purposes of this Agreement, the "Research Term" shall be the period from
the Effective Date until the Target Research expires or is terminated
pursuant to this Article 3. Under the Target Research
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Signal shall use reasonable efforts to deliver up to [***] Research
Assays to Organon.
If Organon elects to terminate the Target Research (a) as of the
first anniversary of the First Amendment Date as provided above or (b)
prior to receiving the First Research Assay from Signal and paying the
first milestone under Section 3.2.1(a), whichever is earlier, then this
Agreement and all licenses granted hereunder shall terminate, except
that the provisions listed in Section 9.3(b) shall survive. Otherwise,
this Agreement shall survive termination or expiration of the Target
Research."
2. AMENDMENT AND RESTATEMENT OF SECTION 3.4. Section 3.4 of the Agreement is
hereby amended and restated in its entirety as follows:
"3.4. LICENSES AND OPTION RIGHTS
3.4.1. Subject to the terms and conditions of this
Agreement, Signal hereby grants to Organon a worldwide, non-exclusive
license, during the Research Term only, under the Signal Technology
within the Target Research Field to conduct research in accordance with
the Research Plan.
3.4.2. Subject to the terms and conditions of this
Agreement, Signal hereby grants to Organon a worldwide, exclusive
(except as to Signal) license to use any cell lines which are developed
in the conduct of the Target Research (whether solely by Signal or
jointly by the parties) for Organon's internal research purposes during
the term of this Agreement. Notwithstanding any other provision of this
Agreement, Organon shall not have the right to sublicense the rights
granted under this Section 3.4.2 to any third party without the prior
written consent of Signal, which consent may be given or withheld in
Signal's sole discretion; provided, however, that Organon may, without
Signal's prior written consent, sublicense such rights to an Affiliate
of Organon that is controlled by Organon. The parties hereby acknowledge
that Signal retains the right to use the cell lines licensed hereunder
for any purpose.
3.4.3. Subject to the terms of this Agreement, Signal
hereby grants to Organon a worldwide, exclusive license, for the period
following the end of the Research Term until this Agreement expires or
is terminated, to use the Signal Compounds and under the Research Assay
Patents, Gene/gen product Patents and Compound Patents to research,
develop, make, have made, use and sell Organon Products; provided,
however, that any compound from any source that is useful for the [***]
shall be specifically excluded from
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the scope of the foregoing license. If, however, a compound has been
selected in the Target Research Field that potentially is [***], the
parties shall negotiate in good faith, together with any of Signal's
licensee(s) in such field, a possible extension of the foregoing license
with regard to such compound.
3.4.4. Subject to the terms of this Agreement, Signal
hereby grants to Organon a worldwide, non-exclusive license, for the
period following the end of the Research Term until this Agreement
expires or is terminated, to use the Signal Technology and Signal
Technology Patents for any purpose in the Target Research Field.
3.4.5. Except as set forth in Section 3.4.2 above, Organon
shall have the right to grant sublicenses under its exclusive license
rights, with the prior written consent of Signal, not to be unreasonably
withheld; provided that such consent shall not be required for
sublicenses to Organon's Affiliates."
3. AMENDMENT AND RESTATEMENT OF RESEARCH PLAN. The Research Plan is hereby
amended and restated in its entirety as attached hereto.
4. AMENDMENT AND RESTATEMENT OF EXHIBIT B. Exhibit B of the Agreement is hereby
amended and restated in its entirety as attached hereto.
5. FULL FORCE AND EFFECT. Except as specifically amended by this First
Amendment, the terms and conditions of the Agreement shall remain in full force
and effect.
6. GOVERNING LAW. This First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware.
7. COUNTERPARTS. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this First Amendment on
the day and year first written above.
N.V. ORGANON SIGNAL PHARMACEUTICALS, INC.
By: [SIG] By: [SIG]
-------------------------- --------------------------
Title: Managing Director R&D Title: E.V.P.
----------------------- -----------------------
By: [SIG]
--------------------------
Title: Director Research
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ORGANON-SIGNAL RESEARCH OUTLINE
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ORGANON-SIGNAL RESEARCH OUTLINE
CONFIDENTIAL
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EXHIBIT B
Project Goals
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Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
Exhibit 10.38
EXCLUSIVE LICENSE AGREEMENT
This Agreement, effective as of October 1996 (the "Effective Date"), is
between the University of Massachusetts ("University"), a public institution of
higher education of the Commonwealth of Massachusetts, and Signal
Pharmaceuticals, Inc. ("Company"), a Delaware Corporation.
RECITALS
WHEREAS, University is the owner by assignment of the inventions claimed
in the United States Patent Application listed on Exhibit A;
WHEREAS, Company desires to obtain an exclusive license in the field of
drug discovery under the rights of University in any patent rights claiming such
inventions; and
WHEREAS, University is willing to grant Company such an exclusive
license on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, University and Company hereby agree as follows:
1. Definitions.
1.1. "Affiliate" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by Company. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.
1.2. "Confidential Information" shall mean any confidential or
proprietary information furnished by one party (the "Disclosing Party") to the
other party (the "Receiving Party") in connection with this Agreement, provided
that such information is specifically designated as confidential. Such
Confidential Information shall include, without limitation, any diligence
reports furnished to University under Section 3.1. and royalty reports
furnished to University under Section 5.1.
1.3. "Field" shall mean use of the [***] proteins and genetic
sequences for drug discovery applications.
1.4. "Licensed Product" shall mean any product that cannot be
developed, manufactured, used, or sold without infringing one or more claims
under the Patent Rights. Licensed Products include, without limitation,
pharmaceutical compounds identified through use of an [***] screen.
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1.5. "Net Sales" shall mean the gross amount billed or invoiced on
sales by Company and its Affiliates and Sublicensees of Licensed Products, less
the following: (i) customary trade, quantity, or other cash reduction programs
or cash discounts and commissions to non-affiliated brokers or agents to the
extent actually allowed and taken; (ii) amounts repaid or credited by reason of
rejection or return; (iii) to the extent separately stated on purchase orders,
invoices, or other documents of sale, any taxes or other governmental charges
levied on the production, sale, transportation, delivery, or use of a Licensed
Product which is paid by or on behalf of Company; (iv) outbound transportation
costs prepaid or allowed and costs of insurance in transit; and (v) customs
duties, surcharges, and other governmental charges incurred in connection with
the exportation or importation of Licensed Products.
In any transfers of Licensed Products between Company and an Affiliate
or Sublicensee, Net Sales shall be calculated based on the final sale of the
Licensed Product to an independent third party only, and the transfers between
Company and an Affiliate or Sublicensee shall be excluded from the calculation
of net sales. In the event that Company or an Affiliate or Sublicensee receives
non-monetary consideration for any Licensed Products, Net Sales shall be
calculated based on the fair market value of such consideration. In the event
that Company or its Affiliates or Sublicensees use or dispose of a Licensed
Product in the provision of a commercial service, the Licensed Product shall be
considered sold and the Net Sales shall be calculated based on the sales price
of the Licensed Product to an independent third party during the same Royalty
Period or, in the absence of such sales, on the fair market value of the
Licensed Product as determined by the parties in good faith.
1.6. "Patent Rights" shall mean the U.S. patent application listed on
Exhibit A, and any divisional, continuation, or continuation-in-part of such
patent applications to the extent the claims are directed to [***], as
well as any patent issued thereon and any reissue or extension of such patent,
and any foreign counterparts to such patents and patent applications. Exhibit A
shall be periodically amended to include any additional Patent Rights that may
arise; however, the failure to timely amend this Agreement shall not result in a
change of the definition of Patent Right in the preceding sentence.
1.7. "Related Technology" shall mean any know-how, technical
information, research and development information, test results, and data
necessary for the effective exercise of the Patent Rights which has been
developed in the laboratory of [***] as of the Effective Date and
which is owned by University.
1.8. "Royalty Period" shall mean the partial calendar quarter
commencing on the date on which the first Licensed Product is sold or used and
every complete or partial calendar quarter thereafter during which either (i)
this Agreement remains in effect or (ii) Company has the right to complete and
sell work-in-progress and inventory of Licensed Products pursuant to Section
8.4.
1.9. "Sublicense Income" shall mean any payments that Company
receives from a Sublicensee in consideration of the sublicense of the rights
granted Company under Section 2.1. with respect to the Patent Rights, including
without limitation license initiation fees, license
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maintenance fees, payments in excess of fair market value which are made in
consideration for the issuance of equity securities of Company, and payments
committed to the development of Licensed Products, but excluding royalty and
milestone payments.
1.10. "Sublicensee" shall mean any permitted sublicensee of the rights
granted Company under this Agreement, as further described in Section 2.2.
1.11. "Term" shall mean the term of this Agreement as further defined
in Section 8.1. below.
2. Grant of Rights.
2.1. License Grant.
(a) Patent Rights. Subject to the terms of this Agreement,
University hereby grants to Company and its Affiliates an exclusive, worldwide,
royalty-bearing license (with the right to sublicense) under its commercial
rights in the Patent Rights to develop, make, have made, use, and sell Licensed
Products in the Field.
(b) Related Technology. Subject to the terms of this
Agreement, University hereby grants to Company and its Affiliates a
non-exclusive, worldwide, royalty-bearing license (with the right to sublicense)
under its commercial rights in the Related Technology to develop, make, have
made, use, and sell Licensed Products in the Field.
2.2. Sublicenses. Company shall have the right to grant sublicenses
of its rights under Section 2.1. with the consent of University, which consent
shall not be unreasonably withheld or delayed. All sublicense agreements
executed by Company pursuant to this Article 2 shall expressly bind the
Sublicensee to the terms of this Agreement and shall provide for the automatic
assignment of such agreement to University if this Agreement is terminated as
described in Article 8 below. Company shall promptly furnish University with a
fully executed copy of any such sublicense agreement.
2.3 Retained Rights.
(a) University. University retains the right to make and use
Licensed Products for academic research and academic patient care, without
payment of compensation to Company. University may license its retained rights
under this Section to research collaborators of University faculty members,
post-doctoral fellows, and students. Notwithstanding the above retention of
rights, the University does not retain any right to make, use, or sublicense any
third party the right to use the license or sublicense for commercial
applications in the Field.
(b) Federal Government. To the extent that any invention
claimed in the Patent Rights has been partially funded by the federal
government, this Agreement and the grant of any rights in such Patent Rights are
subject to and governed by federal law as set forth in 35 U.S.C. Sections
201-211, and the regulations promulgated thereunder, as amended, or any
successor statutes
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or regulations. Company acknowledges that these statutes and regulations reserve
to the federal government a royalty-free, non-exclusive, non-transferable
license to practice any government funded invention claimed in any Patent
Rights. If any term of this Agreement fails to conform with such laws and
regulations, the relevant term shall be deemed an invalid provision and modified
in accordance with Section 10.10.
The inventions claimed in the Patent Rights and the Related Technology were
conceived or reduced to practice by [***], an employee of the [***] and a
faculty member of University, and were assigned to University by [***] in
accordance with the Collaboration Agreement between [***] and University dated
November 16, 1990, as amended (the "Collaboration Agreement"). Pursuant to the
Collaboration Agreement, University is required to grant [***] a paid-up,
non-exclusive, irrevocable license to use the Patent Rights and the Related
Technology for [***] noncommercial purposes, but of this Exclusive License
Agreement to the contrary, Company acknowledges that [***] shall have the [***]
License.
3. Company Obligations Relating to Commercialization.
3.1. Diligence Requirements. Company shall use diligent efforts, or
shall require its Affiliates and Sublicensees to use diligent efforts, to
develop Licensed Products and to introduce Licensed Products into the commercial
market; thereafter, Company or its Affiliates or Sublicensees shall make
Licensed Products reasonably available to the public. Company shall have
conclusively satisfied its obligations under this Section 3.1. if Company or an
Affiliate or Sublicensee fulfills the following obligations:
(1) Within sixty (60) days after the Effective Date, Company
shall furnish University with a written summary of the research and
development plans under which Company intends to develop Licensed
Products.
(2) Within sixty (60) days after each anniversary of the
Effective Date, Company shall furnish University with a written summary
of the progress of its efforts during the prior year to develop and
commercialize Licensed Products, including research and development
efforts, efforts to obtain regulatory approval, and marketing efforts.
(3) [***]
(4) [***]
In the event that University reasonably determines that the diligence
obligations of Company under this Section 3.1. have not been fulfilled by
Company or by an Affiliate or Sublicensee, University shall furnish Company with
written notice of such determination. Within sixty (60) days after receipt of
such notice, Company shall either (i) fulfill the relevant obligation or (ii)
negotiate with University a mutually acceptable schedule of revised diligence
obligations, failing
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which University shall have the right, immediately upon written notice to
Company, to terminate this Agreement or to grant additional license to third
parties under its rights in the Patent Rights. So long as at least one of the
Company or its Affiliates or Sublicensees continues to meet the diligence
requirements set forth above, the University shall not have any termination
rights under this Section 3.1.
3.2. Indemnification.
(a) Indemnity. Company shall indemnify, defend, and hold
harmless University and its trustees, officers, faculty, students, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss, or expense (including
reasonable attorneys fees and expenses of litigation) incurred by or imposed
upon any of the Indemnitees in connection with any third-party claims, suits,
actions, demands or judgments arising out of any theory of liability (including
without limitation actions in the form of tort, warranty, or strict liability
and regardless of whether such action has any factual basis) concerning any
Licensed Product, process, or service that is made, used, or sold pursuant to
any right or license granted under this Agreement; provided, however, that such
indemnification shall not apply to any liability, damage, loss, or expense to
the extent directly attributable to (i) the negligent activities or intentional
misconduct of the Indemnitees or (ii) the settlement of a claim, suit, action,
or demand by Indemnitees without the prior written approval of Company. Company
also shall indemnify, defend, and hold harmless [***] and its trustees,
officers, employees, and agents, and their respective successors, heirs and
assigns (the "[***] Indemnitees"), from and against any claim, liability, cost,
expense, damage deficiency, loss, or obligation (including, without limitation,
reasonable attorney's fees and costs), based upon, arising out of, or otherwise
relating to any actions taken or omissions made in connection with or pursuant
to this Exclusive License Agreement The [***] Indemnitees agree to provide
Company with prompt written notice of any claim, suite action, demand or
judgment for which indemnification is sought under this Agreement. Company
agrees that any sublicense shall agree to provide Institute with the same
indemnity provided by Company herein.
(b) Procedures. The Indemnitees agree to provide Company
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. Company agrees, at its
own expense, to provide attorneys reasonably acceptable to University to defend
against any such claim. The Indemnitees shall cooperate fully with Company in
such defense and will permit Company to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of Company, if
representation of such Indemnitee by the counsel retained by Company would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. Company agrees
to keep University informed of the progress in the defense and disposition of
such claim and to consult with University with regard to any proposed settlement
The failure to deliver a written notice to Company within a reasonable time
after the commencement of such claim, suit, or action, if prejudicial to
Company's ability to defend such action, shall relieve Company of any liability
to
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the Indemnitees under Section 3.2, but the omission to deliver shall not relieve
Company of any liability that it may have to the Indemnitees other than under
this Section 3.2.
(c) Insurance. Effective as of such time as a Licensed
Product enters human clinical trials, Company shall maintain insurance or
self-insurance that is reasonably adequate to fulfill any potential obligation
to the Indemnitees, but in any event not less than one million dollars
($1,000,000) for injuries to any one person arising out of a single occurrence
and five million dollars ($5,000,000) for injuries to all persons arising out of
a single occurrence. Company shall provide University, upon request, with
written evidence of such insurance or self-insurance. Company shall continue to
maintain such insurance or self-insurance after the expiration or termination of
this Agreement during any period in which Company or any Affiliate or
Sublicensee continues to make, use, or sell a product that was a Licensed
Product under this Agreement and thereafter for a period of five (5) years.
Until such time as a Licensed Product enters human clinical trials, Company
shall maintain insurance or self-insurance in such amount as Company customarily
maintains covering similar activities, and shall maintain such insurance so long
as Company customarily carries such insurance coverage, or until a Licensed
Product enters human clinical trials.
3.3. Use of University Name. In accordance with Section 7.3., Company
and its Affiliates and Sublicensees shall not use the name "University of
Massachusetts" or any variation of that name in connection with the marketing or
sale of any Licensed Products.
3.4. Marking of Licensed Products. To the extent commercially
feasible and consistent with prevailing business practices Company shall mark,
and shall cause its Affiliates and Sublicensees to mark, all Licensed Products
that are manufactured or sold under this Agreement with the number of each
issued patent under the Patent Rights that applies to such Licensed Product.
3.5. Compliance with Law. Company shall comply with, and shall
require its Affiliates and Sublicensees comply with, all local, state, federal,
and international laws and regulations relating to the development, manufacture,
use, and sale of Licensed Products. Company expressly agrees to comply with the
following:
(i) Company or its Affiliates or Sublicensees shall obtain
all necessary approvals from the United States Food & Drug
Administration and any similar governmental authorities of any foreign
jurisdiction in which Company or an Affiliate or Sublicensee intends to
make, use, or sell Licensed Products.
(ii) Company and its Affiliates and Sublicensees shall comply
with all United States laws and regulations controlling the export of
certain commodities and technical data, including without limitation all
Export Administration Regulations of the United States Department of
Commerce. Among other things, these laws and regulations prohibit, or
require a license for, the export of certain types of commodities and
technical data to specified countries. Company hereby gives written
assurance that it will comply with, and will require its Affiliates and
Sublicensees to comply with, all United States
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export control laws and regulations, and that it will indemnify, defend,
and hold University harmless (in accordance with Section 3.2.) for the
consequences of any such violation.
(iii) To the extent that any invention claimed in the Patent
Rights has been partially funded by the United States government, and
only to the extent required by applicable laws and regulations, Company
agrees that any Licensed Products used or sold in the United States will
be manufactured substantially in the United States or its territories.
Current law provides that if domestic manufacture is not commercially
feasible under the circumstances, University may seek a waiver of this
requirement from the relevant federal agency on behalf of Company.
4. Consideration for Grant of Rights.
4.1. License Fee. In partial consideration of the rights granted
Company under this Agreement, Company shall pay to University, within thirty
(30) days after the Effective Date, a license fee of [***]. In addition, Company
shall reimburse University for all expenses incurred by University as of the
Effective Date in connection with the Patent Rights. These license fee payments
are nonrefundable and are not creditable against any other payments due to
University under this Agreement
4.2. Equity. In partial consideration of the license granted Company
under this Agreement, Company shall issue to University a total of [***] shares
of Common Stock of Company, under the terms of the Common Stock Purchase
Agreement dated as of the Effective Date between Company and University (the
"Common Stock Purchase Agreement").
4.3. Milestone Payments. Company shall pay University the following
milestone payments within thirty (30) days after the occurrence of each event
with respect to each Licensed Product for each indication:
<TABLE>
<CAPTION>
Milestone Payment
--------- -------
<S> <C>
[***]
</TABLE>
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* With respect to these milestones, only one payment is required per
indication regardless of the number of Licensed Products that trigger
the milestone within a [***] period, provided that each such
Licensed Product is a derivative or analogue of a single precursor
chemical entity.
These milestone payments are nonrefundable and are not creditable against any
other payments due to University under this Agreement. Company shall pay
University such amounts regardless of who achieves the milestone, whether
Company or an Affiliate or Sublicensee.
4.4 Royalties.
(a) Base Royalty. In partial consideration of the rights
granted Company under this Agreement, Company shall pay to University the
following royalties on Net Sales of Licensed Products by Company and its
Affiliates and Sublicensees:
[***]
If both royalty rates could apply to sales of a Licensed Product, only the
higher royalty rate shall apply (i.e., the [***] rate will apply rather than a
[***] rate).
(b) No Multiple Royalties. No multiple royalties shall be
payable because a particular Licensed Product or its manufacture, use, or sale
are or shall be covered by more than one patent application or patent included
within the Patent Rights.
4.5. Minimum Royalty. In each calendar year during the Term,
University shall receive the following minimum royalty payments:
<TABLE>
<S> <C>
[***]
</TABLE>
If the actual royalty payments to University in any calendar year are less than
the minimum royalty payment required for that year, Company shall have the right
to pay University the difference between the actual royalty payment and the
minimum royalty payment in full satisfaction of its obligations under this
Section, provided such minimum payment is made to University within sixty (60)
days after the conclusion of the calendar year. Waiver of any minimum royalty
payment by University shall not be construed as a waiver of any subsequent
minimum royalty payment.
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4.6. Sublicense Income. Company shall pay University a total of
[***] of all Sublicense Income. Such amounts shall be due and payable within
sixty (60) days after Company receives the relevant payment from the
Sublicensee. Company has stated that Company intends to license the Patent
Rights together with patent rights licensed by Company from third parties so
that in one license agreement Company would sublicense rights to multiple
targets comprising one "signaling pathway." In such event, and if Company must
pay a royalty to such third-party licensors, the percentage of Sublicense Income
payable to University shall be reduced by (i) [***] in the case of one such
third- party licensor and (ii) [***] in the case of more than one such
third-party licensor.
4.7. Sales Bonus. Company shall pay University one-time bonuses in
the amount of [***] in the event that cumulative worldwide gross sales of
Licensed Products by Company and its Affiliates and Sublicensees exceeds [***]
and an additional [***] in the event that cumulative worldwide gross sales of
Licensed Products by Company and its Affiliates and Sublicensees exceeds [***].
Such amount shall be due and payable within sixty (60) days after the conclusion
of the Royalty Period in which such revenue milestone is achieved.
5. Royalty Reports; Payments; Records.
5.1. Reports and Payments. Within sixty (60) days after the
conclusion of each Royalty Period, Company shall deliver to University a report
containing the following information:
(i) the number of Licensed Products sold to independent third
parties in each country, and the number of Licensed Products used by
Company and its Affiliates and Sublicensees to provide commercial
services in each country;
(ii) the gross sales price for each Licensed Product by
Company and its Affiliates during the applicable Royalty Period in
each country;
(iii) calculation of Net Sales for the applicable Royalty
Period in each country, including a listing of applicable deductions;
(iv) total royalty payable on Net Sales in U.S. dollars,
together with the exchange rates used for conversion; and
(v) withholding taxes, if any, required by law to be deducted
as a payment by University in respect of such Net Sales.
All such reports shall be considered Company Confidential Information. If no
royalties are due to University for any Royalty Period, the report shall so
state. Concurrent with this report, Company shall remit to University any
payment due for the applicable Royalty Period.
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5.2. Payments in U.S. Dollar. All payments due under this Agreement
shall be payable in United States dollars. Conversion of foreign currency to
U.S. dollars shall be made at the conversion rate existing in the United States
(as reported in the Wall Street Journal) on the last working day of the calendar
quarter preceding the applicable Royalty Period. Such payments shall be without
deduction of exchange, collection, or other charges.
5.3. Payments in Other Currencies. If by law, regulation, or fiscal
policy of a particular country, conversion into United States dollars or
transfer of funds of a convertible currency to the United States is restricted
or forbidden, Company shall give University prompt written notice of such
restriction, which notice shall satisfy the sixty-day payment deadline described
in Section 5.1. Company shall pay any amounts due University through whatever
lawful methods University reasonably designates; provided, however, that if
University fails to designate such payment method within thirty (30) days after
University is notified of the restriction, Company may deposit such payment in
local currency to the credit of University in a recognized banking institution
selected by Company and identified by written notice to University, and such
deposit shall fulfill all obligations of Company to University with respect to
such payment
5.4. Records. Company shall maintain, and shall require its
Affiliates and Sublicensees to maintain, complete and accurate records of
Licensed Products that are made, used, or sold under this Agreement and any
amounts payable to University in relation to such Licensed Products, which
records shall contain sufficient information to permit University to confirm the
accuracy of any reports delivered to University under Section 5.1. The relevant
party shall retain such records relating to a given Royalty Period for at least
three (3) years after the conclusion of that Royalty Period, during which time
University shall have the right, at its expense, to cause its internal
accountants or an independent, certified public accountant to inspect such
records during normal business hours for the sole purpose of verifying any
reports and payments delivered under this Agreement. Such accountant shall not
disclose to University any information other than information relating to
accuracy of reports and payments delivered under this Agreement. The parties
shall reconcile any underpayment or overpayment within thirty (30) days after
the accountant delivers the results of the audit. In the event that any audit
performed under this Section reveals an underpayment in excess of ten percent
(10%) in any Royalty Period, Company shall bear the full cost of such audit;
however, Company shall have the right to review and verify the audit results
prior to being required to pay the cost of the audit. University may exercise
its rights under this Section only once every year and only with reasonable
prior notice to Company.
5.5. Late Payments. Any payments by Company that are not paid on or
before the date such payments are due under this Agreement shall bear interest,
to the extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
interest calculated based on the number of days that payment is delinquent.
5.6. Method of Payment. All payments under this Agreement should be
made in the name of the "University of Massachusetts" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.
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5.7 Withholding and Similar Taxes. Royalty payments and other
payments due to University under this Agreement shall not be reduced by reason
of any withholding or similar taxes applicable to such payments to University.
6. Patents and Infringement.
6.1. Responsibility for Patent Rights. University shall have primary
responsibility, at the expense of Company, for the preparation, filing,
prosecution, and maintenance of all Patent Rights, using patent counsel
reasonably acceptable to Company. University shall consult with Company as to
the preparation, filing, prosecution, and maintenance of all such Patent Rights
reasonably prior to any deadline or action with the U.S. Patent & Trademark
Office or any foreign patent office and shall furnish Company with copies of all
relevant documents reasonably in advance of such consultation.
6.2. Payment of Expenses. Within thirty (30) days after University
invoices Company, Company shall reimburse University for all reasonable
patent-related expenses incurred by University pursuant to Section 6.1. Company
may elect, upon sixty (60) days written notice to University, to cease payment
of the expenses associated with obtaining or maintaining patent protection for
one or more Patent Rights in one or more countries. In such event, Company shall
lose all rights under this Agreement with respect to such Patent Rights in such
countries, but Company shall retain rights in all other countries in which
Company has not elected to cease payment of patent-related expenses.
6.3. Abandonment. In the event that University desires to abandon any
patent or patent application within the Patent Rights, University shall provide
Company with reasonable prior written notice of such intended or decline of
responsibility, and Company shall have the right, at its expense, to prepare,
file, prosecute, and maintain the relevant Patent Rights.
6.4. Infringement
(a) Notification of Infringement Each party agrees to
provide written notice to the other party promptly after becoming aware of any
infringement of the Patent Rights.
(b) Company Right to Prosecute. So long as the license
granted Company under Section 2.1.(a) remains exclusive (subject to the retained
rights under Section 2.3), Company shall have the right, under its own control
and at its own expense, to prosecute any third party infringement of the Patent
Rights in the Field or, together with other licensees of the Patent Rights in
other fields, to defend the Patent Rights in any declaratory judgment action
brought by a third party which alleges invalidity, unenforceability, or
non-infringement of the Patent Rights. Prior to commencing any such action,
Company shall consult with University and shall consider the views of University
regarding the advisability of the proposed action and its effect on the public
interest. Company shall not enter into any settlement, consent judgment, or
other Voluntary final disposition of any infringement action under this
Subsection without the prior
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written consent of University, which consent shall not be unreasonably withheld
or delayed. Any recovery obtained in an action under this Subsection shall be
distributed as follows: (i) each party shall be reimbursed for any expenses
incurred in the action (including the amount of any royalty payments withheld
from University as described below), (ii) as to ordinary damages, Company shall
receive an amount equal to its lost profits or a reasonable royalty on the
infringing sales (whichever measure of damages the court shall have applied),
less a reasonable approximation of the royalties that Company would have paid to
University if Company had sold the infringing products and services rather than
the infringer, and (iii) as to special or punitive damages, the parties shall
share equally in any award. Company may offset a total of fifty percent (50%) of
any expenses incurred under this Subsection against any royalty payments due to
University under this Agreement, provided that in no event shall the royalty
payments under Section 4.4., when aggregated with any other offsets and credits
allowed under this Agreement, be reduced by more than fifty percent (50%) in any
Royalty Period.
(c) University as Indispensable Party. University shall
permit any action under this Section to be brought in its name if required by
law, provided that Company shall hold University harmless from, and if necessary
indemnify University against any costs, expenses, or liability that University
may incur in connection with such action.
(d) University Right to Prosecute. In the event that Company
fails to initiate an infringement action within a reasonable time after it first
becomes aware of the basis for such action, or to answer a declaratory judgment
action within a reasonable time after such action is filed, University shall
have the right to prosecute such infringement or answer such declaratory
judgment action, under its sole control and at its sole expense, and any
recovery obtained shall be given to University.
(e) Cooperation. Each party agrees to cooperate fully in any
action under this Section 6.4. which is controlled by the other party, provided
that the controlling party reimburses the cooperating party promptly for any
costs and expenses incurred by the cooperating party in connection with
providing such assistance.
7. Confidential Information; Publications; Publicity.
7.1. Confidential Information.
(a) Designation. Confidential Information that is disclosed
in writing shall be marked with a legend indicating its confidential status
(such as "Confidential" or "Proprietary"). Confidential Information that is
disclosed orally or visually shall be documented in a written notice prepared by
the Disclosing Party and delivered to the Receiving Party within thirty (30)
days of the date of disclosure; such notice shall summarize the Confidential
Information disclosed to the Receiving Party and reference the time and place of
disclosure.
(b) Obligations. For a period of five (5) years after
disclosure of any portion of Confidential Information, the Receiving Party shall
(i) maintain such Confidential Information in strict confidence, except that the
Receiving Party may disclose or permit the disclosure of any
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<PAGE> 13
Confidential Information to its directors, officers, employees, consultants, and
advisors who are obligated to maintain the confidential nature of such
Confidential Information and who need to know such Confidential Information for
the purposes of this Agreement; (ii) use such Confidential Information solely
for the purposes of this Agreement; and (iii) allow its trustees or directors,
officers, employees, consultants, and advisors to reproduce the Confidential
Information only to the extent necessary for the purposes of this Agreement,
with all such reproductions being considered Confidential Information.
(c) Exceptions. The obligations of the Receiving Party under
Subsection 7.1.(b) above shall not apply to the extent that the Receiving Party
can demonstrate that certain Confidential Information (i) was in the public
domain prior to the time of its disclosure under this Agreement; (ii) entered
the public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by
the Receiving Party; (iii) was independently developed or discovered by the
Receiving Party without use of the Confidential Information; (iv) is or was
disclosed to the Receiving Party at any time, whether prior to or after the time
of its disclosure under this Agreement, by a third party having no fiduciary
relationship with the Disclosing Party and having no obligation of
confidentiality with respect to such Confidential Information; or (v) is
required to be disclosed to comply with applicable laws or regulations, or with
a court or administrative order, provided that the Disclosing Party receives
reasonable prior written notice of such disclosure.
(d) Ownership and Return. The Receiving Party acknowledges
that the Disclosing Party (or any third party entrusting its own information to
the Disclosing Party) claims ownership of its Confidential Information in the
possession of the Receiving Party. Upon the expiration or termination of this
Agreement, and at the request of the Disclosing Party, the Receiving Party shall
return to the Disclosing Party all originals, copies, and summaries of
documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.
7.2. Publications. University and its employees will be free to
publicly disclose (through journals, lectures, or otherwise) the results of any
research in the Field or relating to the subject matter of the Patent Rights,
except as otherwise provided by written agreement between University and Company
(e.g., a sponsored research agreement).
7.3. Publicity Restrictions. Company shall not use the name of
University or any of its trustees, officers, faculty, students, employees, or
agents, or any adaptation of such names, or any terms of this Agreement in any
promotional material or other public announcement or disclosure without the
prior written consent of University. The foregoing notwithstanding, Company
shall have the right to disclose such information without the consent of
University in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation,
provided that Company shall have given University at least ten (1O) days prior
written notice of the proposed text for the purpose of
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giving University the opportunity to comment on such text. Company and its
Affiliates and Sublicensees shall not use the name, likeness, or logos of the
[***] in any press release, general publication, advertising, marketing,
promotional or sales literature without prior written consent from an authorized
official of the [***].
8. Term and Termination.
8.1. Term. This Agreement shall commence on the Effective Date and
shall remain in effect until (i) the expiration of all issued patents within the
Patent Rights or (ii) for a period of ten (1O) years after the Effective Date if
no such patents have issued within that ten-year period, unless earlier
terminated in accordance with the provisions of this Agreement.
8.2. Termination for Default. In the event that either party commits
a material breach of its obligations under this Agreement and fails to cure that
breach within sixty (60) days after receiving written notice thereof, the other
party may terminate this Agreement immediately upon written notice to the party
in breach. If the alleged breach involves nonpayment of any amounts due
University under this Agreement, Company shall be entitled to the sixty-day cure
period only with respect to the first such breach, with the cure period for each
subsequent breach shortened as follows: thirty days for the second breach,
fifteen days for the third breach, and termination immediately upon written
notice to Company, without any cure period, for any subsequent breach.
8.3. Force Majeure. Neither party will be responsible for delays
resulting from causes beyond the reasonable control of such party, including
without limitation fire, explosion, flood, war, strike, or riot, provided that
the nonperforming party uses commercially reasonable efforts to avoid or remove
such causes of nonperformance and continues performance under this Agreement
with reasonable dispatch whenever such causes are removed.
8.4. Effect of Termination. The following provisions shall survive
the expiration or termination of this Agreement Articles 1 and 9; Sections 3.2.,
3.5., 5.1. (obligation to provide final report and payment), 5.4., 6.2., 7.1.,
7.3., 8.4., and 10.8. Upon the early termination of this Agreement, Company and
its Affiliates and Sublicensees may complete and sell any work-in progress and
inventory of Licensed Products that exist as of the effective date of
termination, provided that (i) Company is current in payment of all amounts due
University under this Agreement and not in dispute, (ii) Company pays University
the applicable royalty on such sales of Licensed Products in accordance with the
terms and conditions of this Agreement, and (iii) Company and its Affiliates and
Sublicensees shall complete and sell all work-in-progress and inventory of
Licensed Products within six (6) months after the effective date of termination.
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<PAGE> 15
9. Dispute Resolution.
9.1. Procedures Mandatory. The parties agree that any dispute arising
out of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party fails to
observe the procedures of this Article, as modified by their written agreement,
the other party may bring an action for specific performance in any court of
competent jurisdiction.
9.2. Dispute Resolution Procedures.
(a) Negotiation. In the event of any dispute arising out of
or relating to this Agreement, the affected party shall notify the other party,
and the parties shall attempt in good faith to resolve the matter within ten
(10) days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to senior executives of
each party, who shall meet at a mutually acceptable time and location within
thirty (30) days after the Notice Date and attempt to negotiate a settlement.
(b) Mediation. If the matter remains unresolved within sixty
(60) days after the Notice Date, or if the senior executives fail to meet within
thirty (30) days after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under the then current Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes, except
that specific provisions of this Section shall override inconsistent provisions
of the CPR Model Procedure. The mediator will be selected from the CPR Panels of
Neutrals. If the parties cannot agree upon the selection of a mediator within
ninety (90) days after the Notice Date, then upon the request of either party,
the CPR shall appoint the mediator. The parties shall attempt to resolve the
dispute through mediation until one of the following occurs: (i) the parties
reach a written settlement; (ii) the mediator notifies the parties in writing
that they have reached an impasse; (iii) the parties agree in writing that they
have reached an impasse; or (iv) the parties have not reached a settlement
within one hundred and twenty (120) days after the Notice Date.
(c) Trial Without Jury. If the parties fail to resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.
9.3. Preservation of Rights Pending Resolution,
(a) Performance to Continua. Each party shall continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out or relating to this Agreement; provided, however, that a
party may suspend performance of its obligations during any period in which the
other party fails or refuses to perform its obligations.
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(b) Provisional Remedies. Although the procedures specified
in this Article are the sole and exclusive procedures for the resolution of
disputes arising out of relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in its
reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement
(c) Statute of Limitations. The parties agree that all
applicable statutes of limitation and time-based defenses (such as estoppel and
laches) shall be tolled while the procedures set forth in Subsections 9.2.(a)
and 9.2(b) are pending. The parties shall take any actions necessary to
effectuate this result.
10. Miscellaneous.
10.1. Representations and Warranties. University represents and
warrants that its employees have assigned to University their entire right,
title, and interest in the Patent Rights and that it has authority to grant the
rights and licenses set forth in this Agreement. UNIVERSITY MAKES NO OTHER
WARRANTIES CONCERNING THE PATENT RIGHTS AND RELATED TECHNOLOGY, INCLUDING
WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. Specifically, University makes no warranty or
representation (i) regarding the validity or scope of the Patent Rights, (ii)
that the exploitation the Patent Rights or any Licensed Product will not
infringe any patents or other intellectual property rights of a third party, and
(iii) that any third party is not currently infringing or will not infringe the
Patent Rights.
10.2. Tax-Exempt Status. Company acknowledges that University, as a
public institution of the Commonwealth of Massachusetts, holds the status of an
exempt organization under the United States Internal Revenue Code. Company also
acknowledges that certain facilities in which the licensed inventions were
developed may have been financed through offerings of tax-exempt bonds. If the
Internal Revenue Service determines, or if counsel to University reasonably
determines, that any term of this Agreement jeopardizes the tax-exempt status of
University or the bonds used to finance University facilities, the relevant term
shall be deemed an invalid provision and modified in accordance with
Section 1O.1O.
10.3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.4. Headings. All headings are for convenience only and shall not
affect the meaning of any provision of this Agreement.
10.5. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective permitted successors and
assigns.
10.6. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that Company may
assign this Agreement to an
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affiliate or to a successor in connection with the merger, consolidation, or
sale of all or substantially all of its assets or that portion of its business
to which this Agreement relates.
10.7. Amendment and Waiver, This Agreement may be amended,
supplemented, or otherwise modified only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.
10.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts irrespective of
any conflicts of law principles.
10.9. Notice. Any notices required or permitted under this Agreement
shall be in writing, shall specifically refer to this Agreement, and shall be
sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail,
postage prepaid, return receipt requested, to the following addresses or
facsimile numbers of the parties:
If to University:
Office of Commercial Ventures and Intellectual Property
University of Massachusetts
55 Lake Avenue North
Worcester, MA 01605
Attention: Joseph F.X. McGuirl
Executive Director
Tel: (508) 856-1626
Fax: (508) 856-5004
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If to Company:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attention: Alan J. Lewis, Ph.D.
President and Chief Executive Officer
Tel: (619) 558-7500
Fax: (619) 558-7513
All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.
10.10. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.
10.11. Entire Agreement. Except for the Common Stock Purchase
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to its subject matter and supersedes all prior agreements or
understandings between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
UNIVERSITY OF MASSACHUSETTS SIGNAL PHARMACEUTICALS, INC.
By: /s/ JOSEPH F.X. MCGUIRL By: /s/ ALAN J. LEWIS, PH.D.
------------------------------- ---------------------------------
Joseph F.X. McGuirl Alan J. Lewis, Ph.D.
Executive Director, CVIP President and Chief Executive Officer
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EXHIBIT A
List of Patent Rights
[***]
***Confidential Treatment Requested
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.39
RESTRICTED STOCK PURCHASE AGREEMENT
Agreement made as of this 31st day of October, 1996 by and between
Signal Pharmaceuticals, Inc., a California corporation (the "Company"), and
University of Massachusetts (or "Purchaser").
Unless otherwise defined herein, all capitalized terms used herein shall
have the same meanings given to them in that certain Exclusive License Agreement
(the "License Agreement") by and between Purchaser and the Company, dated
October 31, 1996, a copy of which is attached hereto as Exhibit 1.
1. PURCHASE OF SHARES
1.1 Purchase. In consideration of Purchaser's grant of certain patent
and technology rights to the Company pursuant to the License Agreement, the
Company shall issue to Purchaser [***] shares of its Common Stock. All Shares of
the Company's Common Stock issued to Purchaser pursuant to this paragraph, shall
hereinafter be referred to as the "Shares"
2.0 INVESTMENT REPRESENTATIONS
2.1 Payment. The Company represents and warrants that the Shares, when
issued in accordance with the provisions of this Agreement, will be duly and
validly issued, fully paid, and non-assessable.
2.2 Exemption from Registration. The Shares have not been registered
tinder the 1933 Act, and are accordingly being issued to Purchaser in reliance
upon the exemption from such registration provided by 4(2) of the 1933 Act.
2.3 Investment Intent. Purchaser hereby warrants and represents that it
is acquiring the Shares for its own account and not with a view to their resale
or distribution and that it is prepared to hold the Shares for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in, the Shares except that Purchaser may transfer the
Shares to the University of Massachusetts Foundation ("the "Foundation").
Purchaser hereby acknowledges the fact that the Shares have not been registered
under the Securities Act of 1933, as amended (the "1993 Act"), and that the
Company is issuing the Shares to it in reliance on the representations made by
it herein.
***Confidential Treatment Requested
<PAGE> 2
2.4 Restricted Securities.
(a) Purchaser hereby confirms that it has been informed that the
Shares may not be resold or transferred unless such Shares are first registered
under the 1933 Act or unless an exemption from such registration is available.
Accordingly, Purchaser hereby acknowledges that it is prepared to hold the
Shares for an indefinite period and that it is aware that Rule 144 of the
Securities and Exchange Commission issued under the 1933 Act is not presently
available to exempt the sale of the Shares from the registration requirements of
the Act. Should Rule 144 subsequently become available, Purchaser is aware that
any sale of Shares effected pursuant to the Rule may, depending upon the status
of Purchaser as an "affiliate" or "non-affiliate" under the Rule, be made only
in limited amounts in accordance with the provisions of the Rule, and that in no
event may any Shares be sold pursuant to the Rule until Purchaser has held such
Shares for at least two (2) years following their issuance.
(b) Should the Company not become subject to the reporting
requirements of the Exchange Act, then Purchaser may, provided he/she is not at
the time an affiliate of the Company (nor was such an affiliate during the
preceding three (3) months), sell the Shares (without registration) pursuant to
paragraph (k) of Rule 144 after the Shares have been held for it period of three
(3) years following the effective date of the license agreement.
2.5 Disposition of Shares. Except as specifically set forth below,
Purchaser hereby agrees that it shall make no disposition of the Shares, unless
and until:
(a) it shall have complied with all requirements of this
Agreement applicable to the disposition of such Shares;
(b) it shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and conditions
of the proposed disposition; and
(c) unless otherwise waived by the Company, it shall have
delivered to the Company a written opinion of counsel at the Company's expense,
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act or
(ii) all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from registration available
under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 2, nor (ii) to treat as the owner of the Shares, or otherwise to
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accord voting or dividend rights to, any transferee to whom the Shares have been
so transferred.
2.6 Restrictive Legends. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares shall be
endorsed with restrictive legends, including the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be sold or offered for sale in the
absence of an effective registration statement for the shares under that
Act, a 'no action' letter of the Securities and Exchange Commission as
to such sale or offer, or an opinion of counsel to the Company that
registration under such Act is not required for such sale or offer."
3. TRANSFER RESTRICTIONS
3.1 Transferee Obligations. Each person (other than the Company and the
Foundation) to whom the Shares are transferred must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to the market stand-off provisions of paragraph 3.2 to the
same extent such shares would be so subject if retained by Purchaser.
3.2 Market Stand-Off.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering (the
"IPO"), Purchaser and all subsequent holders of the Shares who derive their
chain of ownership through a transfer from Purchaser ("Owner") shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to, any Shares without
the prior written consent of the Company or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date of
the final prospectus for such offering as may be requested by the Company or
such underwriters.
(b) Owner shall be subject to the market standoff provisions of
this paragraph 3.2 provided and only if all of the executive officers and
directors of the Company are also subject to similar arrangements.
(c) in the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected
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as a class without the Company's receipt of consideration, then any new,
substituted or additional securities distributed with respect to the Shares
shall be immediately subject to the provisions of this paragraph 3.2, to the
same extent the Shares are at such time covered by such provisions.
(d) In order to enforce the limitations of this paragraph 3.2,
the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable standoff period.
4. REGISTRATION RIGHTS
4.1 For purposes of this Section 4:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means the Common Stock
issued pursuant to this Agreement, excluding, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 4 are not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 4.7 hereof.
4.2 Company Registration, If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 5.2, the Company shall, subject to the
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provisions of Section 4.4, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
43 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
4.2 for each Holder (which right may be assigned as provided in Section 4.7),
including (without limitation) all registration, filing, and qualification fees,
printers' and accounting fees relating or apportionable thereto, but excluding
underwriting discounts and commissions relating to Registrable Securities.
4.4 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 4.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities, sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (subject to the rights of other security holders of
the Company, including, without limitation, preferred shareholders, the
securities so included to be apportioned pro rata among the selling
shareholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
4.5 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 4.
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4.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 4.
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements 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 violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent ( and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such
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Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 4.69(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6(b) claim, damage, liability or action if such settlement
is effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnify under
this subsection 4.6(b) exceed the gross proceeds from the offering received by
such Holder.
(c) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to such indemnified party and was, not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such Final Prospectus
is required to be delivered under the Securities Act if such loss, claim or
damage would have been avoided had the indemnified party furnished the Final
Prospectus to such person.
(d) Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
4.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4.6.
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(e) If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements of omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall he determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(g) The obligations of the Company and Holders under this Section
4.6 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.7 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 4 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least twenty
percent (20%) of the shares of Registrable Securities originally purchased by
such Holder (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations), provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings or transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such
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partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify individually
for assignment of registration rights shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
under this Section 4.
5. INTERPRETATION
5.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may in
its judgment deem necessary or advisable in order to carry our or effect one or
more of the obligations or restrictions imposed on either Purchaser or the
Shares pursuant to the express provisions of this Agreement.
5.2 Notices. Any notice required or permitted in connection any matter
pertaining to this Agreement shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States Mail,
registered or certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by 10 days'
advance written notice under this Section 5.2 to the other party to this
Agreement.
5.3 Governing Law. This agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California.
5.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5.5 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
SIGNAL PHARMACEUTICALS, INC.
By: /s/ ALAN J. LEWIS
-------------------------------
Alan J. Lewis, Ph.D.
President and CEO
UNIVERSITY OR MASSACHUSETTS
By: /s/ JOSEPH F.X. McGUIRL
-------------------------------
Joseph F.X. McGuirl
Executive Director
Office of Commercial Ventures and Intellectual Property
By: /s/ STEPHEN W. LENHARDT
-------------------------------
Stephen W. Lenhardt
Vice President for Management and Fiscal Affairs
University Treasurer
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Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.40
LICENSE AGREEMENT
This Agreement, effective as of October 28, 1997 (the "Effective Date"),
is between the University of Massachusetts ("University"), a public institution
of higher education of the commonwealth of Massachusetts, and Signal
Pharmaceuticals, Inc. ("Company"), a Delaware corporation.
RECITALS
WHEREAS, University is the joint owner, together with the Regents of the
University of California ("UC"), of the inventions claimed in U.S. Patent
Application Serial No. [***] and has filed with the U.S. Patent & Trademark
Office the cases included under the U.S. Patent Applications listed on EXHIBIT
A;
WHEREAS, Company desires the University grant to Company a worldwide
license in the field of drug discovery under the rights of University in Patent
Rights and Related Technology (as defined below); and
WHEREAS, University is willing to grant Company such license on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, University and Company hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by Company. For
the purposes of this definition, the term "control" means any or both of the
following: (i) beneficial ownership of at least fifty percent (50%) of the
voting securities of a corporation or other business organization with voting
securities or (ii) a fifty percent (50%) or greater interest in the net assets
or profits of a partnership or other business organization without voting
securities.
1.2 "CONFIDENTIAL INFORMATION" shall mean any confidential or
proprietary information furnished by one party (the "Disclosing Party") to the
other party (the "Receiving Party") in connection with this Agreement, provided
that such information is specifically designated as confidential. Such
Confidential Information shall include, without limitation, any
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diligence reports furnished to University under Section 3.1. and royalty reports
furnished to University under Section 5.1.
1.3 "FDA" shall mean the United States Food and Drug Administration.
1.4 "FIELD" shall mean the field of drug discovery and shall not include
reagents other than for drug discovery and shall not include the field of
diagnostics.
1.5 "IND" (or "Investigational New Drug Application") shall mean an
application to the FDA to commence human clinical testing of a drug, as defined
by the FDA.
1.6 "JOINT PATENT RIGHTS" shall mean U.S. Patent Application Serial No.
[***], and, to the extent of claims therein directed to subject matter
specifically described in U.S. Patent Application Serial No. [***], any
divisional, continuation, or continuation-in-part of such patent application, as
well as any patent issued thereon and any reissue, reexamination or extension of
such patent, and any foreign counterparts to such patent and patent application.
1.7 "LICENSED PRODUCT" shall mean any material either that is covered by
the Patent Rights or the Related Technology, that is identified or produced by a
Licensed Method, or that the manufacture, use or sale of which would constitute,
but for the license granted to Company pursuant to this Agreement, an
infringement of any pending or issued claim within the Patent Rights.
1.8 "LICENSED METHOD" shall mean any method that is covered by the
Patent Rights or Related Technology, the use of which would constitute, but for
the license granted to Company pursuant to this Agreement, an infringement of
any pending or issued claim within the Patent Rights or a misuse of Related
Technology.
1.9 "NDA" (or "New Drug Application") shall mean an application to the
FDA to commence commercial sale of a drug, as defined by the FDA.
1.10 "NET SALES" shall mean the total of the gross invoice prices of
Licensed Products and of Royalty-Bearing Products sold by Company, an Affiliate,
or a Sublicensee, less the sum of the following actual deductions where
applicable: cash, trade, or quantity discounts; sales, use, tariff,
import/export duties, or other excise taxes; transportation charges and
allowances or credits because of rejections, breakage, or returns.
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In any transfers of Licensed Products or Royalty-Bearing Products
between Company and an Affiliate or Sublicensee, Net Sales shall be calculated
based on the final sale of the Licensed Product or Royalty-Bearing Product to an
independent third party only, and the transfers between Company and an Affiliate
or Sublicensee shall be excluded from the calculation of Net Sales.
In the event that the Company or any Affiliate receives non-monetary
consideration for any Licensed Products or Royalty-Bearing Products, Net Sales
shall be calculated based on the fair market value of such consideration as
determined by the parties. In the event that company or its Affiliates use or
dispose of a Licensed Product or Royalty-Bearing Product in the provision of a
commercial service, the Licensed Product or Royalty-Bearing Product shall be
considered sold and the Net Sales shall be calculated based on the sales price
of the Licensed Product or Royalty-Bearing Product under a hypothetical sale to
an independent third party, during the same Royalty Period or, in the absence of
such sales, on the fair market value of the Licensed Product or Royalty-Bearing
Product as determined by the parties.
1.11 "PATENT RIGHTS" shall mean the Joint Patent Rights and the UMMC
Cases.
1.12 "RELATED TECHNOLOGY" shall mean any know-how, technical
information, research and development information, test results, and data
necessary for the effective exercise of the Patent Rights which has been
developed in the laboratory of [***] as of the first filing date of U.S.
Patent Application No. [***] and which is owned by University, provided that
data necessary for the effective exercise of the Patent Rights and developed in
the laboratory of [***] as of the effective date will be made available to
Company upon reasonable request by Company.
1.13 "ROYALTY-BEARING PRODUCTS" shall mean any material either that is
covered by the Patent Rights, Related Technology, Licensed Method, UC Patent
Rights or UC Technology Rights, or that the manufacture, use or sale of which
would constitute, but for the licenses granted to the Company pursuant to this
Agreement and the UC Agreement, an infringement of any issued claim within the
Patent Rights or the UC Patent Rights.
1.14 "ROYALTY PERIOD" shall mean each of (a) the partial calendar
quarter commencing on the date on which the first Royalty-Bearing Product is
sold or used and (b) every complete or partial calendar quarter thereafter until
the later of (i) the end of the Term, or (ii) the Company is
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no longer obligated to make royalty payments to UC with respect to UC Patent
Rights under that certain Exclusive License Agreement between UC and Company
dated October 26, 1993 (UC Control Number 93-04-0786) (the "UC Agreement", a
redacted copy of which is EXHIBIT B to this Agreement) or under any equivalent
or replacement agreement between UC and Company. In addition, the term "Royalty
Period" shall also include any calendar quarter subsequent to the last "Royalty
Period" as defined in the preceding sentence during which Company has the right
to complete and sell work-in-progress and inventory of Royalty-Bearing Products
pursuant to Section 8.4.
1.15 "SUBLICENSEE" shall mean any permitted sublicensee of the rights
granted Company under this Agreement, as further described in Section 2.2.
1.16 "TERM" shall mean the term of this Agreement as further defined in
Section 8.1 below.
1.17 "UMMC CASES" shall mean the U.S. Patent Applications listed on
EXHIBIT A and, to the extent of claims therein directed to subject matter
specifically described in the patent applications listed on EXHIBIT A, any
divisional, continuation, or continuation-in-part of such patent applications,
as well as any patent issued thereon and any reissue, reexamination or extension
of such patent, and any foreign counterparts to such patents and patent
applications.
1.18 "UC PATENT RIGHTS" shall mean U.S. Patent No. [***]; U.S. Patent
No. [***]; and U.S. Patent No. [***] and any divisional, continuation, or
continuation-in-part of such patent or patent applications, as well as any
patents issued thereon and any reissue or reexams or extension of such patents,
and any foreign counterparts to such patents and patent applications.
1.19 "UC TECHNOLOGY RIGHTS" shall mean any know-how, technical
information, research and development information, test results, and data
relating to UC Case No. 93-173 (as identified in the UC Agreement) and necessary
for the effective exercise of the UC Patent Rights which have been licensed to
Company pursuant to the UC Agreement.
2. GRANT OF RIGHTS.
2.1 LICENSE GRANT.
(a) PATENT RIGHTS. Subject to the terms of this Agreement,
University hereby grants to Company and its Affiliates an exclusive, worldwide,
royalty-bearing license (with the
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right to sublicense) under the Patent Rights to develop, make, have made, use,
offer for sale, sell, and import Licensed Products in the Field.
(b) RELATED TECHNOLOGY AND LICENSED METHOD. Subject to the terms
of this Agreement, University hereby grants to Company and its Affiliates a
non-exclusive, worldwide, royalty-bearing license (with the right to sublicense)
under the Related Technology and the Licensed Method to develop, make, have
made, use, offer for sale, sell, and import Licensed Products in the Field.
2.2 SUBLICENSES. Company shall have the right to grant sublicenses of
its rights under Section 2.1. All sublicense agreements executed by Company
pursuant to this Article 2 shall be consistent with the terms of this Agreement
and shall provide for the automatic assignment of such agreement to University
if this Agreement is terminated. Company shall promptly furnish University with
a fully executed copy of any such sublicense agreement.
2.3 RETAINED RIGHTS.
(a) UNIVERSITY. University retains the right to make and use
Licensed Products covered by Patent Rights for academic research and academic
patient care, without payment of compensation to Company. University may license
its retained rights under this Section to research collaborators of University
faculty members, to post-doctoral fellows, and to students solely for academic
research and academic patient care. Notwithstanding the above retention of
rights, the University does not retain any right to make, use, or sublicense any
third party the right to use the license or sublicense of its retained rights
under this Section for commercial applications in the Field.
(b) FEDERAL GOVERNMENT. To the extent that any invention claimed
in the Patent Rights has been partially funded by the federal government, this
Agreement and the grant of any rights in such Patent Rights are subject to and
governed by federal law as set forth in 35 U.S.C. SectionSection201-211, and the
regulations promulgated thereunder, as amended, or any successor statutes or
regulations. Company acknowledges that these statutes and regulations reserve to
the federal government a royalty-free, non-exclusive, non-transferable license
to practice any government-funded invention claimed in any non-transferable
license to practice any government-funded invention claimed in any Patent
Rights. If any term of this Agreement fails to conform with such laws and
regulations, the relevant term shall be deemed an invalid provision and modified
in accordance with section 10.10.
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At least some of the inventions claimed in the Patent Rights and the
Related Technology were conceived or reduced to practice by [***], an employee
of the [***] and a faculty member of University, and were assigned to University
by [***] in accordance with the Collaboration Agreement, between [***] and
University dated November 16, 1990, as amended (the "Collaboration Agreement").
Pursuant to the Collaboration Agreement, University is required to grant [***] a
paid-up, non-exclusive, irrevocable license to use such Patent Rights and such
Related Technology which correspond to such inventions for [***] non-commercial
purposes (the "[***] License"), but notwithstanding any provision of this
Agreement to the contrary, Company acknowledges that [***] shall have the [***]
License.
2.4 EFFECT OF EXPIRATION OF ROYALTY PERIOD. Unless this Agreement is
earlier terminated in accordance with Section 8 below, upon the expiration of
the last Royalty Period, Company will have a fully paid, non-exclusive,
irrevocable, worldwide, perpetual license (with the right to sublicense) under
any Patent Rights that are then expired or are no longer enforceable, Related
Technology, and Licensed Method to develop, make, have made, use, offer for
sale, sell, and import Licensed Products, provided Company is then in
substantial compliance with all provisions of this Agreement.
3. COMPANY OBLIGATIONS RELATING TO COMMERCIALIZATIONS.
3.1 DILIGENCE REQUIREMENTS.
(a) Company, upon execution of this Agreement, shall diligently
proceed with the development, manufacture, and sale of Licensed Products and/or
Royalty-Bearing Products and shall earnestly and diligently endeavor to market
the same within a reasonable time after execution of this Agreement. Company
shall have the responsibility to obtain all necessary governmental approvals for
the manufacture, use, and sale of Licensed Products and Royalty-Bearing
Products. If Company is unable to perform any of the following:
(i) [***];
(ii) [***];
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(iii) [***];
(iv) [***]
(v) reasonably fill the market demand for Licensed
Products or Royalty-Bearing Products following commencement of marketing at any
time during the exclusive period of this Agreement;
then, subject to subsection (b) of this Section 3.1, University shall have the
right and option either to terminate this agreement or to reduce Company's
exclusive license to a non-exclusive license. This right, if exercised,
supersedes the rights granted in Section 2.1;. So long as at least one of the
Company or its Affiliates or Sublicensees continues to meet the diligence
requirements set forth above, the University shall not have any termination
rights under this Section 3.1.
(b) Subject to subsection (a) of this Section 3.1, if Company is
unable to meet any of the dates set forth in subsection (a), the parties shall
in good faith re-establish a date or dates that are reasonable under the then
current circumstances. Provided Company is then in full compliance with all
other material provisions of this Agreement, University shall not exercise its
rights to terminate this Agreement or convert it to a non-exclusive agreement
unless a reestablished date is not met. If a reestablished date is more than six
(6) months from the original date, Company shall begin making an annual license
maintenance fee for the delayed product of [***] per year, which fee shall begin
to be payable in [***], on the anniversary date of the Effective Date, and shall
continue until sales of the delayed product begin. The annual maintenance fee
provided for in this Section 3.1 shall not exceed [***] per year. The
re-established date shall not affect the date when any milestone payment would
be due under Section 4.3.
3.2 INDEMNIFICATION.
(a) INDEMNITY. Company shall indemnify, defend and hold harmless
University and its trustees, officers, faculty, students, employees, and agents
and their respective successors, heirs and assigns (the "Indemnitees"), against
any liability, damage, loss, or expense
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(including reasonable attorneys' fees and expenses of litigation) incurred by or
imposed upon any of the Indemnitees in connection with any third-party claims,
suits, actions, demands or judgments arising out of any theory of liability
(including without limitation actions in the form of tort, warranty, or strict
liability and regardless of whether such action has any factual basis)
concerning any Licensed Product or Royalty-Bearing Product, process, or service
that is made, used, or sold pursuant to any right or license granted under this
Agreement; provided, however, that such right or license granted under this
Agreement; provided, however, that such indemnification shall not apply to any
liability, damage, loss, or expense to the extent directly attributable to (i)
the negligent activities or intentional misconduct of the Indemnitees or (ii)
the settlement of a claim, suit, action, or demand by Indemnities without the
prior written approval of Company. Company also shall indemnify, defend, and
hold harmless [***] and its trustees, officers, employees, and agents, and their
respective successors, heirs and assigns (the "[***] Indemnitees"), from and
against any claims, liability, cost, expense, damage deficiency, loss, or
obligation (including, without limitation, reasonable attorney's fees and
costs), based upon, arising out of, or otherwise relating to any actions taken
or omissions made in connection with or pursuant to this License Agreement. The
[***] Indemnitees agree to provide Company with prompt written notice of any
claim, suit action, demand or judgment for which indemnification is sought under
this Agreement. Company agrees that any Sublicensee shall agree to provide [***]
with the same indemnity provided by Company herein.
(b) PROCEDURES. The indemnities agree to provide Company with prompt
written notice of any claim, suit, action, demand, or judgment for which
indemnification is sought under this Agreement. Company agrees, at its own
expense, to provide attorneys reasonably acceptable to University to defend
against any such claim. The Indemnitees shall cooperate fully with Company in
such defense and will permit Company to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of Company, if
representation of such Indemnitee by the counsel retained by Company would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. Company agrees
to keep University informed of the progress in the defense and disposition of
such claim and to consult with University with regard to any proposed
settlement. The failure to deliver a written notice to Company within a
reasonable time after the commencement of such claim, suit, or action, if
prejudicial to Company's ability to defend such action, shall correspondingly
appropriately reduce Company's liability to the Indemnitees under Section 3.2,
but the omission to deliver shall
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not relieve Company of any liability that it may have to indemnitees other than
under this Section 3.2.
(c) INSURANCE. Effective as of such time as a Licensed Product or
Royalty-Bearing Product enters human clinical trials, Company shall maintain
insurance or self-insurance that is reasonable adequate to fulfill any potential
obligation to the Indemnitees, but in any event not less than one million
dollars ($1,000,000) for injuries to any one person arising out of a single
occurrence and five million dollars ($5,000.000) for injuries to all persons
arising out of a single occurrence. Company shall provide University, upon
request, with rewritten evidence of such insurance or self-insurance. Company
shall continue to maintain such insurance or self-insurance after the expiration
or termination of this Agreement during any period in which Company or Affiliate
or Sublicensee continues to make, use, or sell a product that was a Licensed
Product or Royalty-Bearing Product under this Agreement and thereafter for a
period of five (5) years. Until such time as a Licensed Product or
Royalty-Bearing Product enters human clinical trials, Company shall maintain
insurance or self-insurance in such amount as Company customarily maintains
covering similar activities, and shall maintain such insurance so long as
Company customarily carries such insurance coverage or until a Licensed Product
or Royalty-Bearing Product enters human clinical trials.
3.3 USE OF UNIVERSITY NAME. In accordance with Section 7.3., Company and
its Affiliates and Sublicensees shall not use the name "University of
Massachusetts" or any variation of that name in connection with the marketing or
sale of any Licensed Products.
3.4 MARKING OF LICENSED PRODUCTS. To the extent commercially feasible
and consistent with prevailing business practices, Company shall mark, and shall
cause its Affiliates and Sublicensees to mark, all Licensed Products that are
manufactured or sold under this Agreement with the number of each issued patent
under the Patent Rights that applies to such Licensed Product.
3.5 COMPLIANCE WITH LAW. Company shall comply with, and shall require
its Affiliates and Sublicensees comply with, all local, state, federal, and
international laws and regulations relating to the development, manufacture,
use, and sale of Licensed Products. Company expressly agrees to comply with the
following:
(i) Company or its Affiliates or Sublicensees shall obtain all necessary
approvals from the United States Food & Drug Administration and any similar
governmental authorities of
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any foreign jurisdiction in which Company or an Affiliate or Sublicensee intends
to make, use, or sell Licensed Products.
(ii) Company and its Affiliates and Sublicensees shall comply with all
United States laws and regulations controlling the export of certain commodities
and technical data, including without limitation all Export Administration
Regulations of the United States Department of Commerce,. Among other things,
these laws and regulations prohibit, or require a license for, the export of
certain types of commodities and technical data to specified countries. Company
hereby gives written assurance that it will comply with, and will require its
Affiliates and Sublicensees to comply with, all United States export control
laws and regulations, and that it will indemnify, defend, and hold University
harmless (in accordance with Section 3.2) for the consequences of any such
violation.
(iii) To the extent that any invention claimed in the Patent Rights has
been partially funded by the United States government, and only to the extent
required by applicable laws and regulations, Company agrees that any Licensed
Products used or sold in the United States will be manufactured substantially in
the United States or its territories. Current law provides that if domestic
manufacture is not commercially feasible under the circumstances, University may
seek a waiver of this requirement from the relevant federal agency on behalf of
Company.
4. CONSIDERATION FOR GRANT OF RIGHTS.
4.1 LICENSE FEE. In partial consideration of the rights granted Company
under this Agreement, Company shall pay to University, within thirty (30) days
after the Effective Date, a license fee of [***]. In addition, Company shall
reimburse University for patent prosecution expenses in the aggregate amount of
[***] incurred by University as of the Effective Date with respect to Patent
Rights; provided, however, that Company's obligation to reimburse such patent
prosecution expenses shall be conditioned upon University's delivery to Company
of a reasonably detailed, written itemization of such expenses. Copies of
University patent prosecution invoices which provide reasonable detail shall be
sufficient written itemization of such expenses. These license fee payments and
reimbursements are non refundable and are not creditable against any other
payments due to University under this Agreement.
4.2 EQUITY. In partial consideration of the license granted Company
under this Agreement, Company shall issue to University, within thirty (30) days
after the Effective Date, a
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total of [***] shares of Common Stock of Company (subject to adjustment upon
changes in stock through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), under the terms of the Common Stock
Purchase Agreement dated as of the Effective Date between Company and University
(the "Common Stock Purchase Agreement").
4.3 MILESTONE PAYMENTS. Company shall pay University the following
milestone payments and make the following issuances of Company Common Stock
(subject to adjustment upon changes in stock through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise ) to University within thirty
(30) days after the occurrence of each event described below:
<TABLE>
<CAPTION>
MILESTONE PAYMENT STOCK ISSUANCE
<S> <C> <C>
[***]
</TABLE>
In addition, in the event that Company makes any milestone payment(s) to UC with
respect to subsequent compounds utilizing Patent Rights, Related Technology,
Licensed Method, UC patent Rights, or UC Technology Rights, Company shall pay to
University an amount equal to [***] of such milestone payment(s).
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These milestone payments and stock issuances are nonrefundable and are not
creditable against any other payments due to University under this Agreement.
Company shall pay University such amounts and shall issue such stock regardless
of who achieves the milestone, whether the Company or an Affiliate or
Sublicensee.
4.4 ROYALTIES
(a) BASE ROYALTY. In partial consideration of the rights granted
Company under this Agreement, Company shall pay to University an earned royalty
of [***] of Not Sales of Licensed Products and Royalty-Bearing Products by
Company, an Affiliate or a Sublicensee (the "[***] Royalty"), provided that the
earned royalty shall be [***] of Net Sales of a Licensed Product or
Royalty-Bearing Product if Net Sales of the Licensed Product or Royalty-Bearing
Product are less than [***] per year in any given calendar year of sales (the
"[***]"). Company shall pay the [***] Royalty to University for any Royalty
Period as to which it cannot be ascertained at the time royalty payments are due
whether Net Sales for the calendar year of such Royalty Period will be less than
[***]; provided, however, that Company shall be entitled to credit from
University in accordance with section 5.4 in the event that the Year-End Report
(as defined in Section 5.1) indicates that Company has made excessive royalty
payments to University for a calendar year. Any earned royalty due under this
Section 4.4 shall be reduced by fifty percent (50%) in the event that a Licensed
Product or Royalty-Bearing Product is not covered by Patent Rights or UC Patent
Rights but is covered by or developed from related Technology or UC Technology
Rights.
(b) NO MULTIPLE ROYALTIES. No multiple royalties shall be payable
because a particular Licensed Product or its manufacture, use, or sale are or
shall be covered by more than one patent application or patent included within
the Patent Rights.
4.5 MINIMUM ROYALTY. In each calendar year after the Effective Date,
Company shall pay and University shall receive the following minimum royalty
payments:
<TABLE>
<S> <C> <C>
[***]
</TABLE>
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If the actual royalty payments to University in any calendar year are less than
the minimum royalty payment required for that year, Company shall have the right
to pay University the difference between the actual royalty payment and the
minimum royalty payment in full satisfaction of its obligations under this
Section, provided such minimum payment is made to University within sixty (60)
days after the conclusion of the calendar year. Waiver of any minimum royalty
payment by University shall not be construed as a waiver of any subsequent
minimum royalty payment.
4.6 SUBLICENSE INCOME. In the event the Company pays to UC any portion
of any payments the Company receives in consideration for the sublicense of the
Patent Rights, Related Technology, Licensed Method, UC Patent Rights or UC
Technology Rights, Company shall pay to University an amount equal to
[***] of such payment(s).
5. ROYALTY REPORTS; PAYMENTS; RECORDS.
5.1 REPORTS AND PAYMENTS. Within sixty (60) days after the conclusion of
each Royalty Period, Company shall deliver to University a report (each a
"Report") containing the following information:
(i) the number of Licensed Products and Royalty-Bearing
Products sold to independent third parties in each country, and the number of
Licensed Products and Royalty-Bearing Products used by Company and its
Affiliates and Sublicensees to provide commercial services in each country;
(ii) the gross sales price for each Licensed Product and
Royalty-Bearing Product by Company and its Affiliates during the applicable
Royalty Period in each country;
(iii) calculation of Net Sales for the applicable Royalty
Period in each country, including a listing of applicable deductions;
(iv) total royalty payable on Net Sales in U.S. dollars
together with the exchange rates used for conversion; and
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(v) withholding taxes, if any, required by law to be
deducted as a payment by University in respect of such Net Sales.
In addition, the Report for the Royalty Period ending on December 31 of a given
calendar year (the "Year-End Report") shall state whether Company is entitled to
credit pursuant to Section 4.4(a) as a result of having paid the [***] Royalty
during a calendar year in which Net Sales exceeded [***] and, if Company is
entitled to such credit, shall also set forth the amount of the credit to which
Company is entitled, as calculated in accordance with Section 5.4. If no
royalties are due to University for any Royalty Period, the Report for such
Royalty Period shall so state. Concurrent with the delivery of each Report,
Company shall remit to University any payment due for the applicable Royalty
Period. All such reports shall be considered Company Confidential Information.
5.2 PAYMENTS IN U.S. DOLLARS. All payments due under this Agreement
shall be payable in U.S. dollars. Conversion of foreign currency to U.S. dollars
shall be made at the conversion rate existing in the United States (as reported
in the Wall Street Journal) on the last working day of the calendar quarter
preceding the applicable Royalty Period. Such payments shall be without
deduction of exchange, collection, or other charges.
5.3 PAYMENT IN OTHER CURRENCIES. If by law, regulation, or fiscal policy
of a particular country, conversion into United States dollars or transfer of
funds of a convertible currency to the United States is restricted or forbidden,
Company shall give University prompt written notice of such restriction, which
notice shall satisfy the sixty-day payment deadline described in Section 5.1.
Company shall pay any amounts due University through whatever awful methods
University reasonably designates; provided, however, that if University fails to
designate such payment method within thirty (30) days after University is
notified of the restriction, Company may deposit such payment in local currency
to the credit of University in a recognized banking institution selected by
Company and identified by written notice to University and such deposit shall
fulfill all obligations of Company to University with respect to such payments.
5.4 CREDIT FOR OVERPAYMENTS. Within thirty (30) days of University's receipt of
a Year-End Report disclosing overpayment of royalties by Company, University
shall credit to Company an amount equal to the lesser of (a) the difference
between the [***] royalty paid to University and the [***] Royalty to which
University was actually entitled and (b) the difference
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between the [***] Royalty and the applicable minimum royalty for such calendar
year, as specified in Section 4.5.
5.5 RECORDS. Company shall maintain and shall require its Affiliates and
Sublicensees to maintain, complete and accurate records of Licensed Products and
Royalty-Bearing Products that are made, used, or sold under this Agreement and
any amounts payable to University in relation to such Licensed Products and
Royalty Bearing Products, which records shall contain sufficient information to
permit University to confirm the accuracy of any Reports due to University under
Section 5.1. The relevant party shall retain such records relating to a given
Royalty Period for at least three (3) years after the conclusion of that Royalty
Period during which time University shall have the right, at its expense, to
cause its internal accountants or an independent, certified public accountant to
inspect such records during normal business hours for the sole purpose of
verifying any reports and payments due under this Agreement. Such accountant
shall not disclose to University any information other than information relating
to accuracy of reports and payments delivered under this Agreement. The parties
shall reconcile any underpayment or overpayment within thirty (30) days after
the accountant delivers the results of the audit. In the event that any audit
performed under this Section reveals an underpayment in excess of ten percent
(10%) in any Royalty Period, Company shall bear the full cost of such audit;
however, Company shall have the right to review and verify the audit results for
thirty (30) days after the accountant delivers the results of the audit, prior
to being required to pay the cost of the audit. University may exercise its
rights under this Section only once every year and only with reasonable prior
notice to Company.
5.6 LATE PAYMENTS. Any payment by Company that are not paid on or before
the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
interest calculated based on the number of days that payment is delinquent.
5.7 METHOD OF PAYMENT. All payments under this Agreement should be made
in the name of the "University of Massachusetts" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.
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5.8 WITHHOLDING AND SIMILAR TAXES. Royalty payments and other payments
due to University under this Agreement shall not be reduced by reason of any
withholding or similar taxes applicable to such payments to University.
6. PATENTS AND INFRINGEMENT.
6.1 RESPONSIBILITY FOR JOINT PATENT RIGHTS. Company shall have primary
responsibility, at Company's expense, for the preparation, filing, prosecution,
and maintenance of all Joint Patent Rights (except as otherwise agreed in
writing by University and by UC), using patent counsel selected by Company.
Company shall consult with University as to the preparation, filing,
prosecution, and maintenance of all such Joint Patent Rights reasonably prior to
any deadline or action with the U.S. Patent & Trademark Office or any foreign
patent office (a "Patent Office") and shall furnish University with copies of
all relevant documents reasonably in advance of such consultation.
Responsibility for any patent rights covered by the UMMC Cases shall be
determined in accordance with Section 6.2 below.
6.2 CONTROL OF UMMC CASES. From and after the Effective date, University
shall have responsibility for and control over the prosecution and maintenance
of the UMMC Cases and Company shall bear responsibility for the expenses of such
prosecution and maintenance. For so long as University controls prosecution and
maintenance of the UMMC Cases, University shall (a) not make any filings of any
nature or type with a Patent Office in connection with the UMMC Cases
(including, without limitation any initial filing, any amendments to such
filing, any continuations-in-part or any response to any Patent Office action or
communication) without the prior approval of Company, (b) keep Company fully
informed of the status of the UMMC Cases, (c) furnish Company with copies of all
relevant documents in connection with University's preparation, filing,
prosecution, maintenance or abandonment of the UMMC Cases reasonably prior to
any deadline or action with any Patent Office, and (d) consult with Company
regarding such documents and endeavor in good faith to consider and incorporate
any comments on such documents that Company may have (University to have final
authority with respect to such prosecution and maintenance in the event of
disagreement between it and Company).
Notwithstanding the foregoing, University acknowledges and agrees that it will
not prosecute any subject matter with respect to UMMC Cases which would
interfere, as defined by 35 U.S.C. Section135, with subject matter in issued
claims of the UC Patent Rights or the Joint Patent Rights, or take any other
action to prompt a declaration of interference of the UMMC Cases with any such
patent rights and, in the event that such an interference is declared, will
immediately take steps
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reasonably necessary to dissolve such interference including, if necessary,
abandoning the claims.
The University shall not abandon any of the UMMC Cases, fail to respond to any
outstanding action from a Patent Office or fail to pay any applicable issue fee
or maintenance fee without first offering to transfer to Company responsibility
for control over prosecution and maintenance of the applicable rights under the
UMMC Cases with a reasonable amount of time to allow Company to prevent the
abandonment of the UMMC Cases, or respond to such Patent Office action or pay
such issue fee or maintenance fee.
Company shall reimburse University for the expenses of such preparation, filing,
prosecution and maintenance with respect to UMMC Cases; provided, however, that
Company's obligation to reimburse such expenses shall be conditioned upon
University's delivery to Company of a reasonable written itemization of such
expenses. The amount of such expenses incurred to date which Company shall be
obligated to reimburse University is $51,500 (as of July 25, 1997). Copies of
University's invoices with respect to such expenses shall be deemed to be
sufficient written itemization of such expenses.
6.3 INFRINGEMENT.
(a) NOTIFICATION OF INFRINGEMENT. Each party agrees to provide
written notice to the other party promptly after becoming aware of any
infringement of the Patent Rights.
(b) COMPANY RIGHT TO PROSECUTE. So long as the license granted
Company under Section 2.1(a) remains exclusive (subject to the retained rights
under Section 2.3 and any applicable rights of UC with respect to Joint Patent
Rights), Company shall have the right, under its own control and its own
expense, to prosecute any third party infringement of the Patent Rights in the
Field or, together with other licensees of the Patent Rights in other fields, to
defend the Patent Rights in any declaratory judgment action brought by a third
party which alleges invalidity, unenforceability, or non-infringement of the
Patent Rights. Prior to commencing any action as aforesaid, Company shall
consult with University and shall consider the views of University regarding the
advisability of the proposed action and its effect on the public interest.
Company shall not enter into any settlement, consent judgment, or other
voluntary final disposition of any infringement action under this Subsection
without the prior written consent of the University, which consent shall not be
unreasonably withheld or delayed. Any recovery obtained in an action under this
Subsection which relates solely to the Patent Rights shall be distributed as
follows: (i) each party shall be reimbursed for any expenses incurred in the
action
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(including the amount of any royalty payments withheld from University as
described below); (ii) as to ordinary damages, Company shall receive an amount
equal to its lost profits or a reasonable royalty on the infringing sales
(whichever measure of damages the court shall have applied), and shall remit to
University a reasonable approximation of the royalties that Company would have
paid to University if Company had sold the infringing products and services
rather than the infringer, and (iii) as to special or punitive damages, the
parties shall share any award in proportion to the share of expense paid by each
party. Company may offset a total of [***] of any expenses incurred under this
Subsection against any royalty payments due to University under this Agreement,
provided that in no event shall the royalty payments under Section 4.4., when
aggregated with any other offsets and credits allowed under this Agreement, be
reduced by more than [***] in any Royalty Period.
(c) UNIVERSITY AS INDISPENSABLE PARTY. University shall permit
any action under this Section to be brought in its name if required by law,
provided that Company shall hold University harmless from, and if necessary
indemnify University against, any costs, expenses, or liability that University
may incur in connection with such action.
(d) UNIVERSITY RIGHT TO PROSECUTE. In the event that Company
fails to initiate an infringement action with respect to Patent Rights within a
reasonable time after it first becomes aware of the basis for such action, or to
answer a declaratory judgment or other action within a reasonable time after
such action is filed, University shall have the right to prosecute such
infringement or answer such declaratory judgment action, under its sole control
and its sole expense, and any recovery obtained shall be given to University.
(e) COOPERATION. Each party agrees to cooperate fully in any
action under this Section 6.3 which is controlled by the other party, provided
that the controlling party reimburses the cooperating party promptly for
reasonable costs and expenses incurred by the cooperating party in connection
with providing such assistance.
7. CONFIDENTIAL INFORMATION; PUBLICATIONS; PUBLICITY.
7.1 CONFIDENTIAL INFORMATION
(a) DESIGNATION. Confidential Information that is disclosed in
writing shall be marked with a legend indicating its confidential status (such
as "Confidential" or "Proprietary"). Confidential Information that is disclosed
orally or visually shall be documented in a written
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notice prepared by the Disclosing Party and delivered to the Receiving Party
within thirty (30) days of the date of disclosure; such notice shall summarize
the Confidential Information disclosed to the Receiving Party and reference the
time and place of disclosure.
(b) OBLIGATIONS. For a period of five (5) years after disclosure
of any portion of Confidential Information, the Receiving Party shall (i)
maintain such Confidential Information in strict confidence, except that the
Receiving Party may disclose or permit the disclosure of any Confidential
Information to its directors, officers, employees, consultants, and advisors who
are obligated to maintain the confidential nature of such Confidential
Information and who need to know such Confidential Information solely for the
performance and administration of this Agreement; and (ii) allow its trustees or
directors, officers, employees, consultants, and advisors to reproduce the
Confidential Information only to the extent necessary for the purposes of this
Agreement, with all such reproductions being considered Confidential
Information.
(c) EXCEPTIONS. The obligations of the Receiving Party under
Subsection 7.1(b) above shall not apply to the extent that the receiving Party
can demonstrate that certain Confidential Information (i) was in the public
domain prior to the time of its disclosure under this Agreement; (ii) entered
the public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by
the Receiving Party; (iii) was independently developed or discovered by the
Receiving Party without use of the Confidential Information; (iv) is or was
disclosed to the Receiving Party at any time whether prior to or after the time
of its disclosure under this Agreement, by a third party having no fiduciary
relationship with the Disclosing Party and having no obligation of
confidentiality with respect to such Confidential Information; or (v) is
required to be disclosed to comply with applicable laws or regulations, or with
a court or administrative order, provided that the Disclosing Party receives
reasonable prior written notice of such obligation for disclosure.
(d) OWNERSHIP AND RETURNS. The Receiving Party acknowledges that
the Disclosing Party (or any third party entrusting its own information to the
Disclosing Party) claims ownership of its Confidential Information in the
possession of the Receiving Party. Upon the expiration or termination of this
Agreement, and at the request of the Disclosing Party, the Receiving Party shall
return to the Disclosing Party all originals, copies, and summaries of
documents, materials and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy
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of the Confidential Information in the possession of its legal counsel solely
for the purpose of monitoring its obligations under this Agreement.
7.2 PUBLICATIONS. University and its employees will be free to disclose
publicly (through journals, lectures, or otherwise) the results of any research
in the Field or relating to the subject matter of the Patent Rights, except as
otherwise provided by written agreement between University and Company (e.g., a
sponsored research agreement).
7.3 PUBLICITY RESTRICTIONS. Company shall not use the name of University
or any of its trustees, officers, faculty, students, employees, or agents, or
any adaptation of such names, or any terms of this Agreement in any promotional
material or other public announcement or disclosure without the prior written
consent of University. The foregoing notwithstanding, Company shall have the
right to disclose such information without the consent of University in any
prospectus, offering memorandum, or other document or filing required by
applicable securities laws or other applicable law or regulation, provided that
Company shall have given University at least ten (10) days prior written notice
of the proposed text and of the requirement for the proposed disclosure for the
purpose of giving University the opportunity to comment on such text. Company
and its Affiliates and Sublicensees shall not use the name, likeness, or logos
of the [***] in any press release, general publication, advertising, marketing,
promotional or sales literature without prior written consent from an authorized
official of the [***].
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall commence on the Effective Date and shall
remain in effect until (i) the expiration of all issued patents within the
Patent Rights or (ii) for a period of ten (10) years after the Effective Date if
no such patents have issued within that ten-year period, unless earlier
terminated in accordance with the provisions of this Agreement (the "Term").
8.2 TERMINATION FOR DEFAULT. In the event that either party commits a
material breach of its obligations under this Agreement and fails to cure that
breach within sixty (60) days after receiving written notice thereof, the other
party may terminate this Agreement immediately upon written notice to the party
in breach. If the alleged breach involves nonpayment of any amounts due
University under this Agreement, Company shall be entitled to the sixty-day cure
period only with respect to the first such breach, with the cure period for each
subsequent breach shortened as follows: thirty (30) days for the second breach;
fifteen (15) days for the third
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breach; and termination immediately upon written notice to Company, without any
cure period for any subsequent breach.
8.3 FORCE MAJEURE. Neither party will be responsible for delays
resulting from causes beyond the reasonable control of such party, including
without limitation fire, explosion, flood, war, strike, or riot, provided that
the nonperforming party uses commercially reasonable efforts to avoid or remove
such causes of nonperformance and continues performance under this Agreement
with reasonable dispatch whenever such causes are removed.
8.4 EFFECT OF TERMINATION. The following provisions shall survive the
expiration or termination of this Agreement: Articles 1, 5 (except that Section
5.1 shall only survive as to the obligation to provide final report and
payment), 7 and 9; Sections 3.2, 3.5, 8.4, 10.8 and 10.9. In addition, Sections
4.3, 4.4 and 4.5 shall survive the expiration (but not the termination) of this
Agreement until the end of the last Royalty Period. Upon the early termination
of this Agreement, Company and its Affiliates and Sublicensees may complete and
sell any work-in-progress and inventory of licensed products that exist as of
the effective date of termination, provided that (i) Company is current in
payment of all amounts due University under this Agreement, (ii) Company pays
University the applicable royalty on such sales of Licensed Products and
Royalty-Bearing Products in accordance with the terms and conditions of this
Agreement, and (iii) Company and its Affiliates and Sublicensees shall complete
and sell all work-in-progress and inventory of Licensed Products within six (6)
months after the effective date of termination.
9. DISPUTE RESOLUTION.
9.1 PROCEDURES MANDATORY. The parties agree that any dispute arising out
of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party fails to
observe the procedures of this Article, as modified by their written agreement,
the other party may bring an action for the specific performance in any court of
compentent jurisdiction.
9.2 DISPUTE RESOLUTION PROCEDURES.
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(a) NEGOTIATION. In the event of any dispute arising out of or
relating to this Agreement, the affected party shall notify the other party, and
the parties shall attempt in good faith or resolve the matter within ten (10)
days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to senior executives of
each party, who shall meet at a mutually acceptable time and location within
thirty (30) days after the Notice Date and attempt to negotiate a settlement.
(b) MEDIATION. If the matter remains unresolved within sixty (60)
days after the notice Date, or if the senior executives fail to meet within
thirty (30) days after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under then current Center for Public Resources
("CPR") Model Procedure for Mediation of Business Disputes, except that specific
provisions of this Section shall override inconsistent provisions of the CPR
Model Procedure. The mediator will be selected from the CPR Panels of Neutrals.
If the parties cannot agree upon the selection of a mediator within ninety (90)
days after the Notice Date, then upon the request of either party, the CPR shall
appoint the mediator. The parties shall attempt to resolve the dispute through
mediation until one of the following occurs: (i) the parties reach a written
settlement; (ii) the mediator notifies the parties in writing that they have
reached an impasse; (iii) the parties agree in writing that they have reached an
impasse; or (iv) the parties have not reached a settlement within one hundred
and twenty (120) days after the Notice Date.
(c) TRIAL WITHOUT JURY. If the parties fail or resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.
9.3 PRESERVATION OF RIGHTS PENDING RESOLUTION.
(a) PERFORMANCE TO CONTINUE. Each party shall continue to perform
its obligations under this Agreement pending final resolution of any dispute
arising out or relating to this Agreement; provided, however, that a party may
suspend performance of its obligations during any period in which the other
party fails or refuses to perform its obligations.
(b) PROVISIONAL REMEDIES. Although the procedures specified in
this Article are the sole and exclusive procedures for the resolution of
disputes arising out of relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if,
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in its reasonable judgment, such action is necessary to avoid irreparable harm
to itself or to preserve its rights under this Agreement.
(c) STATUTE OF LIMITATIONS. The parties agree that all applicable
statutes of limitation and time-based defenses (such as estoppel and laches)
shall be tolled while the procedures set forth in Subsections (9.2.(a) and
9.2(b) are pending. The parties shall take any actions necessary to effectuate
this result.
10. MISCELLANEOUS.
10.1 REPRESENTATIONS AND WARRANTIES. University represents and warrants
that its employees have assigned to University their entire right, title, and
interest in the Patent Rights and that it has authority to grant the rights and
licenses set forth in this Agreement. UNIVERSITY MAKES NO OTHER WARRANTIES
CONCERNING THE PATENT RIGHTS AND RELATED TECHNOLOGY, INCLUDING WITHOUT
LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Specifically, University makes no warranty or representation
(i) regarding the validity or scope of the Patent Rights (ii) that the
exploitation of Patent Rights or any Licensed Product will not infringe any
patents or other intellectual property rights of a third party, and (iii) that
any third party is not currently infringing or will not infringe the Patent
Rights.
10.2 TAX-EXEMPT STATUS. Company acknowledges that University, as a
public institution of the Commonwealth of Massachsuetts, holds the status of an
exempt organization under the United States Internal Revenue Code. Company also
acknowledges that ascertain facilities in which the licensed inventions were
developed may have been financed through offerings of tax-exempt bonds. If the
Internal Revenue Service determines, or if counsel to University reasonably
determines, that any term of this Agreement jeopardizes the tax-exempt status of
University or the bonds used to finance University facilities, the relevant term
shall be deemed in invalid provisions and modified in accordance with Section
10.10.
10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.4 HEADINGS. All headings are for convenience only and shall not
affect the meaning of any provision of this Agreement.
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10.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective permitted successors and
assigns.
10.6 ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that Company may
assign this Agreement to an affiliate or to a successor in connection with the
merger, consolidation, or sale of all or substantially all of its assets or that
portion of its business to which this Agreement relates.
10.7 AMENDMENT AND WAIVER. This Agreement may be amended, supplemented,
or otherwise modified only by means of a written instrument signed by both
parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.
10.8. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts irrespective of
any conflicts of law principles.
10.9 NOTICE. Any notices required or permitted under this Agreement
shall be in writing, shall specifically refer to this Agreement, and shall be
sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail,
postage prepaid, return receive requested, to the following addresses or
facsimile numbers of the parties.
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If to University:
Office of Commercial Ventures and Intellectual Property
University of Massachsuetts
55 Lake Avenue North
Worcester, MA 01605
Attention: Joseph F. X. McGuirl
Executive Director
Tel: (508) 856-1626
Fax: (508) 856-5004
If to Company:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attention: Alan J. Lewis, Ph.D.
President and Chief Executive Officer
Tel: (619) 558-7500
Fax: (619) 558-7513
All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.
10.10 SEVERABILITY. In the event that any provision of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent. If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.
10.11 ENTIRE AGREEMENT. Except for the Common Stock Purchase Agreement,
this Agreement constitutes the entire agreement between the parties with respect
to its subject
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and supersedes all prior agreement or understandings between the parties
relating to its subject matter.
IN WITNESS WHEREOF, The parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
UNIVERSITY OF MASSACHUSETTS SIGNAL PHARMACEUTICALS, INC.
By: /s/ JOSEPH F.X. McGUIRL By: /s/ CARL BOBKOSKI
-------------------------------- ------------------------------
Joseph F.X. McGuirl Carl Bobkoski
Executive Director, CVIP Executive Vice President
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EXHIBIT A
LIST OF UMMC CASES
U.S. PATENT APPLICATION SERIAL NO. [***]
U.S. PATENT APPLICATION SERIAL NO. [***]
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* Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.41
RESTRICTED STOCK PURCHASE AGREEMENT
Agreement made as of this 8th day of December, 1997 by and between
Signal Pharmaceuticals, Inc., a California corporation (the "Company"), and
University of Massachusetts (the "Purchaser").
Unless otherwise defined herein, all capitalized terms used herein shall
have the same meanings given to them in that certain Exclusive License Agreement
(the "License Agreement") by and between Purchaser and the Company, dated
October 28, 1997, a copy of which is attached hereto as Exhibit 1.
1. PURCHASE OF SHARES
1.1 PURCHASE. In consideration of Purchaser's grant of certain patent
and technology rights to the Company pursuant to the License Agreement, the
Company shall issue to Purchaser [***] shares of its Common Stock. All shares
of the Company's Common Stock issued to Purchaser pursuant to this paragraph,
shall hereinafter be referred to as the "Shares."
2. INVESTMENT REPRESENTATIONS
2.1 PAYMENT. The Company represents and warrants that the Shares, when
issued in accordance with the provisions of this Agreement, will be duly and
validly issued, fully paid, and non-assessable.
2.2 EXEMPTION FROM REGISTRATION. The Shares have not been registered
under the 1933 Act (defined below), and are accordingly being issued to
Purchaser in reliance upon the exemption from such registration provided by 4(2)
of the 1933 Act.
2.3 INVESTMENT INTENT. Purchaser hereby warrants and represents that it
is acquiring the Shares for its own account and not with a view to their resale
or distribution and that it is prepared to hold the Shares for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in, the Shares except that Purchaser may transfer the
Shares to the University of Massachusetts Foundation (the "Foundation").
Purchaser hereby acknowledges the fact that the Shares have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), and that the
Company is issuing the Shares to it in reliance on the representations made by
it herein.
2.4 RESTRICTED SECURITIES.
(a) Purchaser hereby confirms that it has been informed that the
Shares may not be resold or transferred unless such Shares are first registered
under the 1933 Act or unless an exemption from such registration is available.
Accordingly, Purchaser
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hereby acknowledges that it is prepared to hold the Shares for an indefinite
period and that it is aware that Rule 144 of the Securities and Exchange
Commission issued under the 1933 Act is not presently available to exempt the
sale of the Shares from the registration requirements of the 1933 Act. Should
Rule 144 subsequently become available, Purchaser is aware that any sale of
Shares effected pursuant to the Rule may, depending upon the status of Purchaser
as an "affiliate" or "non-affiliate" under the Rule, be made only in limited
amounts in accordance with the provisions of the Rule, and that in no event may
any Shares be sold pursuant to the Rule until Purchaser has held such Shares for
at least one (1) year following their issuance.
(b) Should the Company not become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"), then Purchaser may, provided he/she is not at the time an affiliate of
the Company (nor was such an affiliate during the preceding three (3) months),
sell the Shares (without registration) pursuant to paragraph (k) of Rule 144
after the Shares have been held for a period of two (2) years following the
effective date of the License Agreement.
2.5 DISPOSITION OF SHARES. Except as specifically set forth below,
Purchaser hereby agrees that it shall make no disposition of the Shares, unless
and until:
(a) it shall have complied with all requirements of this
Agreement applicable to the disposition of such Shares;
(b) it shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and conditions
of the proposed disposition; and
(c) unless otherwise waived by the Company, it shall have
delivered to the Company a written opinion of counsel at the Company's expense,
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act or
(ii) all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from registration available
under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 2, nor (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
so transferred.
2.6 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares shall be
endorsed with restrictive legends, including the following legend:
2.
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment and may not be sold or offered for sale in the
absence of an effective registration statement for the shares under that
Act, a 'no action' letter of the Securities and Exchange Commission as
to such sale or offer, or an opinion of counsel to the Company that
registration under such Act is not required for such sale or offer."
3. TRANSFER RESTRICTIONS.
3.1 TRANSFEREE OBLIGATIONS. Each person (other than the Company and the
Foundation) to whom the Shares are transferred must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to the market stand-off provisions of paragraph 3.2 to the
same extent such shares would be so subject if retained by Purchaser.
3.2 MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering,
Purchaser and all subsequent holders of the Shares who derive their chain of
ownership through a transfer from Purchaser ("Owner") shall not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the purchase of,
or otherwise dispose or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to, any Shares without the prior
written consent of the Company or its underwriters. Such limitations shall be in
effect for such period of time from and after the effective date of the final
prospectus for such offering as may be requested by the Company or such
underwriters.
(b) Owner shall be subject to the market standoff provisions of
this paragraph 3.2 provided and only if all of the executive officers and
directors of the Company are also subject to similar arrangements.
(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected as a class without the Company's receipt of consideration, then
any new, substituted or additional securities distributed with respect to the
Shares shall be immediately subject to the provisions of this paragraph 3.2, to
the same extent the Shares are at such time covered by such provisions.
3.
<PAGE> 4
(d) In order to enforce the limitations of this paragraph 3.2,
the Company may impose stock-transfer instructions with respect to the Shares
until the end of the applicable standoff period.
4. REGISTRATION RIGHTS.
4.1 For purpose of this Section 4:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means the Common Stock
issued pursuant to this Agreement, excluding, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 4 are not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 4.7 hereof.
4.2 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 5.2, the Company shall,
subject to the provisions of Section 4.4, cause to be registered under the 1933
Act all of the Registrable Securities that each such Holder has requested to be
registered.
4.3 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
4.2 for each
4.
<PAGE> 5
Holder (which right may be assigned as provided in Section 4.7), including
(without limitation) all registration, filing, and qualification fees, printers'
and accounting fees relating or apportionable thereto, but excluding
underwriting discounts and commissions relating to Registrable Securities.
4.4 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 4.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (subject to the rights of other security holders of
the Company, including, without limitation, preferred shareholders, the
securities so included to be apportioned pro rata among the selling
shareholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder that is a holder of Registrable
Securities and that is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
4.5 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 4.
4.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the 1933 Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or
5.
<PAGE> 6
several) to which they may become subject under the 1933 Act or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements 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 violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 4.6 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the 1933 Act, or the 1934 Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 4.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6(b) claim, damage, liability or action if such settlement
is effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under
this subsection 4.6(b) exceed the gross proceeds from the offering received by
such Holder.
6.
<PAGE> 7
(c) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to such indemnified party and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such Final Prospectus
is required to be delivered under the 1933 Act if such loss, claim or damage
would have been avoided had the indemnified party furnished the Final Prospectus
to such person.
(d) Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
4.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4.6.
(e) If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportions is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements of omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by
7.
<PAGE> 8
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(g) The obligations of the Company and Holders under this Section
4.6 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 4 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least twenty
percent (20%) of the shares of Registrable Securities originally purchased by
such Holder (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations), provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings or transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 4.
5. INTERPRETATION
5.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may in
its judgment deem necessary or advisable in order to carry out or effect one or
more of the
8.
<PAGE> 9
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.
5.2 NOTICES. Any notice required or permitted in connection with any
matter pertaining to this Agreement shall be given in writing and shall be
deemed effective upon personal delivery or upon deposit in the United States
Mail, registered or certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by 10 days'
advance written notice under this Section 5.2 to the other party to this
Agreement.
5.3 GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California.
5.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
SIGNAL PHARMACEUTICALS, INC.
Address: 5555 Oberlin Drive
San Diego, CA 92121
By: /s/ ALAN J. LEWIS
------------------------------------
Alan J. Lewis, Ph.D.
President and CEO
UNIVERSITY OF MASSACHUSETTS
Address: 55 Lake Avenue North
Worcester, MA 01655
By: /s/ JOSEPH F.X. MCGUIRL
------------------------------------
Joseph F.X. McGuirl
Executive Director
Office of Commercial Ventures
and Intellectual Property
By: /s/ STEPHEN W. LENHARDT
------------------------------------
Stephen W. Lenhardt
Vice President for Management
and Fiscal Affairs
University Treasurer
10.
<PAGE> 1
* Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.42
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
Dated November 25, 1997
by and between
SIGNAL PHARMACEUTICALS, INC.
and
ARES TRADING S.A.
<PAGE> 2
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
-------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS ............................................................. 1
-----------
1.01 Affiliate ....................................................... 2
1.02 ARES Know-How ................................................... 2
1.03 ARES Patents .................................................... 2
1.04 Business Day .................................................... 2
1.05 Effective Date .................................................. 2
1.06 Facilities ...................................................... 3
1.07 FDA ............................................................. 3
1.08 Field ........................................................... 3
1.09 Initial Term .................................................... 3
1.10 Joint Know-How .................................................. 3
1.11 Joint Patents ................................................... 3
1.12 Joint Research Committee ........................................ 3
1.13 Licensed Product ................................................ 4
1.14 Net Sales ....................................................... 4
1.15 NF-kB ........................................................... 4
1.16 Protocol ........................................................ 5
1.17 Research ........................................................ 5
1.18 SIGNAL Know-How ................................................. 5
1.19 SIGNAL Patents .................................................. 5
1.20 SIGNAL Technology ............................................... 5
1.21 Subsequent Term ................................................. 6
1.22 Tanabe .......................................................... 6
1.23 Term ............................................................ 6
1.24 Territory ....................................................... 6
1.25 Valid Claim ..................................................... 6
ARTICLE II RESEARCH ................................................................ 6
--------
2.01 Joint Research Committee ........................................ 6
2.01.01 Purpose ................................................. 6
2.01.02 Membership .............................................. 7
2.01.03 Schedule ................................................ 7
2.01.04 Procedures .............................................. 7
2.02 Performance of the Research ..................................... 7
2.03 Performance Standard ............................................ 8
2.03.01 SIGNAL .................................................. 8
2.03.02 ARES .................................................... 8
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.04 Commitment of Research Personnel ................................ 8
2.05 Exclusive Relationship .......................................... 8
2.05.01 SIGNAL .................................................. 8
2.05.02 Tanabe Agreement ........................................ 9
2.06 Facilities ...................................................... 9
2.07 Records ......................................................... 10
2.08 Audit ........................................................... 10
2.09 Research by ARES ................................................ 10
2.10 Term of the Research ............................................ 10
2.11 Research Funding ................................................ 11
2.12 Materials ....................................................... 12
2.12.01 ARES Materials .......................................... 12
2.12.02 SIGNAL Materials ........................................ 12
2.13 Ownership of SIGNAL Technology .................................. 13
2.13.01 No Ownership by SIGNAL Employees ........................ 13
2.13.02 SIGNAL Know-How and SIGNAL Patents ...................... 13
2.13.03 Joint Know-How and Joint Patents........................ 13
2.14 License of ARES Know-How and ARES Patents ....................... 14
ARTICLE III LICENSE ................................................................. 14
-------
3.01 Grant of License ................................................ 14
3.02 Disclosure of SIGNAL Know-How and Joint Know-How ................ 15
3.03 License Fees .................................................... 15
3.03.01 New Target or Indication ................................ 15
3.03.02 Other Licensed Products ................................. 16
3.03.03 New Dosage or Formulation of Licensed Product ........... 17
3.04 Equity Investment ............................................... 17
3.05 Ongoing Royalty ................................................. 17
3.06 Deduction for ARES Discovery .................................... 18
3.07 Adverse Patents ................................................. 18
3.08 Reimbursement to SIGNAL ......................................... 18
3.09 Single Royalty .................................................. 19
3.10 Taxes Withheld .................................................. 19
3.11 Report of Royalties ............................................. 19
3.12 Payment of Royalties ............................................ 19
3.13 Interest on Payments ............................................ 20
3.14 Records ......................................................... 20
3.15 Reversion of Rights to Signal ................................... 20
3.15.01 Exercise of Reversion Option ............................ 20
3.15.02 SIGNAL Obligation to Make Payment ....................... 21
3.15.03 ARES Grant of License ................................... 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE IV ADDITIONAL RIGHTS ....................................................... 22
-----------------
4.01 Co-Promotion .................................................... 22
4.01.01 Exercise of Option ...................................... 22
4.01.02 Royalty Calculations .................................... 24
4.02 Supply of Licensed Products and/or
4.03 Combination Products ............................................ 24
ARTICLE V PATENT PROSECUTION AND ENFORCEMENT ...................................... 25
----------------------------------
5.01 Prosecution and Maintenance by SIGNAL ........................... 25
5.02 Prosecution and Maintenance by ARES ............................. 25
5.03 Prosecution of Infringement or Patent Defense
by SIGNAL ....................................................... 26
5.04 Participation in Prosecution of Infringement
or Patent Defense by ARES ....................................... 26
5.05 Prosecution of Infringement or Patent Defense
by ARES ......................................................... 27
ARTICLE VI TERM AND TERMINATION .................................................... 28
--------------------
6.01 Term ............................................................ 28
6.02 Termination by ARES ............................................. 28
6.03 Termination for Breach .......................................... 28
6.04 Termination upon ARES' Bankruptcy ............................... 29
6.05 No Termination upon SIGNAL's Bankruptcy ......................... 29
6.06 Effect of Termination ........................................... 29
6.07 Cumulative Rights and Remedies .................................. 30
ARTICLE VII REPRESENTATIONS, WARRANTIES AND
------------------------------
INDEMNIFICATION ......................................................... 30
---------------
7.01 SIGNAL Representations .......................................... 30
7.02 ARES Representations ............................................ 32
7.03 SIGNAL Indemnification .......................................... 32
7.04 ARES Indemnification ............................................ 33
7.05 Disclaimer of Warranties ........................................ 34
ARTICLE VIII GENERAL PROVISIONS ...................................................... 35
------------------
8.01 No Waiver ....................................................... 35
8.02 Force Majeure ................................................... 35
8.03 Notices ......................................................... 35
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.04 Independent Contractors ......................................... 36
8.05 Assignment ...................................................... 37
8.05.01 General ................................................. 37
8.05.02 Acquisition or Merger ................................... 37
8.06 No Sale or Other Disposal of SIGNAL Technology .................. 38
8.07 Reference to Patents ............................................ 38
8.08 No Third-Party Beneficiary ...................................... 38
8.09 Publicity ....................................................... 38
8.10 Confidential Information ........................................ 39
8.11 Publication ..................................................... 40
8.12 Counterparts .................................................... 41
8.13 No Strict Construction .......................................... 41
8.14 Governing Law ................................................... 41
8.15 Dispute Resolution .............................................. 41
8.15.01 Negotiation ............................................. 41
8.15.02 Arbitration ............................................. 42
8.16 Cooperation ..................................................... 43
8.17 Integration ..................................................... 43
EXHIBIT A ARES Know-How ........................................................... 45
EXHIBIT B ARES Patents ........................................................... 46
EXHIBIT C Protocol ................................................................ 47
EXHIBIT D SIGNAL Know-How ......................................................... 48
EXHIBIT E SIGNAL Patents .......................................................... 49
EXHIBIT F SIGNAL Third-Party Agreements ........................................... 50
EXHIBIT G Third-Party Rights in SIGNAL Know-How and
SIGNAL Patents .......................................................... 51
</TABLE>
iv
<PAGE> 6
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
THIS RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement")
effective as of the ___ day of November 1997 by and between ARES TRADING S.A., a
Swiss company with its principal place of business at Chateau de Vaumarcus, 2028
Vaumarcus, Switzerland (hereinafter "ARES"), and SIGNAL PHARMACEUTICALS, INC. a
California corporation with a principal place of business at 5555 Oberlin Drive,
San Diego, California 92121, U.S.A. (hereinafter "SIGNAL") (ARES and SIGNAL are
sometimes hereinafter referred to collectively as the "Parties" or individually
as a "Party");
WITNESSETH:
WHEREAS, ARES in conjunction with its affiliates and/or agents desires to
perform and have performed research within the field of the modulation of
nuclear factor kappa B; and
WHEREAS, SIGNAL in conjunction with its agents, consultants and/or
academic collaborators is willing to perform and to collaborate with ARES in the
performance of such research; and
WHEREAS, in connection with such research collaboration, ARES wishes to
obtain an exclusive license within the Territory (as defined herein) to develop,
make, have made, import, use, and sell Licensed Products (as also defined
herein); and
WHEREAS, SIGNAL is willing to grant such a license to ARES;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Parties hereto have agreed as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, each term listed below shall have the meaning
that is given after it:
<PAGE> 7
Section 1.01. Affiliate. Any corporation, firm, partnership or other
entity that controls, is controlled by or is under common control with the Party
in question. For this purpose, "control" shall mean the ownership, whether
direct or indirect, of fifty percent (50%) or more of the equity having the
power to vote on or otherwise direct the affairs of the entity.
Section 1.02. ARES Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which ARES or its Affiliates have any
right, title or interest that is necessary or useful for the research,
discovery, development, manufacture, use, import or sale of products within the
Field, including without limitation any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, set forth on Exhibit A hereto or obtained,
developed, made, conceived or first reduced to practice in connection with the
Research solely by ARES, its Affiliates and/or agents, but excluding any Joint
Know-How.
Section 1.03. ARES Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit B
to this Agreement or claim any ARES Know-How, and (iii) any foreign counterparts
of any of the foregoing.
Section 1.04. Business Day. Any day other than a Saturday, Sunday or other
day on which the principal commercial banks located in Vaumarcus, Switzerland or
San Diego, California are not open for business during normal banking hours.
Section 1.05. Effective Date. November ___, 1997.
- 2 -
<PAGE> 8
Section 1.06. Facilities. A Party's research facilities and the research
facilities of any of such Party's agents, Affiliates, consultants and/or
academic collaborators who collaborate in the performance of the Research.
Section 1.07. FDA. The United States Food and Drug Administration.
Section 1.08. Field. The modulation of NF-(kappa)B, [***]
Section 1.09. Initial Term. The period beginning on the Effective Date and
ending three (3) years thereafter, unless sooner terminated in accordance with
the terms and conditions of Article VI.
Section 1.10. Joint Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, obtained, developed, made, conceived or
first reduced to practice in connection with the Research jointly by ARES, its
Affiliates and/or agents and SIGNAL, its agents, consultants and/or academic
collaborators.
Section 1.11. Joint Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, claim any Joint Know-How,
and (iii) any foreign counterparts of any of the foregoing.
Section 1.12. Joint Research Committee. A committee established by the
Parties for the purpose of defining and overseeing the implementation of the
Research.
- 3 -
***Confidential Treatment Requested
<PAGE> 9
Section 1.13. Licensed Product. A product, the development, manufacture,
import, use, or sale of which (i) but for the license granted in this Agreement,
would infringe one or more Valid Claims of a SIGNAL Patent or Joint Patent
licensed hereunder, or (ii) utilizes the SIGNAL Know-How or Joint Know-How
licensed hereunder.
Section 1.14. Net Sales. The amount received for a sale of the Licensed
Product or Combination Product (as defined below), as applicable, to third
parties by ARES, its Affiliates or sublicensees, less: (i) trade, cash and
quantity discounts, rebates or reimbursements, if any, actually allowed or paid;
(ii) returns, allowances and adjustments actually granted to customers; (iii)
freight, insurance and other transportation charges actually accrued or paid;
and (iv) taxes (other than taxes on ARES' income), duties or other governmental
charges on sales or use actually absorbed by ARES or its Affiliates or
sublicensees with respect to the sale of such Licensed Product or Combination
Product. If the Licensed Product is sold in combination with other ingredients,
products, devices, equipment or components (a "Combination Product"), Net Sales
for any such Combination Product shall be computed by multiplying what would
otherwise be the Net Sales of such Combination Product by the Combination
Allocation Fraction (as defined below) attributable to such Combination Product.
The "Combination Allocation Fraction" as used herein shall be a fraction, the
numerator of which shall be the fair market value of the Licensed Product
included in the Combination Product and the denominator of which shall be the
fair market value of such Licensed Product plus the fair market value of the
ingredients, products, equipment or components of such Combination Product that
are not Licensed Product. If no market price exists, fair market value shall be
determined in good faith by ARES and SIGNAL. Sales among ARES and its Affiliates
or sublicensees shall be disregarded and only final sales to unrelated third
parties shall be included in Net Sales.
Section 1.15. NF-(kappa)B. Nuclear factor kappa B.
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Section 1.16. Protocol. A protocol for a research project established from
time to time by the Joint Research Committee in accordance with Section 2.01
hereof and the sample protocol set forth as Exhibit C to this Agreement.
Section 1.17. Research. Research performed pursuant to the Protocols by
SIGNAL, its agents, consultants and/or academic collaborators, either alone or
in collaboration with ARES, its Affiliates and/or agents, relating to the Field.
Section 1.18. SIGNAL Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which SIGNAL has any right, title or
interest that is necessary or useful for the research, discovery, development,
manufacture, use, import or sale of products within the Field, including without
limitation any invention, discovery, formula, design, process, know-how, data,
composition, matter, device or any improvement thereof, whether patentable or
not, set forth on Exhibit D hereto or obtained, developed, made, conceived or
first reduced to practice in connection with the Research solely by SIGNAL, its
agents, consultants and/or academic collaborators, but excluding any Joint
Know-How.
Section 1.19. SIGNAL Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit E
to this Agreement or claim any SIGNAL Know-How, and (iii) any foreign
counterparts of any of the foregoing.
Section 1.20. SIGNAL Technology. SIGNAL Patents and SIGNAL Know-How and
SIGNAL's right, title and interest in, to and under Joint Patents and Joint
Know-How, collectively.
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Section 1.21. Subsequent Term. The period beginning upon the expiration of
the Initial Term and continuing until the expiration of the Term.
Section 1.22. Tanabe. Tanabe Seiyaku Co., Ltd.
Section 1.23. Term. As defined in Section 6.01 hereof.
Section 1.24. Territory. All countries of the world, with the exception of
Japan, China, South Korea, Taiwan, Thailand, Cambodia, Laos, Vietnam, Indonesia,
Nepal, the Philippines, Singapore, Malaysia, Hong Kong, Myanmar and Brunei.
Section 1.25. Valid Claim. A claim of an issued patent which claim has not
lapsed, been canceled or become abandoned and has not been declared invalid by
an unreversed and unappealable decision or judgment of a court or other
appropriate body of competent jurisdiction, and that has not been admitted to be
invalid or unenforceable through reissue or disclaimer.
ARTICLE II
RESEARCH
Section 2.01. Joint Research Committee.
2.01.01. Purpose. The Joint Research Committee shall establish
written Protocols for the performance of the Research, including schedules
therefor and interim and final reporting obligations with respect thereto, and
allocate responsibility for performance of the Research between the Parties,
with the expectation that the Research shall principally be performed by SIGNAL,
its agents, consultants and/or academic collaborators. The Joint Research
Committee shall review the performance of the Research pursuant to the Protocols
and, if necessary, approve amendments to a Protocol or terminate the Research
being performed pursuant to a Protocol. Upon the completion or earlier
termination of the Research being performed pursuant to a Protocol, the Joint
Research Committee shall analyze the results of such Research.
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2.01.02. Membership. The Joint Research Committee shall
initially comprise three (3) representatives appointed by ARES and three (3)
representatives appointed by SIGNAL but the composition of the Joint Research
Committee may be modified from time to time upon the mutual written agreement of
the Parties. One representative of each Party shall be designated as the contact
person for that Party. Each Party shall have the right to change its
representatives to the Joint Research Committee or its contact person at any
time upon notice to the other Party.
2.01.03. Schedule. The Joint Research Committee shall meet
within thirty (30) days of the Effective Date, and thereafter at least quarterly
or more frequently as requested by either Party. The contact person for each
Party shall agree upon the time and place of each meeting.
2.01.04. Procedures. A meeting of the Joint Research Committee
may be held only if a quorum of at least two (2) representatives of each Party
is present. All decisions of the Joint Research Committee must be made by the
unanimous consent of the representatives of both Parties present at a meeting.
The proceedings of the meetings of the Joint Research Committee shall be
summarized in minutes signed by the contact person of each Party or his/her
designee.
Section 2.02. Performance of the Research. SIGNAL agrees to use its
commercially reasonable and diligent efforts consistent with prevailing
practices within the pharmaceutical and biotechnology industries to perform, and
as necessary to cause its agents, consultants and/or academic collaborators to
perform, the Research. SIGNAL shall accord the Research at least as high a
priority as it accords its other active research programs for which it receives
comparable funding. SIGNAL shall cooperate with ARES in the performance of the
Research as required by the relevant Protocols.
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Section 2.03. Performance Standard.
2.03.01. SIGNAL. SIGNAL represents and warrants that it has
the experience, capability and resources, including but not limited to
sufficient qualified personnel, including its agents, consultants and/or
academic collaborators, to perform the Research in accordance with the terms and
conditions of this Agreement. SIGNAL agrees to perform and to have performed the
Research in accordance with such terms and conditions and in conformity with
generally accepted standards of good laboratory practice and with all applicable
federal, state and local laws, guidelines, rules and regulations including
without limitation the United States Food, Drug and Cosmetic Act and guidelines,
rules and regulations promulgated by the FDA.
2.03.02. ARES. ARES represents and warrants that it and its
Affiliates have the experience, capability and resources, including but not
limited to sufficient qualified personnel, to perform the preclinical, clinical
and regulatory activities contemplated by this Agreement. ARES agrees to perform
and to have performed such activities in conformity with generally accepted
standards of good laboratory practice and good clinical practice and with all
applicable federal, state and local laws, guidelines, rules and regulations
including without limitation the United States Food, Drug and Cosmetic Act and
guidelines, rules and regulations promulgated by the FDA.
Section 2.04. Commitment of Research Personnel. SIGNAL shall allocate to
the Research a total of [***] research personnel (measured as full-time
equivalents) and post-doctoral fellows combined. SIGNAL shall also allocate any
additional research personnel to the Research as SIGNAL believes in good faith
are required from time to time to comply with Sections 2.02 and 2.03 hereof.
Section 2.05. Exclusive Relationship.
2.05.01. SIGNAL. ARES acknowledges and agrees that SIGNAL and
Tanabe have entered into a Collaborative Development and Licensing Agreement
dated March
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31, 1996, as amended to date (the "Tanabe Agreement"), pursuant to which SIGNAL
has granted certain exclusive rights to Tanabe within the Field, as set forth in
the Tanabe Agreement, for those countries specifically excluded from the
definition of the Territory in Section 1.24 hereof. Except for its obligations
under the Tanabe Agreement, SIGNAL represents and warrants that it shall not
perform any research relating to the Field other than the Research.
2.05.02. Tanabe Agreement. ARES acknowledges and agrees that,
in accordance with the terms of the Tanabe Agreement, once each of Tanabe and
ARES has agreed to accept reciprocity on exchanges of Signal Technical
Information and Tanabe Technical Information (as defined in the Tanabe
Agreement), then during the term of the Tanabe Agreement, SIGNAL, Tanabe and
ARES shall make available to each other such Signal Compound Information, Tanabe
Compound Information, Signal Product Information and Tanabe Product Information
(as defined in the Tanabe Agreement) as the three parties may mutually agree for
any Compound (as defined in the Tanabe Agreement) that is under development by
Tanabe and ARES in whatever form is best suited fully to deliver such
information. Unless and until Tanabe and ARES have so agreed to accept
reciprocity on exchanges of information, SIGNAL shall not disclose to Tanabe any
ARES Know-How or ARES Patents. In addition ARES hereby agrees to be bound by the
provisions of Section 9.1 of the Tanabe Agreement, and SIGNAL hereby agrees to
immediately notify ARES of, and consult with ARES regarding, any information it
receives from, or provides to, Tanabe pursuant to Section 9.1 of the Tanabe
Agreement.
Section 2.06. Facilities. SIGNAL shall perform the Research and shall
cause the Research to be performed at the Facilities of SIGNAL, its agents,
consultants and/or academic collaborators, that SIGNAL represents and warrants
are adequate to perform the Research. SIGNAL has taken, or shall take, all
standard precautions consistent with pharmaceutical and biotechnology industry
practices to ensure that such Facilities are protected by security systems
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that will maintain the confidentiality and prevent the loss of records and
information obtained or developed pursuant to this Agreement.
Section 2.07. Records. In conformity with standard pharmaceutical and
biotechnology industry practices and the terms and conditions of this Agreement,
SIGNAL shall prepare and maintain, and shall cause to be prepared and
maintained, complete and accurate written records, accounts, notes, reports and
data with respect to all laboratory work conducted in the performance of the
Research, and upon ARES' request shall send legible copies of the aforesaid to
ARES.
Section 2.08. Audit. SIGNAL shall notify ARES of any request for an audit
of the Facilities or records pertaining to the Research sufficiently in advance
of such audit to allow a representative of ARES to be present during such audit.
Section 2.09. Research by ARES. To the extent that the Joint Research
Committee or the Parties agree, whether in connection with one or more Protocols
or otherwise, that any of the Research is to be performed by ARES, its
Affiliates and/or agents or at the Facilities of ARES, its Affiliates and/or
agents, ARES shall be obligated to fulfill the same requirements and meet the
same standards as are required of SIGNAL in Sections 2.02, 2.06, 2.07 and 2.08
hereof.
Section 2.10. Term of the Research. Unless at least six (6) months prior
to the expiration of the Initial Term, or at least six (6) months prior to the
expiration of any subsequent three-year period during the Subsequent Term, ARES
gives SIGNAL notice of its decision to terminate the Research, the Research
shall continue for an additional three-year period, subject to termination of
the Agreement pursuant to Article VI. Upon termination of the Research, ARES
shall have no right, title and interest in, to and under any invention,
discovery, formula, design, process, know-how, data, composition, matter,
device, or product, or any improvement thereof, whether patentable or not,
obtained, developed, made, conceived or first reduced to practice by SIGNAL, its
agents, consultants and/or collaborators (including Tanabe) following
termination of the Research, and the only rights of ARES hereunder shall be
rights to (i) ARES Know-How and
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ARES Patents and (ii) SIGNAL Technology obtained, developed, made, conceived or
first reduced to practice prior to such termination.
Section 2.11. Research Funding. As full compensation for SIGNAL's, its
agents', consultants' and academic collaborators' performance of the Research
during the Initial Term, ARES shall pay, or cause to be paid, to SIGNAL
Nine Million United States Dollars (U.S. $9,000,000) which shall be due and
payable in accordance with the following schedule:
(i) One Million United States Dollars (U.S. $1,000,000) upon execution and
delivery of this Agreement;
(ii) One Million United States Dollars (U.S. $1,000,000) four months after
the Effective Date;
(iii) One Million United States Dollars (U.S. $1,000,000) eight (8) months
after the Effective Date;
(iv) One Million United States Dollars (U.S. $1,000,000) one (1) year
after the Effective Date;
(v) One Million United States Dollars (U.S. $1,000,000) sixteen (16) months
after the Effective Date;
(vi) One Million United States Dollars (U.S. $1,000,000) twenty (20) months
after the Effective Date;
(vii) One Million United States Dollars (U.S. $1,000,000) two (2) years
after the Effective Date;
(viii) One Million United States Dollars (U.S. $1,000,000) twenty-eight (28)
months after the Effective Date;
(ix) One Million United States Dollars (U.S. $1,000,000) thirty-two (32)
months after the Effective Date.
In the event the Research continues for any three-year period during the
Subsequent Term, then as full compensation for SIGNAL's, its agents',
consultants' and academic collaborators'
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performance of the Research during such three-year period, ARES shall pay, or
cause to be paid, to SIGNAL the amount paid during the prior three-year period
adjusted to reflect the percentage increase for the prior three-year period in
the Consumer Price Index of the Bureau of Labor Statistics of the United States
Department of Labor. [***] of such adjusted amount shall be due and payable at
the start of such three-year period and thereafter at [***] intervals.
Section 2.12. Materials.
2.12.01. ARES Materials. To the extent required to do so
pursuant to any Protocol, ARES shall make available to SIGNAL quantities of
proprietary ARES materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
SIGNAL shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be ARES "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and SIGNAL shall return any unused ARES materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
ARES. SIGNAL shall account for all materials not returned.
2.12.02. SIGNAL Materials. To the extent required to do so
pursuant to any Protocol, SIGNAL shall make available to ARES quantities of
proprietary SIGNAL materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
ARES shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be SIGNAL "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and ARES shall return any unused SIGNAL materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
SIGNAL. ARES shall account for all materials not returned.
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Section 2.13. Ownership of SIGNAL Technology.
2.13.01. No Ownership by SIGNAL Employees. All employees of
SIGNAL who are expected to perform the Research have signed agreements regarding
proprietary information and inventions with SIGNAL in a form reasonably
considered by SIGNAL and its counsel to assure SIGNAL's right, title and
interest in, to and under the SIGNAL Technology in accordance with Subsections
2.13.02 and 2.13.03 below.
2.13.02. SIGNAL Know-How and SIGNAL Patents. All right, title
and interest in, to and under all SIGNAL Know-How and SIGNAL Patents obtained,
developed, made, conceived or first reduced to practice in connection with the
Research shall be owned by or licensed to SIGNAL. SIGNAL shall enter into
customary agreements with its agents, consultants and/or academic collaborators
that provide that all of such agents', consultants' and/or academic
collaborators' right, title and interest in, to and under such SIGNAL Know-How
and SIGNAL Patents shall be assigned or licensed exclusively to SIGNAL, unless
SIGNAL and ARES agree in writing (including as reflected in the signed minutes
of meetings of the Joint Research Committee) that such exclusivity is not
required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
SIGNAL Know-How and SIGNAL Patents shall be licensed to ARES pursuant to Section
3.01 hereof.
2.13.03. Joint Know-How and Joint Patents. All right, title
and interest in, to and under all Joint Know-How and Joint Patents shall be
owned jointly and equally by SIGNAL and ARES, each with an undivided one-half
interest. SIGNAL shall enter into customary agreements with its agents,
consultants and academic collaborators that provide that all of such agents',
consultants' and academic collaborators' right, title and interest in, to and
under such Joint Know-How and Joint Patents shall be assigned or licensed
exclusively to SIGNAL, unless SIGNAL and ARES agree in writing (including as
reflected in the signed
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minutes of meetings of the Joint Research Committee) that such exclusivity is
not required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
Joint Know-How and Joint Patents shall be licensed to ARES pursuant to Section
3.01 hereof.
Section 2.14. License of ARES Know-How and ARES Patents. ARES hereby
grants to SIGNAL, and SIGNAL hereby accepts, [ *** ] solely for the purpose of
conducting the Research pursuant to this Agreement. Such license shall be valid
for the term of the Research as set forth in Section 2.10 hereof.
ARTICLE III
LICENSE
Section 3.01. Grant of License. SIGNAL hereby grants to ARES, and ARES
hereby accepts, an exclusive license under the SIGNAL Technology, valid for the
Term and with the right to grant sublicenses, to develop, make, have made,
import, use, and sell Licensed Products and Combination Products within the
Territory. ARES shall notify any sublicensee of the SIGNAL Technology of all
rights and obligations of ARES hereunder licensed to such sublicensee. For the
avoidance of doubt, except in connection with Sections 2.09 and 6.05 and
Subsection 8.05.02 hereof, and other than with respect to inventions,
discoveries, formulas, designs, processes, know-how, data, compositions, matter,
devices, or any improvements thereof, whether patentable or not, obtained,
developed, made, conceived or first reduced to practice in connection with the
Research, the foregoing is not intended to grant ARES a license to the SIGNAL
Technology for research purposes.
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Section 3.02. Disclosure of SIGNAL Know-How and Joint Know-How. Following
the execution and delivery of this Agreement and as appropriate from time to
time thereafter during the Term, SIGNAL shall disclose to ARES the SIGNAL
Know-How and the Joint Know-How pursuant to a program and in a form (e.g.
writings, visual representations, computer software, models or instruction) as
shall best facilitate the use of such SIGNAL Know-How and Joint Know-How by
ARES.
Section 3.03. License Fees. In addition to the royalties that shall be
payable under Sections 3.05 and 4.01 hereof, the purchase of SIGNAL Series F
Preferred Stock by ARES' Affiliate pursuant to Section 3.04 hereof, and in
consideration of the grant of the exclusive license set forth in Section 3.01
hereof, ARES shall pay SIGNAL the following license fees on a Licensed Product
by Licensed Product basis.
3.03.01 New Target or Indication. For each Licensed Product
for which no license fee has yet been paid and that is either (A) [***] or
(B) [***], its Affiliates or sublicensees then within thirty (30) days of the
corresponding event, ARES shall pay, or cause to be paid, to SIGNAL the
following nonrefundable license fees:
(i) [***]
(ii) [***]
(iii) [***]
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(iv) [***]
(v) [***]
ARES shall promptly notify SIGNAL of the occurrence of any event described
above.
3.03.02 Other Licensed Products. For each Licensed Product
being developed by ARES, its Affiliates or sublicensees for which no license fee
has yet been paid and that is not subject to Subsection 3.03.01 above, ARES
shall pay, or cause to be paid, to SIGNAL the following nonrefundable license
fees:
(i) [***]
(ii) [***]
(iii) [***]
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ARES shall promptly notify SIGNAL of the occurrence of any event described
above.
3.03.03. New Dosage or Formulation of Licensed Products. For
the avoidance of doubt, if a license fee has been paid pursuant to this Section
3.03 with respect to any Licensed Product, then no additional license fee shall
be payable hereunder with respect to any new dosage, presentation or formulation
of such Licensed Product (including any inclusion of such Licensed Product in a
Combination Product).
Section 3.04. Equity Investment. On or before December 1, 1997, ARES'
Affiliate, Ares-Serono S.A., shall purchase 2,722,513 shares of the Series F
Preferred Stock of SIGNAL for total consideration of Eight Million Two Hundred
Thousand United States Dollars and Seventy-Two United States Cents (U.S.
$8,200,000.72) pursuant to a stock purchase agreement that shall be executed
and delivered simultaneously herewith.
Section 3.05. Ongoing Royalty. Subject to the provisions of this Article
III, ARES shall during the Term pay or cause to be paid to SIGNAL royalties on
Net Sales of Licensed Products or Combination Products at the following rates:
(i) [***] of total annual Net Sales of Licensed
Products and Combination Products at or below [***];
(ii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***];
(iii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***]; and
(iv) [***] of total annual Net Sales of
Licensed Products and Combination Products above [***];
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provided, however, that upon the expiration or invalidation of the last
remaining Valid Claim of a SIGNAL Patent or Joint Patent in effect in a country
that covers such Licensed Product or Combination Product, royalties payable for
such country with respect to such Licensed Product or Combination Product shall
be reduced by [***]
Section 3.06. [***] ARES may [***] hereof, [***] of total annual Net Sales
for any Licensed Product or Combination Product whose primary pharmacological
activity is the modulation of an intracellular molecule [***].
Section 3.07. Adverse Patents. ARES may deduct from up to [***] of the
royalties due SIGNAL for any Licensed Product or Combination Product under
Sections 3.05 and 4.01 hereof (following any deduction made pursuant to Section
3.06 hereof) an amount equal to [***] royalties paid to third parties by ARES,
its Affiliates and/or sublicensees in order to develop, manufacture, import, use
or sell such Licensed Product or Combination Product pursuant to agreements that
may be entered into in good faith after the Effective Date with parties owning
or controlling a patent that, but for such agreements, would bar the
development, manufacture, import, use or sale of such Licensed Product or
Combination Product.
Section 3.08. Reimbursement to SIGNAL. In addition to the royalties due
SIGNAL under Sections 3.05 and 4.01 hereof, ARES shall during the Term
reimburse, or cause to be reimbursed, SIGNAL for royalties paid to third parties
by SIGNAL pursuant to agreements in existence on the Effective Date with respect
to the development, manufacture, import, use or sale of a Licensed Product or
Combination Product, as set forth on Exhibit F hereto, or agreements
subsequently approved in writing by the Parties; provided, however, in no event
shall such reimbursement exceed [***] of the total annual Net Sales of such
Licensed Product or Combination Product.
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Section 3.09. Single Royalty. Nothing herein contained shall obligate
ARES, its Affiliates and/or sublicensees to pay or cause to be paid to SIGNAL
more than one royalty on any unit of Licensed Product or Combination Product.
Section 3.10. Taxes Withheld. Any and all taxes that are levied on
royalties accruing under this Agreement in a country in which provision is made
in the law or by regulation for withholding may be deducted by the payor from
such royalties and paid to the proper taxing authority and evidence of such
payment shall be secured and sent to SIGNAL within one (1) month of such
payment. The Parties shall do all such lawful acts and things and sign all such
lawful deeds and documents as either Party may reasonably request from the other
Party to enable ARES, its Affiliates and/or sublicensees to take advantage of
any applicable legal provision or any double taxation treaties with the object
of paying the sums due to SIGNAL hereunder without withholding any tax.
Section 3.11. Report of Royalties. Within sixty (60) days of the end of
each calendar quarter during the Term (including the sixty (60) day period
following the end of the calendar quarter in which the Term terminates), ARES
shall deliver to SIGNAL a written report showing its computation of royalties
due under this Agreement on Net Sales during such calendar quarter. All such Net
Sales shall be segmented by each report according to sales by ARES, its
Affiliates and/or sublicensees as well as on a country by country basis,
including the rates of exchange used to convert such royalties into United
States dollars from the currency in which the sales were made. The rate of
exchange to be used in any such conversion shall be the rate reported in the
Wall Street Journal for the purchase of United States dollars with such currency
on the last Business Day of the quarter for which the report is being prepared.
Section 3.12. Payment of Royalties. Royalties shall be payable hereunder
by ARES on behalf of itself, its Affiliates and/or sublicensees, whichever shall
have effected the sales on which a royalty is due. Simultaneous with the
delivery of the report described in Section 3.11
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hereof ARES shall pay or cause to be paid to SIGNAL at such place as SIGNAL may
from time to time designate all royalties earned in the preceding calendar
quarter.
Section 3.13. Interest on Payments. In the event that any payment due
pursuant to this Agreement, including research payments, license fees and
royalties, is not made when due, the payment shall accrue interest from the date
due until paid at the rate of one percent (1%) per month; provided, however,
that in no event shall such rate exceed the maximum legal annual interest rate.
The payment of such interest shall not limit SIGNAL's right to exercise any
other rights it may have as a consequence of the lateness of any payment.
Section 3.14. Records. ARES shall keep or cause to be kept accurate
records in sufficient detail to enable the royalties payable hereunder to be
determined. During the Term and for a period of two years following the
termination of this Agreement, upon the request of SIGNAL (but not more
frequently than once in each calendar year) an independent public accountant
selected by SIGNAL and approved by ARES shall be allowed access, during ordinary
business hours, to such records pertaining to the preceding two (2) calendar
years solely to verify the accuracy of royalty payments made or payable
hereunder. SIGNAL and ARES shall mutually determine a general strategy for such
audit in advance of its conduct. Said accountant shall not disclose to SIGNAL
any information except that which should properly be contained in a royalty
report required under this Agreement. SIGNAL shall bear the full cost of such
audit unless such audit reveals an under-reporting of royalties in excess of
five percent (5%) of the amount due under this Agreement, in which case the full
cost of the audit shall be borne by ARES.
Section 3.15. Reversion of Rights to SIGNAL.
3.15.01. Exercise of Reversion Option. In the event ARES, its
Affiliates and/or sublicensees cease to pursue development or commercialization
of at least one Licensed Product or Combination Product at any time when ARES is
no longer providing research funding to SIGNAL pursuant to Section 2.11 hereof,
ARES shall immediately notify SIGNAL and,
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SIGNAL may exercise an option, on a product by product basis, to obtain a
reversion of all right, title and interest granted to ARES hereunder with
respect to any potential Licensed Product or Combination Product. SIGNAL shall
exercise such option by providing ARES ninety (90) days prior notice of such
intended reversion of rights, specifying the potential Licensed Product or
Combination Product that is the subject of such reversion. Such reversion of
rights shall become effective at the end of such notice period, unless during
such notice period (i) ARES can demonstrate that ARES, its Affiliates and/or
sublicensees are diligently pursuing the development or commercialization of at
least one Licensed Product or Combination Product or (ii) ARES provides to
SIGNAL a reasonably detailed written plan for commercially reasonable
development and commercialization of such Licensed Product or Combination
Product and takes affirmative steps to begin implementation of such plan.
3.15.02. SIGNAL Obligation to Make Payments. For each Licensed
Product or Combination Product for which rights have reverted to SIGNAL pursuant
to Subsection 3.15.01 hereof, SIGNAL shall pay to ARES [***] of the amount or
fair market value, as applicable, of any and all consideration received by
SIGNAL with respect to such Licensed Product or Combination Product (other than
payments received for equity at fair market value or payments received to
support further research and development of such Licensed Product or Combination
Product so long as such payments do not exceed SIGNAL's cost of conducting such
further research and development), whether such consideration is in cash,
payment in kind, exchange or other form, until the total amount of such payments
to ARES equals [***] of the following amount: [***]
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3.15.03. ARES Patents ARES Grant of License. To the extent
necessary to permit SIGNAL to develop, make, have made, import, use, and sell
Licensed Products or Combination Products within the Territory following a
reversion of rights pursuant to Subsection 3.15.01 hereof, ARES shall grant
SIGNAL a nonexclusive royalty-free license valid for the Term under the ARES
Know-How and ARES Patents pursuant to an agreement to be negotiated in good
faith between the Parties; provided, however, that in addition to the payments
due ARES under Subsection 3.15.02 hereof, SIGNAL shall reimburse ARES for
royalties paid to third parties by ARES or its Affiliates with respect to the
development, manufacture, import, use or sale of such Licensed Products or
Combination Products.
ARTICLE IV
ADDITIONAL RIGHTS
Section 4.01. Co-Promotion.
4.01.01. Exercise of Option. Within thirty (30) days following
notice from ARES to SIGNAL of submission by ARES or its Affiliates of a New Drug
Application (NDA) or equivalent for a Licensed Product or Combination Product in
the United States, SIGNAL shall have the right by notice to ARES to exercise its
option to participate with ARES or its Affiliates in promoting such Licensed
Product or Combination Product in the United States; provided, however, that
SIGNAL can demonstrate concurrently with such option exercise that it can commit
to making a material investment in, and contribution to, promotion of such
Licensed Product or Combination Product. Upon SIGNAL's exercise of such option
on these terms and conditions, ARES in its sole discretion shall within sixty
(60) days of such option exercise select one of the following two alternatives:
(i) [***]
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[***]
(ii) ARES may agree to negotiate in good faith with
SIGNAL a co-promotion agreement for such Licensed Product or Combination Product
in the United States containing customary terms and conditions. The period for
such negotiation shall begin upon SIGNAL's exercise of its option and end six
months thereafter. , [***] such co-promotion agreement shall also provide for
defined standards for promotional diligence sufficient to ensure that SIGNAL
makes a material investment in, and contribution to, promotion of such Licensed
Product or Combination Product. In addition the co-promotion agreement shall, to
the extent necessary, [***] to permit SIGNAL to fulfill its co-promotion
obligations with respect to Licensed Products or Combination Products and shall,
in any event, reflect the following terms and conditions with respect to
royalties and allocation of Net Sales for each such Licensed Product or
Combination Product:
(A) SIGNAL shall receive a royalty of [***] of
such Net Sales;
(B) [***] of such Net Sales shall then be
allocated to ARES;
(C) a portion of the remainder of such Net
Sales shall then be allocated to the Party that has manufactured, or contracted
to have manufactured (including pursuant to Section 4.02 hereof), such Licensed
Product or Combination Product, the amount of such allocation to equal such
Party's direct costs associated with the manufacture of the Licensed Product or
Combination Product;
(D) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be
divided by the
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Parties in proportion to their respective direct costs associated with the
co-promotion of such Licensed Product or Combination Product; and
(E) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be
allocated to ARES until an amount has been recouped equal to the total of [***]
and thereafter any remaining amount shall be allocated in accordance with the
terms and conditions of Subsection 4.01.01(ii)(D) above.
4.01.02. Royalty Calculations. The royalties and allocation of
Net Sales set forth in Subsection 4.01.01 above shall be in lieu of the
royalties set forth in Section 3.05 hereof with respect to Net Sales of Licensed
Products or Combination Products for the United States. Net Sales for the United
States subject to royalty calculations pursuant to Subsection 4.01.01 shall also
not be used in computing total annual Net Sales of Licensed Products and
Combination Products pursuant to Section 3.05. Upon the expiration or
invalidation of the last Valid Claim of a Patent in effect in the United States
that covers a Licensed Product or Combination Product, royalties payable for the
United States pursuant to Subsection 4.01.01 (i) and (ii)(A) above shall be
[***]
Section 4.02. Supply of Licensed Products and/or Combination Products. At
the request and option of [***] the Parties agree to negotiate in good faith a
supply agreement pursuant to which [***] for sale upon such reasonable terms and
conditions as the Parties shall mutually agree; provided, however, if the
Parties have entered into a co-promotion agreement pursuant to Subsection
4.01.01 (ii) hereof, then such supply agreement shall provide for [***]
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[***]
ARTICLE V
PATENT PROSECUTION AND ENFORCEMENT
Section 5.01. Prosecution and Maintenance by SIGNAL. SIGNAL shall
prosecute and maintain the SIGNAL Patents and Joint Patents in the Territory in
accordance with reasonable commercial standards and reasonable principles of
intellectual property protection. All applications for SIGNAL Patents shall be
filed in the name of SIGNAL and all applications for Joint Patents shall be
filed in the name of ARES or its Affiliates and SIGNAL. SIGNAL shall keep ARES
currently advised of all steps that will be taken in the prosecution of the
SIGNAL Patents and Joint Patents. SIGNAL shall furnish ARES with copies of all
substantive communications between SIGNAL and applicable patent offices
regarding the SIGNAL Patents and Joint Patents. SIGNAL shall provide draft
applications for SIGNAL Patents and Joint Patents to ARES sufficiently in
advance of filing for ARES to have the opportunity to comment thereon. ARES
shall provide all reasonable cooperation to SIGNAL at SIGNAL's cost and expense
in connection with SIGNAL's prosecution and maintenance of the SIGNAL Patents
and Joint Patents including without limitation signing all documents necessary
to prosecute and maintain the SIGNAL Patents and Joint Patents. SIGNAL shall
bear the cost of prosecuting and maintaining the SIGNAL Patents and Joint
Patents in force and of filing all applications for SIGNAL Patents and Joint
Patents.
Section 5.02. Prosecution and Maintenance by ARES. If SIGNAL does not
fulfill its obligations to prosecute and maintain the SIGNAL Patents and Joint
Patents in the Territory pursuant to Section 5.01 above, then SIGNAL shall so
advise ARES in time to enable ARES to fulfill these obligations. ARES shall
deduct all reasonable cost and expense it incurs in so doing from the royalties
due SIGNAL pursuant to Sections 3.05 and 4.01 hereof. SIGNAL shall provide all
reasonable cooperation to ARES at SIGNAL's cost and expense in connection with
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ARES' prosecution and maintenance of the SIGNAL Patents and Joint Patents,
including without limitation signing and delivering to ARES, within ten (10)
days of ARES' request therefor, all documents necessary for ARES to prosecute
and maintain the SIGNAL Patents and Joint Patents in the name of SIGNAL.
Section 5.03. Prosecution of Infringement or Patent Defense by SIGNAL. If
either Party learns of (i) any infringement or potential infringement of a
SIGNAL Patents or Joint Patent by a third party in the Territory and/or (ii) any
claim by a third party that a SIGNAL Patent or Joint Patent is invalid in the
Territory, it shall promptly notify the other Party. SIGNAL shall have the right
to prosecute such infringement or to defend against such claim (an "Action").
SIGNAL shall keep ARES informed of, and shall from time to time consult with
ARES regarding, the status of any such Action and shall provide ARES with copies
of all documents filed in, and all written communications relating to, such
Action. ARES shall provide all reasonable cooperation to SIGNAL in connection
with such Action, and SIGNAL shall reimburse ARES for its out-of-pocket expenses
incurred in rendering such cooperation. In the event SIGNAL obtains any recovery
from such Action or the compromise or settlement thereof, the total amount of
such recovery shall first be used to reimburse SIGNAL for its reasonable
expenses incurred in connection with such Action and the balance of such
recovery shall be allocated [***] to SIGNAL and [***] to ARES.
Section 5.04. Participation in Prosecution of Infringement or Patent
Defense by ARES. In the event ARES wishes do so, ARES shall have the right to
participate and be represented in an Action by its own counsel at its own
expense, but may not take any steps to direct such Action nor to compromise or
settle such Action, as SIGNAL shall have the primary responsibility for
directing such Action. SIGNAL agrees that it shall not compromise or settle any
Action in which ARES has exercised its right to participate without ARES' prior
written consent, which consent shall not unreasonably be withheld. In the event
SIGNAL and ARES obtain any recovery from such Action or the compromise or
settlement thereof, the total amount of such
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recovery shall first be used to reimburse the Parties pro-rata, based on costs
incurred, for their reasonable expenses incurred in connection with such Action
and the balance of such recovery shall be shared equally between the Parties.
Section 5.05. Prosecution of Infringement or Patent Defense by ARES. If
within ninety (90) days from the date on which SIGNAL is notified or otherwise
becomes aware of an infringement or potential infringement of a SIGNAL Patent or
Joint Patent in the Territory or a claim that a SIGNAL Patent or Joint Patent is
invalid in the Territory, either (i) the infringement has not been terminated or
the claim has not been withdrawn or (ii) SIGNAL has not initiated an Action
against such third party, SIGNAL shall, upon request of ARES, grant ARES the
right to initiate an Action against such third party at its own cost and
expense, provided, however, that ARES shall be entitled to deduct such cost and
expense from up to [***] of the royalties due SIGNAL thereafter pursuant to
Sections 3.05 and 4.01 hereof. Notwithstanding the ninety (90) day period
established in the previous sentence, in the event that SIGNAL has not
instituted a summary proceeding with respect to an infringement or potential
infringement of a SIGNAL Patent or Joint Patent and the right to institute such
a summary proceeding shall lapse within two weeks, ARES may institute such a
summary proceeding. ARES shall keep SIGNAL informed of, and shall from time to
time consult with SIGNAL regarding, the status of any such Action or summary
proceeding and shall provide SIGNAL with copies of all documents filed in, and
all written communications relating to, such Action or summary proceeding.
SIGNAL agrees, in the event that ARES cannot prosecute such Action or summary
proceeding in its own name, to sign and deliver to ARES, within ten (10) days of
ARES' request therefor, all documents necessary for ARES to prosecute such
Action or summary proceeding in the name of SIGNAL, but ARES shall control the
prosecution of any such Action or summary proceeding. SIGNAL shall have the
right to participate and be represented in such Action or summary proceeding by
its own counsel at its own expense. SIGNAL shall provide all reasonable
cooperation to ARES in connection with such Action or summary proceeding, and
ARES shall
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reimburse SIGNAL for its out-of-pocket expenses incurred in rendering such
cooperation. ARES may not compromise or settle such Action or summary proceeding
without SIGNAL's prior written consent, which consent shall not unreasonably be
withheld. In the event ARES obtains any recovery from such Action or the
compromise or settlement thereof, the total amount of such recovery shall first
be used to reimburse ARES for any costs and expense not deducted from royalty
payments due hereunder, then to reimburse SIGNAL for any cost and expense so
deducted, [***]
ARTICLE VI
TERM AND TERMINATION
Section 6.01. Term. The license granted under Article III hereof shall
continue in force in each country from the Effective Date until (i) the
expiration or invalidation of the last Valid Claim of a SIGNAL Patent or Joint
Patent in effect in such country covering a Licensed Product or Combination
Product, or (ii) ten years from the first commercial sale of a Licensed Product
or Combination Product by ARES, its Affiliates or sublicensees in such country
following the receipt of marketing approval therein, whichever shall last occur,
and this Agreement shall terminate upon the expiration or invalidation of the
last of such Valid Claims or the termination of the last of such ten-year
periods, unless the Agreement is terminated at an earlier date pursuant to
Sections 6.02, 6.03 or 6.04 hereof.
Section 6.02. Termination by ARES: ARES may terminate this Agreement
effective at any time after the end of the Initial Term by giving six (6) months
prior notice to SIGNAL.
Section 6.03. Termination for Breach. Either Party may terminate this
Agreement sixty (60) days after giving the other Party notice of breach of any
material provision of this Agreement (including without limitation the
representations and warranties set forth in Article VII hereof) by the other
Party, unless such breach is cured within the period of such notice.
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Section 6.04. Termination upon ARES' Bankruptcy. SIGNAL may terminate this
Agreement if an insolvency proceeding is instituted by or against ARES, ARES
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, commences a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself or of
the whole or any substantial part of its property, or files a petition seeking
reorganization, composition, liquidation, dissolution or similar arrangement
under any present or future statute, law or regulation.
Section 6.05. No Termination upon SIGNAL's Bankruptcy. All rights and
licenses granted under or pursuant to this Agreement by SIGNAL to ARES are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the United
States Bankruptcy Code (the "Bankruptcy Code"), licenses of rights to
"intellectual property" as defined under Section 101(56) of the Bankruptcy Code.
The Parties agree that ARES, as a licensee of such rights under this Agreement,
shall retain and may fully exercise all of its rights and elections under the
Bankruptcy Code. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against SIGNAL under the
Bankruptcy Code, ARES shall be entitled to a complete duplicate of (or complete
access to, as appropriate) any such intellectual property and all embodiment of
such intellectual property, and the same, if not already in its possession,
shall be promptly delivered to ARES (i) upon any such commencement of a
bankruptcy proceeding upon written request therefor by ARES, unless SIGNAL
elects to continue to perform all of its obligations under this Agreement, or
(ii) if not delivered under (i) above, upon the rejection of this Agreement by
or on behalf of SIGNAL, upon written request therefor by ARES.
Section. 6.06. Effect of Termination. If this Agreement is not terminated
at an earlier date by ARES pursuant to Sections 6.02 or 6.03 hereof or by SIGNAL
pursuant to Sections 6.03 or 6.04 hereof, then upon its termination in
accordance with Section 6.01 hereof ARES shall have an irrevocable, fully
paid-up license within the Territory under the SIGNAL Technology to
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develop, make, have made, import, use, and sell any Licensed Products or
Combination Products to which ARES had any right, title or interest prior to the
termination of this Agreement. If this Agreement is terminated by ARES pursuant
to Sections 6.02 or 6.03 hereof or by SIGNAL pursuant to Sections 6.03 or 6.04
hereof, then upon its termination all rights and obligations of the Parties
hereunder, including without limitation the rights and obligations with respect
to the licenses granted under Article III hereof, shall terminate.
Notwithstanding the foregoing, termination of this Agreement shall not release
either Party from its obligations accrued prior to the effective date of
termination nor deprive either Party from any rights that this Agreement
provides shall survive termination.
Section 6.07. Cumulative Rights and Remedies. Any right to terminate this
Agreement shall be in addition to and not in lieu of all other rights or
remedies that the Party giving notice of termination may have at law or in
equity or otherwise, including without limitation rights under the United States
Bankruptcy Code.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
Section 7.01. SIGNAL Representations. SIGNAL represents and warrants to
ARES as follows:
(i) SIGNAL has the right, power and authority to enter into
this Agreement and to perform the Research and grant ARES a license under the
SIGNAL Technology in accordance with the terms and conditions of this Agreement;
(ii) all requisite corporate action has been taken to
authorize SIGNAL's execution, delivery and performance of this Agreement;
(iii) SIGNAL has all right, title and interest in, to and
under the SIGNAL Technology, which, with the exception of rights granted to
Tanabe, is free and clear of any liens, charges, encumbrances or rights of
others to possession or use;
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(iv) with the exception of rights granted to Tanabe, SIGNAL
has not previously licensed, assigned, transferred, or otherwise conveyed any
right, title or interest in, to or under the SIGNAL Technology to any third
party;
(v) all third parties who have or had any right, title and
interest in, to and under the SIGNAL Know-How and SIGNAL Patents, as identified
on Exhibit G, have assigned or licensed such right, title and interest to SIGNAL
under the terms and conditions set forth on Exhibit G;
(vi) to the best of SIGNAL's knowledge after due inquiry, the
practice and use of the SIGNAL Technology pursuant to the terms and conditions
of this Agreement shall not infringe any patent, copyright, trademark, or other
proprietary or property rights of any third parties;
(vii) to the best of SIGNAL's knowledge after due inquiry, no
third party has filed, pursued or maintained or threatened to file, pursue or
maintain any claim, lawsuit, charge, complaint or other action alleging that the
SIGNAL Technology infringes any patent, copyright or trademark or other
proprietary or property rights of any third parties;
(viii) there are no suits, proceedings, arbitrations, claims
or counterclaims or governmental investigations pending or asserted in writing
to SIGNAL, and to the best of SIGNAL's knowledge, there are no suits,
proceedings, arbitrations, claims or counterclaims or governmental
investigations threatened against SIGNAL that would give any third party the
right to enjoin or rescind the transactions contemplated by this Agreement or
would otherwise prevent SIGNAL from complying with the terms and conditions of
this Agreement;
(ix) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which SIGNAL is a party or by which it
is bound; and
(x) no warranty or representation by SIGNAL in this Agreement
and no other agreement, exhibit, or instrument required to be delivered by
SIGNAL to ARES pursuant
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to this Agreement contains or will contain any untrue statement of material fact
or omit to state a material fact required in order to make such warranty,
representation, other agreement, exhibit or instrument not misleading.
Section 7.02. ARES Representations. ARES represents and warrants to SIGNAL
as follows:
(i) ARES has the right, power and authority to enter into this
Agreement;
(ii) all requisite corporate action has been taken to
authorize ARES' execution, delivery and performance of this Agreement;
(iii) there are no suits, proceedings, arbitrations, claims or
counterclaims or governmental investigations pending or asserted in writing to
ARES, and to the best of ARES' knowledge, there are no suits, proceedings,
arbitrations, claims or counterclaims or governmental investigations threatened
against ARES that would give any third party the right to enjoin or rescind the
transactions contemplated by this Agreement or would otherwise prevent ARES from
complying with the terms and conditions of this Agreement;
(iv) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which ARES is a party or by which it
is bound; and
(v) no warranty or representation by ARES in this Agreement
and no other agreement, exhibit or instrument required to be delivered by ARES
to SIGNAL pursuant to this Agreement contains or will contain any untrue
statement of material fact or omit to state a material fact required in order to
make such warranty, representation, other agreement, exhibit or instrument not
misleading.
Section. 7.03. SIGNAL Indemnification. SIGNAL shall defend, indemnify and
hold harmless ARES, its Affiliates and sublicensees, their officers, agents and
employees (each individually a "SIGNAL Indemnified Party," and collectively the
"SIGNAL Indemnified Parties"), from and against any and all liabilities, losses,
damages, actions, claims, costs or
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expenses suffered or incurred by the SIGNAL Indemnified Parties (including
reasonable attorneys' fees) (individually a "SIGNAL Liability," and collectively
the "SIGNAL Liabilities") that arise from (i) personal injury or property damage
to third parties resulting from a breach of this Agreement by SIGNAL (including
without limitation a breach of SIGNAL's representations and warranties in
Section 7.01 hereof); or (ii) the enforcement by a SIGNAL Indemnified Party of
its rights under this Section 7.03; provided, however, that SIGNAL shall have no
obligation to defend, indemnify, and hold harmless hereunder to the extent a
SIGNAL Liability arises from the negligence or willful misconduct of a SIGNAL
Indemnified Party or from the negligence, failure to comply with instructions
regarding use of a Licensed Product or Combination Product or other wrongdoing
of any user of the Licensed Product or Combination Product. ARES shall promptly
notify SIGNAL of any claim or action giving rise to SIGNAL Liabilities subject
to the provisions of this Section 7.03. SIGNAL shall have the right to defend
any such claim or action, at its cost and expense, and shall keep ARES informed
of developments in any such claim or action. ARES shall cause the SIGNAL
Indemnified Parties to cooperate with SIGNAL in the defense of any such claim or
action. SIGNAL shall not settle or compromise any such claim or action in a
manner that imposes any restrictions or obligations on a SIGNAL Indemnified
Party or grants any rights to Licensed Products or Combination Products, or to
SIGNAL Technology necessary or useful to develop, make, have made, import, use,
and sell Licensed Products or Combination Products, without ARES' prior written
consent. The indemnification rights of any SIGNAL Indemnified Party contained
herein are in addition to and not in lieu of all other rights that such SIGNAL
Indemnified Party may have at law or in equity or otherwise and shall survive
the termination of this Agreement.
Section 7.04. ARES Indemnification. ARES shall defend, indemnify and hold
harmless SIGNAL, its officers, agents and employees (each individually a "ARES
Indemnified Party," and collectively the "ARES Indemnified Parties"), from and
against any and all liabilities, losses, damages, actions, claims, costs or
expenses suffered or incurred by the ARES Indemnified
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Parties (including reasonable attorneys' fees) (individually a "ARES Liability,"
and collectively the "ARES Liabilities") that arise from (i) personal injury or
property damage to third parties resulting from (A) a breach of this Agreement
by ARES (including without limitation a breach of ARES' representations and
warranties in Section 7.02 hereof) or (B) ARES', its Affiliates' or
sublicensees' development, manufacture, import, use or sale of Licensed Products
or Combination Products pursuant to this Agreement; or (ii) the enforcement by
an ARES Indemnified Party of its rights under this Section 7.04; provided,
however, that ARES shall have no obligation to defend, indemnify, and hold
harmless hereunder to the extent an ARES Liability arises from the negligence or
willful misconduct of an ARES Indemnified Party or from the negligence, failure
to comply with instructions regarding use of a Licensed Product or Combination
Product or other wrongdoing of any user of the Licensed Product or Combination
Product. SIGNAL shall promptly notify ARES of any claim or action giving rise to
ARES Liabilities subject to the provisions of this Section 7.04. ARES shall have
the right to defend any such claim or action, at its cost and expense, and shall
keep SIGNAL informed of developments in any such claim or action. SIGNAL shall
cause the ARES Indemnified Parties to cooperate with ARES in the defense of any
such claim or action. ARES shall not settle or compromise any such claim or
action in a manner that imposes any restrictions or obligations on an ARES
Indemnified Party. The indemnification rights of any ARES Indemnified Party
contained herein are in addition to and not in lieu of all other rights that
such ARES Indemnified Party may have at law or in equity or otherwise and shall
survive the termination of this Agreement.
Section 7.05. Disclaimer of Warranties. Neither Party guarantees the
safety or usefulness of any Licensed Product or Combination Product. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. No Waiver. No failure on the part of either Party to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by either Party of any right
preclude any other future exercise thereof or the exercise of any other right.
Section 8.02. Force Majeure. Neither Party shall lose any rights hereunder
or be liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party to the extent the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo, act of
God, or any other similar cause beyond the reasonable control of the defaulting
Party; provided, however, the Party claiming force majeure shall promptly notify
the other Party of the existence of such force majeure, shall use its best
efforts to avoid or remedy such force majeure and shall continue performance
hereunder with the utmost dispatch whenever such force majeure is avoided or
remedied.
Section 8.03. Notices. All notices, reports, requests or demands required
or permitted under this Agreement shall be sent by air courier or by facsimile,
with confirmed transmission, properly addressed to the respective Parties as
follows:
If to SIGNAL:
SIGNAL PHARMACEUTICALS, INC.
5555 Oberlin Drive
San Diego, California 92121
U.S.A.
Attention: President and Chief Executive Officer
Telephone: 619-558-7500
Facsimile: 619-558-7513
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With a copy to:
COOLEY GODWARD LLP
4365 Executive Drive
Suite 1100
San Diego, California 92121
U.S.A.
Attention: Frederick T. Muto
Telephone: 619-550-6000
Facsimile: 619-453-3555
If to ARES:
ARES TRADING S.A.
Chateau de Vaumarcus
2028 Vaumarcus
Switzerland
Attn.: General Manager
Telephone: 41-38-55-3231
Facsimile: 41-38-55-3208
With a copy to:
ARES-SERONO INTERNATIONAL S.A.
15 bis, chemin des Mines
1202 Geneva
Switzerland
Attention: General Counsel
Telephone: 41-22-738-8000
Facsimile: 41-22-739-3070
or to such addresses or addresses as the Parties hereto may designate for such
purposes during the Term. Notices shall be deemed to have been sufficiently
given or made: (i) if by facsimile with confirmed transmission, when performed,
and (ii) if by air courier, three (3) days after delivery to the air courier
company.
Section 8.04. Independent Contractors. No agency, partnership or joint
venture is hereby established; each Party shall act hereunder as an independent
contractor. Neither SIGNAL nor ARES shall enter into, or incur, or hold itself
out to third parties as having authority to enter into or incur on behalf of the
other Party any contractual obligations, expenses or liabilities whatsoever.
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Section 8.05. Assignment.
8.05.01. General. This Agreement shall be binding upon the
Parties and their respective permitted successors and assigns. This Agreement
may be assigned by either Party in whole or in part to its Affiliates. Except as
otherwise set forth in Subsection 8.05.02 hereof, this Agreement may be
otherwise assigned by either Party in whole or in part only with the prior
written consent of the other Party.
8.05.02. Acquisition or Merger. If either Party (or
substantially all its assets) is acquired by or merged with a third party or if
either Party acquires a third party (or substantially all its assets), the
entity that results from that transaction (the "Combined Entity") shall succeed
to all of the rights and obligations of the affected Party under this Agreement
with the same effect as if the Combined Entity had originally been a Party
hereunder. Notwithstanding the foregoing, upon such succession of the Combined
Entity to the rights and obligations hereunder, the Parties may agree to
terminate this Agreement or the other Party may elect to terminate this
Agreement (including upon commission by the Combined Entity of a material breach
of the Agreement following such succession), with the following result:
(i) if the terminating Party is SIGNAL, then to the
extent necessary to develop, manufacture, import, use or sell Licensed Products
or Combination Products in existence prior to such termination, SIGNAL shall be
granted an irrevocable, fully paid-up, nonexclusive license within the Territory
under the ARES Know-How and ARES Patents; provided, however, that SIGNAL shall
reimburse ARES for royalties paid to third parties by ARES or its Affiliates
with respect to the development, manufacture, import, use or sale of such
Licensed Products or Combination Products; and
(ii) if the terminating Party is ARES, ARES shall be
granted an irrevocable, fully paid-up, exclusive license, with the right to
grant sublicenses, within the Territory under the SIGNAL Technology to develop,
make, have made, import, use, and sell any Licensed Products or Combination
Products to which ARES had any right, title or interest prior
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to such termination. ARES shall also be entitled to a complete duplicate of (A)
all records, notes, reports and data with respect to all laboratory work
performed in the conduct of the Research and (B) all biological and chemical
materials used in connection with the Research prior to such termination and the
same, if not already in its possession, shall be promptly delivered to ARES upon
such termination. Notwithstanding the foregoing, termination of this Agreement
shall not release either Party, or the Combined Entity of which it is a part,
from any obligations accrued prior to the effective date of termination nor
deprive either Party, or such Combined Entity, from any rights that this
Agreement provides shall survive termination.
Section 8.06. No Sale or Other Disposal of SIGNAL Technology. Without
ARES' prior written consent, SIGNAL shall not sell, transfer, assign, or
otherwise dispose of, or purport to sell, transfer, assign or otherwise dispose
of, any right, title or interest in, to and under SIGNAL Technology that is
necessary or useful to develop, make, have made, import, use, and sell Licensed
Products or Combination Products; provided, however, that ARES acknowledges
that, prior to the date hereof, SIGNAL has granted certain rights in the SIGNAL
Technology to Tanabe.
Section 8.07. Reference to Patents. ARES shall mark or cause to be marked
the Licensed Products and Combination Products developed, made, imported, used
or sold pursuant to this Agreement with such references to the SIGNAL Patents or
Joint Patents as are required by the applicable laws of the territories in which
such Licensed Products or Combination Products are developed, made, imported
used and sold.
Section 8.08. No Third-Party Beneficiary. Nothing in this Agreement,
express or implied, is intended to confer on any person other than the Parties
hereto, or their respective permitted successors and assigns, any benefits,
rights or remedies.
Section 8.09. Publicity. Neither Party may use in any manner the other
Party's name or insignia, or any contraction, abbreviation or adaptation
thereof, without the express written
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<PAGE> 44
consent of the other Party. Neither Party may publicly disclose or issue press
releases concerning the existence of this Agreement or the terms and conditions
hereof except with the express written consent of the other Party, which consent
shall not unreasonably be withheld. Notwithstanding the foregoing, either Party
shall have the right to disclose information concerning this Agreement in any
prospectus, offering memorandum or other document or filing to the extent
required by applicable securities laws but only after providing the other Party
reasonable notice of such intended disclosure and consulting with the other
Party to determine the reasonable nature and scope of such intended disclosure.
Section 8.10. Confidential Information. For the purpose of this Agreement,
the term "Confidential Information" shall mean any information disclosed by
either Party to the other pursuant to this Agreement in tangible form clearly
marked "secret," "confidential" or "proprietary" or, if disclosed otherwise,
summarized or described in tangible form and clearly marked as above within
thirty (30) days of the initial disclosure. Each Party shall hold Confidential
Information it has received in confidence during the Term and for a period of
five (5) years thereafter and shall not disclose such Confidential Information
to third parties without the consent of the disclosing Party, other than
Confidential Information that:
(i) was known to the receiving Party prior to disclosure by
the disclosing Party as evidenced by the receiving Party's prior written
records;
(ii) is disclosed to the receiving Party by a third party,
except if such disclosure is made on a confidential basis or in violation of a
confidentiality obligation to the disclosing Party or its Affiliates;
(iii) is or becomes public knowledge other than by the
receiving Party's breach of this confidentiality obligation;
(iv) the receiving Party must disclose to government
authorities for the purpose of seeking marketing approval of Licensed Products
or Combination Products pursuant to this Agreement;
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<PAGE> 45
(v) the receiving Party must disclose to individuals who have
a need to know to effectuate the development and commercialization of Licensed
Products or Combination Products pursuant to this Agreement, provided each such
individual is bound by a confidentiality obligation comparable to the obligation
set forth in this Section 8.10;
(vi) the receiving Party independently develops or discovers
without use of or reference to the Confidential Information; or
(vii) the receiving Party must disclose, pursuant to a
requirement of law, provided the receiving Party has given the disclosing Party
prompt notice of such fact, so the disclosing Party may obtain a protective
order or other appropriate remedy concerning any such disclosure and/or waive
compliance with the confidentiality obligations of this Section 8.10. The
receiving Party shall fully cooperate with the disclosing Party in connection
with the disclosing Party's efforts to obtain any such order or other remedy. If
any such order or other remedy does not fully preclude disclosure, or the
disclosing Party waives such compliance, the receiving Party shall make such
disclosure, but only to the extent such disclosure is legally required, and
shall use its best efforts to have confidential treatment accorded to the
disclosed Confidential Information. Each Party may disclose Confidential
Information only to those of its employees, agents, Affiliates, consultants and
academic collaborators who are bound by confidentiality obligations comparable
to the obligation set forth in this Section 8.10. All Confidential Information
shall be returned to the disclosing Party by the receiving Party upon request by
the disclosing Party upon the termination of this Agreement, with the exception
of a single copy to be retained by the receiving Party in a confidential file
for the purpose of determining compliance with this confidentiality obligation.
This obligation shall survive termination of this Agreement.
Section 8.11. Publication. Any manuscript, abstract or other publication
or presentation prepared by or on behalf of either Party and relating to the
SIGNAL Technology must be submitted to the other Party for review and approval
at least thirty (30) Business Days prior to
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<PAGE> 46
submission for publication or public release, which approval shall not
unreasonably be withheld. Publication or public release of any such manuscript,
abstract or other publication or presentation is subject to the confidentiality
and nondisclosure obligations set forth in Section 8.10 hereof.
Section 8.12. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
Section 8.13. No Strict Construction. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.
Section 8.14. Governing Law. The form, execution, validity, construction
and effect of this Agreement shall be determined in accordance with the laws of
the Commonwealth of Massachusetts and the United States of America, regardless
of the choice of law principles of those or any other jurisdictions.
Section 8.15. Dispute Resolution. Any disputes, questions or claims raised
by a Party and arising out of or in connection with this Agreement that cannot
be settled by negotiation between the Parties within fifteen (15) days after
notice thereof shall be resolved in accordance with the terms and conditions set
forth in this Section 8.15. The Parties agree that any such dispute, question or
claim shall be resolved solely by application of the procedures set forth in
this Section 8.15. These procedures, however, may be modified by written
agreement of the Parties with respect to any particular dispute, question or
claim that may arise under this Agreement.
8.15.01. Negotiation. The procedures of this Section 8.15
shall be initiated by a notice (the "Dispute Notice") given by one Party (for
purposes of this Section 8.15, the "Claimant") to the other Party. The Dispute
Notice shall be accompanied by (i) a statement of the Claimant describing the
dispute, question or claim in reasonable detail, and (ii) documentation
supporting the Claimant's position with respect to the dispute, question or
claim, if applicable. Within twenty (20) days after receipt by the other Party
(for purposes of this
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<PAGE> 47
Section 8.15, the "Respondent") of the Dispute Notice and accompanying
materials, if any, the chief executive officers of the Parties in question, or
other members of senior management of such Parties, each with full authority
from the chief executive officer to settle the dispute, shall meet (the
"Management Meeting") in a mutually agreeable location to resolve the dispute.
If the Parties cannot agree on a time or location for the Management Meeting,
(i) the Meeting shall be held at 10:00 A.M., local time, on the twentieth (20th)
day after the Respondent's receipt of the Dispute Notice, (ii) the location of
such Meeting shall be in a first-class hotel suite identified and paid for by
the Claimant in Boston, Massachusetts. If the senior management representative
of either Party intends to be accompanied at the Management Meeting by counsel,
the other Party shall be given at least four (4) days notice of such intention
and may also be accompanied by counsel. All negotiations pursuant to this
Subsection 8.15.1 shall be confidential and treated as compromise and settlement
negotiations and shall not be admissible in any arbitration or other proceeding.
8.15.02. Arbitration. If the Parties are unable to resolve the
dispute, question or claim within thirty (30) days following the day of the
Management Meeting, the dispute, question or claim shall be finally settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of International Disputes (and the Center for
Public Resources shall serve, if necessary, as the "Neutral Organization") by
three arbitrators appointed in accordance with such Rules who shall be impartial
and disinterested individuals who do not have a direct or indirect interest in
either Party or the subject matter of the arbitration. The Parties agree that
notices served in the manner provided herein shall be valid for such
arbitration. Any such arbitration shall be conducted in English and shall be
held in Boston, Massachusetts. The arbitrators shall apply the substantive law
that the Parties have chosen as the governing law pursuant to Section 8.14
hereof. Pending the issuance of the arbitrators' decision, the Parties shall
continue to operate under the Agreement as it existed on the date the Dispute
Notice was given; provided, however, that the arbitrators' decision shall be
retroactive to such
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<PAGE> 48
date. The costs of the arbitration (including without limitation the fees and
expenses of the arbitrators, attorneys and experts, the travel and other
expenses of witnesses, as well as the fees and expenses in any collateral
actions, such as actions for enforcement) shall be borne in their entirety by
the nonprevailing Party in the arbitration. The Parties hereby exclude any right
of appeal to any court on the merits of the dispute, question or claim. Judgment
on the award may be entered in any court having jurisdiction over the award or
any of the Parties or their assets The award may grant any relief appropriate
under the applicable law, including without limitation declaratory relief and/or
specific performance.
Section 8.16. Cooperation. Both Parties shall cooperate in good faith and
take all necessary steps at the request of either Party to ensure that this
Agreement is enforceable in accordance with its terms.
Section 8.17. Integration. This Agreement, together with the Exhibits
hereto, constitutes the entire agreement between the Parties hereto relating to
the subject matter hereof and supersedes all prior and contemporaneous
negotiations, agreements, representations, understandings and commitments with
respect thereto, including without limitation the Letter between the Parties
dated September 9, 1997. No terms or provisions of this Agreement shall be
varied, extended or modified by any prior or subsequent statement, conduct or
act of either of the Parties, except by a written instrument specifically
referring to and executed in the same manner as this Agreement.
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<PAGE> 49
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
"SIGNAL" "ARES"
SIGNAL PHARMACEUTICALS, INC. ARES TRADING S.A.
By: By: /s/ ERNESTO BERTARELLI
---------------------------- ---------------------------------
Name: Name: ERNESTO BERTARELLI
---------------------------- ---------------------------------
Title: Title: DIRECTOR
---------------------------- ---------------------------------
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<PAGE> 50
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
"SIGNAL" "ARES"
SIGNAL PHARMACEUTICALS, INC. ARES TRADING S.A.
By: /s/ ALAN J. LEWIS By:
---------------------------- ---------------------------------
Name: ALAN J. LEWIS Name:
---------------------------- ---------------------------------
Title: PRESIDENT / CEO Title:
---------------------------- ---------------------------------
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<PAGE> 51
EXHIBIT A
ARES Know-How
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<PAGE> 52
EXHIBIT B
ARES Patents
[***]
* World Intellectual Property Organization country codes
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<PAGE> 53
EXHIBIT C
Protocol
Description of
Research Project:
Responsible Party
(SIGNAL, ARES, or Joint):
Methodology (including milestones):
Personnel (including
Consultants and Academic Collaborators):
Materials:
Reports (Interim and Final):
Schedule (including Completion Date):
Budget:
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<PAGE> 54
EXHIBIT D
SIGNAL Know-How
[***]
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***Confidential Treatment Requested
<PAGE> 55
EXHIBIT E
SIGNAL Patents
[***]
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<PAGE> 56
EXHIBIT F
SIGNAL Third-Party Agreements
[***]
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<PAGE> 57
EXHIBIT G
Third-Party Rights in SIGNAL Know-How and SIGNAL Patents
[***]
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***Confidential Treatment Requested
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83
and 230.406
EXHIBIT 10.43
================================================================================
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
between
SIGNAL PHARMACEUTICAL, INC.
and
THE DUPONT MERCK PHARMACEUTICAL COMPANY
================================================================================
<PAGE> 2
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COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
made as of ___________, 1997 (the "Effective Date") by and between SIGNAL
PHARMACEUTICALS, INC., a Delaware corporation with its principal office at 5555
Oberlin Drive, San Diego, California 92121 ("SIGNAL") and THE DUPONT MERCK
PHARMACEUTICAL COMPANY, a general partnership organized and existing under the
laws of the State of Delaware and having its principal offices at 974 Centre
Road, Wilmington, Delaware 19807 ("DPM").
RECITALS
WHEREAS, SIGNAL is a biotechnology company engaged in identifying new
classes of small molecule drugs that regulate genes and the production of
disease-causing proteins;
WHEREAS, DPM is a pharmaceutical company dedicated to the research,
development, manufacture and commercialization of pharmaceutical products;
WHEREAS, SIGNAL and DPM wish to establish a collaborative relationship
to develop and commercialize novel products for the treatment and prevention of
human immunodeficiency virus ("HIV") and hepatitis C virus ("HCV");
WHEREAS, DPM desires to obtain, and SIGNAL is willing to grant, an
option to expand the collaborative relationship to include the development and
commercialization of novel products for the treatment and prevention of [***];
WHEREAS, it is recognized and acknowledged by SIGNAL that DPM has
carried out and will continue to carry out programs to discover, develop and
commercialize products for the treatment and prevention of HIV and HCV which are
outside of this collaboration; and
WHEREAS, SIGNAL and DPM wish to enter into this Agreement to establish
the collaboration on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows.
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<PAGE> 3
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ARTICLE 1
DEFINITIONS
The terms in this Agreement with initial letters capitalized,
whether used in the singular or plural, shall have the meaning designated below
or, if not designated below, the meaning as designated in places throughout this
Agreement.
1.1 "Affiliate" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which owns,
is owned by or is under common ownership with a party. For the purposes of this
definition, the term "owns" (including, with correlative meanings, the terms
"owned by" and "under common ownership with") as used with respect to any party,
shall mean the possession (directly or indirectly) of more than 50% of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity.
1.2 "Annual Research Plan" means the plan for conducting the
research activities under the Collaboration as described in Article 3 hereof.
1.3 "Assay" means one or more of the following assays which are
described in Appendix 1 attached hereto, which have been developed or are to be
developed in HTS format under this Agreement in accordance with the Research
Plan: [***]
1.4 "Assay Technology" means SIGNAL Technology necessary or useful
for performing the Assays.
1.5 "Calendar Quarter" means the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30 and
December 31.
1.6 "Calendar Year" means each successive period of twelve (12)
months commencing on January 1 and ending on December 31.
1.7 "Collaboration" means the activities of SIGNAL and DPM carried
out in performance of the Research Project under this Agreement.
1.8 "Collaboration Know-How" means Know-How (i) arising from or in
connection with the conduct of the Collaboration under this Agreement in
accordance with the Research Plan and (ii) which is jointly developed by or
under the common Control of SIGNAL or one of its Affiliates, on the
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<PAGE> 4
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one hand, and DPM or one of its Affiliates, on the other hand.
1.9 "Collaboration Patent Rights" means all Patent Rights that claim
or cover inventions (i) conceived of and reduced to practice jointly (as
determined in accordance with the rules of inventorship under United States
patent law) by employees or others acting on behalf of SIGNAL or one of its
Affiliates, on the one hand, and employees or others acting on behalf of DPM or
one of its Affiliates, on the other hand, in connection with activities
conducted pursuant to the Research Plan or (ii) which come under the common
Control of SIGNAL or one of its Affiliates, on the one hand, and DPM or one of
its Affiliates, on the other hand, during the Research Term and any Extended
Research Term and are necessary or appropriate for the full commercial
exploitation of the Field.
1.10 "Collaboration Technology" means Collaboration Know-How and
Collaboration Patent Rights.
1.11 "Combination Product" means a Product containing a Compound
which includes one or more additional active ingredients other than a Compound.
1.12 "Compound" means any compound or any analog or derivative
thereof identified or selected for development by DPM or SIGNAL based upon use
of the Assays during, or otherwise in the course of and as a result of the
Collaboration during the Research Term and any Extended Research Term or by DPM
during the period of up to [***] thereafter and subject to Section 4.1.
It is to be understood that this definition of Compound excludes molecules or
compounds that are acquired or discovered by DPM other than by the use of Assays
(or target scopes) of this Agreement, but are subjected to an Assay for further
knowledge or characterization as a standard. A derivative Compound is a molecule
derived from and related to a screened compound identified or synthesized during
the Research Term and any Extended Research Term in the course of and as a
result of the Collaboration.
1.13 "Confidential Information" means all information and materials
received by either party from the other party pursuant to this Agreement and all
information and materials developed in the course of the Collaboration,
including, without limitation, Know-How of each party and Collaboration
Know-How.
1.14 "Control" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
with or other arrangement with any Third Party.
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<PAGE> 5
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1.15 "Distributor" shall mean a Third Party distributor engaged by
DPM to market and distribute Product in any Distributor Market.
1.16 "Distributor Markets" means the markets in which DPM does not
have a field selling organization for direct sales and marketing, where DPM
markets Products through distributors. For purposes of this definition,
"Distributor Markets" shall not include [***]
1.17 "Effective Date" means the date appearing in the first paragraph
of the Agreement.
1.18 "FDA" means the United States Food and Drug Administration.
1.19 "Field" means the use of the Assays for the discovery,
identification and development of Compounds and Products for the treatment or
prevention of HIV and HCV and the use, manufacture, distribution, marketing and
sale of Compounds and Products for the treatment or prevention of HIV and HCV.
If DPM exercises the option set forth in Section 4.3, the definition of the
Field shall be expanded to include the discovery, identification and development
of Compounds and Products for the treatment or prevention of [***] and the use,
manufacture, distribution, marketing and sale of Compounds and Products for the
treatment or prevention of [***].
1.20 "First Commercial Sale" of a Product means the first sale for
use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate shall not constitute a First Commercial
Sale unless the Affiliate is the end user of the Product.
1.21 "FTE" means a full time equivalent researcher employed by SIGNAL
or DPM and assigned to work on the Research Project with such time and effort to
constitute one researcher working on the Research Project on a full time basis
consistent with normal business and scientific practice (at least 40 hours per
week of dedicated effort; on an annual basis, at least 40 hours per week of
dedicated effort for at least 48 weeks (excluding official SIGNAL holidays) per
year).
1.22 "HCV Constructs" mean collectively or individually
polynucleotide constructs, which are owned or Controlled by SIGNAL, and which
SIGNAL may now possess or acquire during the Research Term and any Extended
Research Term, containing HCV polynucleotide sequences, including but not
limited to those polynucleotide constructs listed in
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<PAGE> 6
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Appendix 2 hereto.
1.23 "Hit" means any compound that demonstrates reproducible
significant activity in an Assay. The level of activity required to be
designated a Hit will be set by the RMC.
1.24 "HTS" means high throughput screening.
1.25 "IND" means an Investigational New Drug Application filed with
the FDA to commence human clinical testing of a Product, or the equivalent in
any other country or jurisdiction.
1.26 "Know-How" means technical information and materials, including
without limitation, technology, data, cell lines, constructs, chemicals,
inventions (patentable or otherwise), practices, methods, knowledge, skill, and
experience relating to Compounds, Hits, Lead Compounds, Assays, and Products.
1.27 "Lead Compound" means any Hit or any analog or derivative of a
Hit showing potential therapeutic activity in cellular or animal models in
follow-up testing after testing in an Assay and which is selected for
pre-clinical safety assessment testing. Lead Compounds will be selected by the
RMC as set forth in Section 2.1.
1.28 "NDA" means a New Drug Application filed in the FDA to obtain
marketing approval for a Product, or the equivalent in any other country or
jurisdiction.
1.29 "Net Sales" means the gross amounts invoiced for sales of
Compound or Product by DPM and its Affiliates to non-Affiliated Third Parties,
including but not limited to Distributors and Sublicensees, in bona fide,
arms-length transactions, less (to the extent actually incurred or reasonably
estimated and accrued in accordance with GAAP and to the extent not already
deducted in the amount invoiced): (a) trade and quantity discounts, (b) credits
or allowances upon claims, damaged goods, rejections or returns, including
recalls, (c) freight, postage, shipping and insurance charges for delivery of
Product, (d) custom duties, surcharges, sales or excise taxes and other
governmental charges (other than income taxes) incurred directly related to the
sale, (e) rebates, chargebacks and other amounts paid, credited or accrued, (f)
retroactive price reductions, (g) bad debt expense, and (h) amounts incurred
resulting from governmental mandated rebate programs.
Sales of Products for use in clinical trials (including expanded access
<PAGE> 7
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programs) prior to receipt of regulatory approval to market such Product shall
not be included in Net Sales.
With respect to the sales of Combination Product, Net Sales shall be
calculated on the basis of the invoice price of a Product containing the same
weight of Compound sold without other active ingredients. In the event such
Compound is not sold without other active ingredients, Net Sales shall be
calculated by multiplying the amounts received by DPM or its Affiliates
attributable to Combination Products by the Combination Allocation Portion (as
defined below) attributable to such Combination Product. The "Combination
Allocation Portion," as used herein, shall mean that portion of any amounts
received by DPM or its Affiliates from the sale of any Combination Product that
results from multiplying the total amount received by DPM or its Affiliates from
such sale by a fraction, the numerator of which is the fair market value of the
Compound included in the Combination Product and the denominator of which is the
fair market value of such Compound and the fair market value of the products or
parts of such Combination Product which are not Compounds. Fair market value
shall be determined in good faith by DPM and SIGNAL either together or with a
mutually agreeable third party in the event that no market price is available.
In the event that the parties shall disagree regarding the fair market value
denomination, the parties shall resolve such dispute in accordance with Article
12 hereof.
1.30 "Pass-Through Net Sales" means the gross amounts invoiced for
sales of Product by Distributors and Sublicensees to non-Affiliated Third
Parties, in bona fide, arms-length transactions, less deductions listed in the
[***] or other SIGNAL License Agreement. SIGNAL shall include in each SIGNAL
License Agreement entered into after the Effective Date a definition of Net
Sales and/or Pass-Through Net Sales that is consistent with the definition of
Net Sales in Section 1.29 above or as provided in the SIGNAL License Agreement
with [***] The purpose for such consistency being to prevent any obligation to
keep a multiplicity of books and records.
1.31 "Patent Rights" means all rights under (a) patents (including
the inventor's certificates) that include one or more Valid Claims, including
without limitation any substitution, extension (including supplemental
protection certificate), registration, confirmation, reissue, continuation,
divisional, continuation-in-part, re-examination, renewal or the like, and (b)
pending applications for patents, including, without limitation, any
continuation, division or continuation-in-part thereof, and any provisional
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applications, which applications are listed and will be listed during the Term
of this Agreement in attached Schedule A and which are considered to be either
Collaboration Patent Rights or Signal Patent Rights.
1.32 "Phase IIb" means such studies in humans of the safety, dose
ranging and efficacy of a Product designed to generate sufficient data to make a
decision about whether to commence a Pivotal Trial, as more specifically defined
by the rules and regulations of the FDA and corresponding rules and regulations
in other countries or jurisdictions.
1.33 "Pivotal Trial" means a controlled study in humans on sufficient
numbers of patients designed to establish the efficacy and safety of a Product
which is prospectively designed to demonstrate statistically whether the Product
is safe and effective for use in a particular indication in a manner sufficient
to obtain full Regulatory Approval to market that Product.
1.34 "Product" means any marketed product (a) containing a
formulation or dosage of a Compound; or (b) the manufacture, use or sale of
which is covered by one or more of SIGNAL Patent Rights, Collaboration Know-How
or Collaboration Patent Rights.
1.35 "Regulatory Approval" means any approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations of any
national, supra-national, regional, state or local regulatory agency, department
or other governmental entity necessary for the manufacture, distribution, use
and sale of a Product in a regulatory jurisdiction. "Regulatory Approval" in the
U.S. means NDA approval.
1.36 "Research Project" means the research activities under the
Collaboration carried out in accordance with the Research Plan as described in
Article 3 hereof.
1.37 "Research Term" means the period beginning on the Effective Date
and ending on the third anniversary of the Effective Date; provided, however,
that the Research Term may be extended for up to three (3) additional one-year
periods ("Extended Research Term") at DPM's option upon written notice to SIGNAL
given no less than ninety (90) days prior to the expiration of the Research Term
or any extension thereof, as the case may be.
1.38 "Research Year" means each twelve month period during the
Research Term and any Extended Research Term, with the first Research Year
beginning on the Effective Date.
<PAGE> 9
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1.39 "RMC" means the Research Management Committee established
pursuant to Section 2.1 hereof.
1.40 "Royalty Term" means, in the case of any Product, in any
country, the period of time commencing on the First Commercial Sale and ending
upon the later of (a) 10 years from the date of First Commercial Sale in such
country, or (b) the expiration of the last to expire of the SIGNAL Patent Rights
and the Collaboration Patent Rights containing a Valid Claim covering such
Product in such country.
1.41 "Signal Compound" means a compound contained in the Signal
Compound Library.
1.42 "Signal Compound Library" means all compounds owned or
Controlled by SIGNAL which are available for screening in the Assays in
accordance with the terms and conditions of this Agreement, including but not
limited to the compounds and compound libraries identified in Appendix 3 hereto
(but excluding, for purposes of HIV and the [***] drug target, any compounds
licensed by SIGNAL from [***]).
1.43 "SIGNAL Know-How" means all Know-How, which are owned or
Controlled by SIGNAL, which SIGNAL may now possess or acquire during the
Research Term and any Extended Research Term, which are necessary or useful for
DPM to utilize the Assays or in the discovery, development, manufacture,
marketing, use or sale of Compounds or Products.
1.44 "Signal License Agreements" shall mean any license agreement
which SIGNAL has entered into as of the Effective Date pursuant to which SIGNAL
Controls Assay Technology, any part of the Signal Compound Library or any Signal
Compound or any such subsequent license agreement which SIGNAL has entered into
which is approved as a Signal License Agreement by the RMC after review and
approval by the Finance Division of DPM with respect to the definition of Net
Sales and for any payments which may be assumed by DPM for milestone and royalty
payments. These are listed in Appendix 5 and any subsequent such Agreements, if
any, will be added during the Research Term and any Extended Research Term.
1.45 "SIGNAL Patent Rights" means the Patent Rights owned or
Controlled by SIGNAL, either solely or jointly with another party, which SIGNAL
may now possess or acquire in the future, which (i) are necessary or useful for
DPM to utilize the Assays or in the discovery, development, manufacture,
marketing, use or sale of Compounds or Products or (ii) which contains a claim
which would be infringed by a third party's
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<PAGE> 10
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manufacture, use, import or sale of any Compound or Product. These are listed in
Appendix 6 and will be added during the Research Term and any Extended Research
Term.
1.46 "SIGNAL Technology" means the SIGNAL Patent Rights and the
SIGNAL Know-How.
1.47 "Sublicense Territory" means all countries in which a license
has been granted to a Sublicensee, but shall specifically exclude the [***]
except with the prior approval of SIGNAL.
1.48 "Sublicensee" means a Third Party to whom DPM has granted a
license or sublicense to develop, make, have made, use, offer for sale, sell and
import Products in the Field.
1.49 "Sublicensing Revenue" means the amount actually paid to DPM by
a Sublicensee arising from the license or sublicense of the right to develop,
make, have made, use, offer for sale, sell and import Products in the Field.
Sublicensing Revenue shall include license fees, royalties, and any other
payments with respect to the SIGNAL Technology or the Collaboration Technology
but shall not include any payments tied to the provision of goods and services
by DPM to such Sublicensee to compensate DPM for the provision of such goods and
services.
1.50 "Term" means the period commencing on the Effective Date and
ending on the Termination Date.
1.51 "Termination Date" means the last date on which DPM is obligated
to make any payments to SIGNAL pursuant to Section 5.
1.52 "Third Party" means any entity other than SIGNAL or DPM or an
Affiliate of SIGNAL or DPM.
1.53 "Valid Claim" means a claim of an issued patent or pending
patent application which claim has not lapsed, been canceled or become abandoned
and has not been declared invalid by an unreversed and unappealable decision or
judgment of a court or other appropriate body of competent jurisdiction, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer.
1.54 "Viral Target" means the viral target of an Assay, HIV, HCV
[***] as the case may be, as specified in Appendix 1 hereto.
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ARTICLE 2
RESEARCH MANAGEMENT COMMITTEE
2.1 Research Management Committee. The Collaboration will be managed
by the RMC, which will be comprised of three representatives appointed by SIGNAL
and three representatives appointed by DPM. The RMC shall be co-chaired jointly
by a representative of each party. Either party may appoint substitute or
replacement members of the RMC to serve as their representatives upon notice to
the other party. The initial members of the RMC shall be appointed by the
parties within thirty (30) days following the Effective Date. The RMC shall
oversee the principal research aspects of the Collaboration; and DPM shall be
solely responsible for development, manufacturing and marketing activities. The
RMC shall have the responsibility and authority to (a) set and modify research
goals including recommendations to pursue different assays, (b) assign tasks and
responsibilities under the Research Plan to the parties, (c) set criteria for
identification of Lead Compounds and Hits, (d) recommend Hits to be developed as
Lead Compounds and/or to be chemically modified for development as Lead
Compounds, (e) monitor the progress of the Collaboration and (f) review and
modify the Research Plan, as it shall deem appropriate to achieve the parties'
objectives under this Agreement.
2.2 Meetings. The RMC shall meet in-person or by teleconference on a
Calendar Quarter basis or more frequently as may be agreed upon, to review the
progress of the parties in performing the Research Project, with each party to
bear all travel and related costs for its representatives.
2.3 Decision-Making Process. Each member of the RMC shall have one
vote, and decisions by the RMC shall be made by a majority vote. Any
disagreement among members of the RMC will be resolved within the RMC based on
the efficient achievement of the objectives of this Agreement. Any disagreement
which cannot be resolved by a majority vote of the RMC shall be referred to the
appropriate officers of SIGNAL and DPM for resolution under Article 12. It is
the intent of the parties to resolve issues through the RMC whenever possible
and to refer issues to the officers of SIGNAL and DPM only when resolution
through the RMC cannot be achieved.
ARTICLE 3
CONDUCT OF COLLABORATION
3.1 Exclusivity. All Compounds discovered or licensed by either DPM
or Signal shall be developed and commercialized for use in the Field pursuant to
and subject to the provisions of this Agreement. During the
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Research Term and any Extended Research Term, and for a period of two (2) years
following the Research Term or any Extended Research Term, DPM and its
Affiliates, shall not work independently of SIGNAL, either alone or with any
Third Party, and shall not enter into any negotiations or agreements with any
Third Party, with respect to the use of the Assays. During the Research Term and
any Extended Research Term and for a period of two (2) years following the
Research Term or any Extended Research Term, SIGNAL and its Affiliates, shall
not work independently of DPM, either alone or with any Third Party, and shall
not enter into any negotiations or agreements with any Third Party, with respect
to the Field. This Section 3.1 shall not in any way limit or modify the licenses
granted to DPM by SIGNAL under this Agreement.
3.2 Objectives of Collaboration. The objective of the Collaboration
is to identify Hits and Lead Compounds that are suitable for development by DPM
as Products for commercialization in the Field. DPM shall be responsible for the
development of Products, including all preclinical and clinical testing,
obtaining Regulatory Approval for Products, manufacturing of Compounds and
Products, and the commercialization of Products in the Field. The parties agree
that the Collaboration shall be conducted in accordance with the initial
research plan attached hereto as Appendix 2, its modifications, and each Annual
Research Plan. The parties expect that: (i) initially, SIGNAL will be primarily
responsible for screening the compound libraries of each party using Assays
developed or to be developed primarily by SIGNAL, which responsibility may
thereafter be shifted in whole or in part to DPM in the RMC's discretion; (ii)
SIGNAL will initially have primary responsibility for follow-up and confirmation
of any Hits in HCV Assays; (iii) DPM will have primary responsibility for
follow-up and confirmation of any Hits in HIV Assays; (iv) the parties will
share responsibility for assessment of antiviral activity of Hits; and (v) DPM
will have primary responsibility for in vivo testing of Compounds and any
follow-up medicinal chemistry.
3.3 Annual Research Plan. The Research Project will be conducted
under an Annual Research Plan which describes the work to be pursued by SIGNAL
and DPM during the Research Year. The first Annual Research Plan shall be
prepared by the RMC within forty-five (45) days after the Effective Date.
Subsequent Annual Research Plans shall be prepared by the RMC, not later than
sixty (60) days prior to the start of each Research Year. The Annual Research
Plan shall outline the work on the Research Project proposed to be carried out
during the subsequent Research Year and the number of FTEs to be assigned to
such work.
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3.4 Research Efforts. Each party shall use good faith commercially
reasonable and diligent efforts (as defined below) to perform its
responsibilities under the Annual Research Plan. In particular, DPM will provide
funding to SIGNAL pursuant to Section 5.3 in each Research Year during the
Research Term and any Extended Research Term to support [***] qualified FTEs
at SIGNAL specified in the Annual Research Plan, unless modified by the RMC
during the Research Term and any Extended Research Term which funding by DPM
shall be contingent upon SIGNAL providing and retaining such qualified FTEs. In
addition, DPM will commit the number(s) of appropriately qualified FTEs to the
performance of DPM's responsibilities as specified in the Annual Research Plan.
Any modification in such FTE commitments by the parties shall be made by the RMC
in accordance with Article 2. As used herein, the term "commercially reasonable
and diligent efforts" will mean, unless the parties agree in writing otherwise,
those efforts consistent with the exercise of prudent scientific and business
judgment in accordance with industry standards, as applied to other products of
similar scientific and commercial potential.
The Research Project will be conducted in good scientific
manner, and in compliance with all applicable good laboratory practices, and
applicable legal requirements, to attempt to achieve efficiently and
expeditiously the objectives of the Collaboration. Throughout the Research Term
and any Extended Research Term, SIGNAL shall assign a balanced number of FTE
Ph.D. or equivalent scientists and other technical support personnel as
specified in the Annual Research Plan to perform the work set forth in each
Annual Research Plan. The name, curriculum vitae, and percentage of time devoted
to working on the Research Project for each scientist comprising [***] potential
FTE scientists shall be provided to DPM within sixty (60) days of the Effective
Date and not later than sixty (60) days prior to the start of each subsequent
Research Year. The mixture of skills and levels of such FTEs shall be
appropriate to the scientific objectives of the Research Project. The scientists
comprising such [***] FTEs and their percentage of time devoted to working on
the Research Project shall be identified in each Annual Research Plan. The
selection of such scientists shall be communicated to DPM at the same time
offers of employment are made.
3.5 Availability of Resources. Each party will maintain
laboratories, offices and all other facilities at its own expense and risk
necessary to carry out its responsibilities under the Collaboration pursuant to
the Annual Research Plan. In particular, within ninety (90) days following the
Effective Date, SIGNAL will have established, and will thereafter during the
Research Term and any Extended Research Term
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maintain, a non-shared BSL-2 laboratory space for conducting antiviral work.
Each party agrees to make its employees and non-employee consultants reasonably
available at their respective places of employment to consult with the other
party on issues arising during the Collaboration and in connection with any
request from any regulatory agency, including, without limitation, regulatory,
scientific, technical and clinical testing issues.
3.6 Transfer of Technical Information, Know-How and Materials. As
the Assays are established and as improvements to the Assays are made, SIGNAL
shall provide DPM with all technical information, Know-How and materials
necessary to enable DPM to utilize such Assays.
Within thirty (30) days following the Effective Date, SIGNAL shall
provide DPM with access to all HCV Constructs owned or Controlled by SIGNAL as
of the Effective Date, including those listed in Appendix 2 hereof.
3.7 Screening of Signal Compounds in the Assays. As the Assays are
developed and validated, SIGNAL shall promptly proceed to diligently screen in
the Assays such Signal Compounds which exist prior to the Effective Date or are
synthesized or acquired by SIGNAL during the Research Term and any Extended
Research Term as determined by the RMC. The results of such testing and the
structure of any Hits shall be promptly disclosed to DPM as such results are
obtained. Likewise, DPM shall promptly disclose to SIGNAL the results of its
biologic screening activities during the Research Term and any Extended Research
Term.
3.8 Disclosure; Reports. SIGNAL will make available and disclose to
DPM promptly after the Effective Date all Signal Know-How known as of the
Effective Date. Each party will make available and disclose to the other party
all SIGNAL Know-How or Collaboration Know-How, as applicable, learned, acquired
or discovered by such party at any time on or before the end of the Research
Term and any Extended Research Term, as promptly as is reasonably practicable
after such Know-How is learned. In addition, each party shall inform the other
promptly upon identifying any Hits in its performance of screening activities
pursuant to the Research Plan and shall provide such additional information with
respect thereto as the other party or the RMC shall reasonably request. The
parties will exchange at a minimum quarterly written reports (with copies to the
RMC) presenting a meaningful summary of the work performed on the Research
Project. In addition, on reasonable request by a party, the other party will
make presentations of its activities under this Agreement to inform such party
of the details of the work done under this Agreement. Know-How and other
information regarding the Research Project disclosed by one party to the
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other party pursuant hereto may be used only in accordance with the rights
granted under this Agreement.
Within thirty (30) days following the end of each Calendar Quarter,
SIGNAL and DPM shall each provide to the RMC a written report summarizing in
reasonable detail the work performed by it under the Research Project during the
preceding Calendar Quarter. Subsequent to the termination or expiration of the
Research Term and any Extended Research Term, DPM shall provide SIGNAL with
quarterly reports concerning the status of its development activities concerning
the commercialization of Products, including but not limited to the results of
preclinical and clinical studies.
3.9 Records. SIGNAL and DPM shall each maintain records in
sufficient detail and in good scientific manner appropriate for patent purposes
and as will properly reflect all work done and results achieved in the
performance of the Research Project (including all data in the form required to
be maintained under any applicable governmental regulations). Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the Research
Project. SIGNAL and DPM shall each provide the other the right to inspect such
records, and shall provide copies of all requested records, to the extent
reasonably required for the performance of the requesting party's obligations
under this Agreement; provided, however, that each party shall maintain such
records and the information of the other contained therein in confidence in
accordance with Article 8 below and shall not use such records or information
except to the extent otherwise permitted by this Agreement.
3.10 DPM Compounds. To further the objectives of the Collaboration,
DPM shall transfer to SIGNAL certain DPM compounds for testing by SIGNAL in the
Assays in accordance with the applicable Annual Research Plan. Such compounds
provided or otherwise disclosed by DPM to SIGNAL under this Agreement are
referred to herein as "DPM Compounds". Such DPM Compounds and all information
relating to such DPM Compounds and information and materials derived from the
use of such DPM Compounds will be used by SIGNAL solely for the testing of the
DPM Compounds in the Assays as specified in the Annual Research Plan and shall
be used for no other purpose. SIGNAL will promptly provide to DPM all data from
such testing of DPM Compounds as such data is developed. Upon expiration or
termination of the Research Project, SIGNAL shall, upon the request of
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DPM, return or destroy all compounds and other materials provided to SIGNAL by
DPM in the performance of the Research Project. DPM shall at all times own all
rights to the DPM Compounds it provides or discloses to SIGNAL hereunder,
including without limitation, all rights with respect to the manufacture, use or
sale of such DPM Compounds. Accordingly, SIGNAL agrees to: (i) disclose to DPM
any inventions it conceives or makes covering the manufacture, use, or sale of
DPM Compounds; (ii) assign to DPM all patent rights of SIGNAL covering the
manufacture, use, or sale of DPM Compounds; (iii) execute any necessary papers
and otherwise reasonably cooperate with DPM in securing such patent rights.
Anything to the contrary not withstanding, any such patent rights conveyed by
SIGNAL to DPM under this Section 3.10 shall be included in Collaboration Patent
Rights as set forth in (ii) of Section 1.9.
3.11 Subcontracts. Notwithstanding Section 3.1, subject to the
provisions of Article 8 and subject to the prior written approval of the RMC,
SIGNAL and DPM may subcontract portions of the Research Project to be performed
by them in the normal course of their business to a Third Party upon prior
written notice to the other; provided, however, that such Third Party has
entered into an appropriate confidentiality agreement with SIGNAL and/or DPM
obligating such Third Party to be bound by the obligations contained in this
Agreement.
ARTICLE 4
GRANT OF LICENSES
4.1 License Under Assay Technology. Subject to the terms and
conditions of this Agreement and during the Research Term and Extended Research
Term, and for a period of two (2) years following the Research Term and any
Extended Research Term, Signal grants to DPM a worldwide, exclusive (except as
to SIGNAL, as described below) license under the Assay Technology to conduct
screening of compounds in the Assays in the Field, including the right to grant
sublicenses solely to its Affiliates for such purposes. Notwithstanding the
preceding sentence, SIGNAL retains the right under the Assay Technology solely
to perform its obligations under this Agreement, including but not limited to
conducting screening of DPM Compounds and Signal Compound Libraries as
contemplated by and in accordance with the Research Plan, including the right to
grant sublicenses solely to its Affiliates for such purposes.
Subject to the terms and conditions of this Agreement, during the [***]
period after the Research Term and any Extended Research Term ("Post Research
Term"), SIGNAL shall have the right to conduct screening of Signal Compound
Libraries in the Assays. Any compound
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identified by DPM or by SIGNAL with the acceptance of DPM based upon use of the
Assays during such Post Research Term shall be a Compound subject to all of the
terms and conditions of this Agreement. Any such Compound identified by SIGNAL
or DPM during such Post Research Term shall be disclosed to the other party at
the time such Compound is identified.
For up to a [***] period after the Post Research Term referred to in the
preceding paragraph DPM will continue to pay for Compounds first identified,
continued or selected for development by DPM based upon use of the Assays during
or otherwise in the course of and as a result of the Collaboration as long as
the Assays are not in the public domain to be used by independent Third Parties.
During this additional extended period, the milestone and royalty payments set
forth in Sections 5.4.3, 5.4.4, 5.4.5 and 5.5 shall be equal to the amounts set
forth therein multiplied by:
[***] if such Compound is identified within the [***] after expiration
of the Post Research Term;
[***] if such Compound is identified between [***] after the expiration
of the Post Research Term.
After expiration of the Post Research Term, DPM has a non-exclusive,
fully paid-up license under the Assay Technology.
4.2 License Under Signal Technology and Collaboration Technology.
Subject to the terms and conditions of this Agreement, particularly Section 5.8,
SIGNAL hereby grants to DPM a worldwide, exclusive, royalty-bearing license
during the Royalty Term, with right to sublicense, under the SIGNAL Technology
and the Collaboration Technology to develop, make, have made, use, offer for
sale, sell, and import Compounds and Products in the Field, including the right
to grant sublicenses to Affiliates and Sublicensees.
DPM shall diligently pursue development of Products. If DPM ceases to
pursue diligently development and commercialization of at least one Product
during or subsequent to the Research Term, SIGNAL shall have the right to
terminate the license granted to DPM hereunder on a Product by Product basis in
the event SIGNAL disagrees with DPM on the reasons for ceasing development of
such Product. Upon termination of such license for any such terminated Product,
SIGNAL shall receive an exclusive license, with the right to grant sublicenses,
to all Collaboration Technology for such terminated Product and to
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make, have made, use, offer for sale, sell or import all Lead Compounds selected
from DPM's compound library relating thereto in the Field on terms and
conditions to be negotiated. In addition, if a compound is selected as a Lead
Compound from the SIGNAL Compound Library and DPM ceases to pursue diligently
development and commercialization of such compound, all rights to such Lead
Compound shall revert to SIGNAL.
4.3 [***] Option. During the period of eight (8) months following
the Effective Date [***], DPM shall have the option, upon commitment by DPM to
fund [***] additional SIGNAL FTEs for the duration of the Research Term and any
Extended Research Term, to expand the Collaboration, the definition of the Field
to include [***], and the definition of Assays to the [***] as set forth in
Appendix 1 hereto. In the event that DPM has not exercised such option by
providing notice to SIGNAL of its desire to exercise such option prior to the
expiration of the [***], then SIGNAL shall thereafter be free to license such
assays to a Third Party. If DPM exercises such option, DPM shall be responsible
for all milestone, royalty and other payments due under any SIGNAL License
Agreement with respect to any [***]
4.4 Sublicenses. DPM shall notify any permitted Sublicensee
hereunder of all rights and obligations of such party under this Agreement
licensed to such Sublicensee and require such Sublicensee to be bound by all of
the terms and conditions of this Agreement. Upon termination of this Agreement
by DPM pursuant to Section 10.2, no existing sublicenses shall be affected by
such termination as long as such sublicense is in compliance with all of the
terms and conditions of this Agreement, and all such sublicenses shall remain in
effect according to their terms shall be either (a) assigned to SIGNAL, if
acceptable to SIGNAL, or (b) continue as Sublicensees of DPM following such
termination.
4.5 No Other License. No right or license under any patent or patent
application is granted by DPM or SIGNAL under this Agreement, except as
specifically and expressly set forth herein.
4.6 Limitation on Right to Sublicense. DPM agrees not to sublicense
rights granted hereunder to either Merck & Company or E.I. duPont deNemours &
Company ("Parents," which term shall include any entity in which either Parent
has a controlling interest as defined below) without the written consent of
SIGNAL, such consent not to be unreasonably withheld. In the event DPM decides
to
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sublicense rights granted hereunder to a Parent, then DPM agrees it will do so
only under terms and conditions substantially the same as those it receives
through arms length negotiation with an independent third party. DPM agrees not
to sublicense rights granted hereunder to non-Affiliates in which DPM has a
controlling interest without the written consent of SIGNAL, such consent not to
be unreasonably withheld. For the purposes of this Section 4.6, an entity shall
be regarded as in DPM's control or a Parent's control if DPM or such Parent owns
or directly or indirectly controls more than twenty percent (20%) of the voting
stock or other ownership interest of the entity, or has the power to elect or
appoint more than twenty percent (20%) of the members of the governing body of
the entity. There shall be no other limitation on DPM's right to sublicense
except as expressed in this Section 4.6. DPM may sublicense its Affiliates
without SIGNAL's consent.
ARTICLE 5
PAYMENT OBLIGATIONS
5.1 License Fee. In partial consideration of the grant of the
licenses set forth in Article 4 above, DPM agrees to pay to SIGNAL within ten
(10) days of the Effective Date a one-time, non-refundable fee of $1.0 million.
In addition, DPM shall pay SIGNAL the amount of [***] within ten (10) days of
its receipt of the HCV Constructs as set forth under Section 3.6 hereof.
5.2 Equity Investment. In the event that, at any time during the
Research Term, SIGNAL completes an initial public offering of its Common Stock
("IPO"), DPM shall, as part of the IPO, purchase $2.0 million of shares of
Common Stock of SIGNAL in a private placement completed simultaneously with the
IPO and subject to Rule 144 of the Securities Act at a price per share equal to
the share price to the public in the IPO. Such equity investment shall be made
pursuant to a Stock Purchase Agreement substantially in the form attached hereto
as Appendix 7 (the "Stock Purchase Agreement").
5.3 Research Funding. DPM agrees to fund the Research Project at
SIGNAL, during the Research Term and any Extended Research Term on a fully
allocated FTE basis in an amount equal to [***] per FTE per year in accordance
with the FTE requirements set forth in the Annual Research Plan. Such amount
shall be payable in advance in four quarterly installments during each Calendar
Year on or before the end of the Calendar Quarter. Any payment for a portion of
a quarterly period shall
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be made on a pro rata basis. The first such payment shall be made within ten
(10) days the Effective Date. Such annual funding shall be reevaluated annually
and adjusted in proportion to the percentage increase in the Consumer Price
Index. Except as provided in this Section 5.3, or as may be agreed from time to
time by the parties in writing, each of SIGNAL and DPM will bear all of its own
expenses incurred in connection with the Collaboration. Research funding by DPM
shall be contingent upon SIGNAL providing and retaining the number of qualified
FTEs set forth in Section 3.3 and 3.4 (or adjusted for any shortfall on a
prorata basis), the applicable Annual Research Plan and SIGNAL using good faith
commercially reasonable and diligent efforts to achieve the goals of the Annual
Research Plan.
5.4 Milestone Payments. Within thirty (30) days after achievement of
each of the milestone events set forth below, subject to the terms and
conditions of this Agreement, DPM shall pay to SIGNAL the indicated
nonrefundable milestone payment, in cash or as an equity investment, as the case
may be, set forth below.
5.4.1 [***]
5.4.2 [***]
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5.4.3 Milestone Payments for HIV.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of HIV, DPM shall pay to SIGNAL:
[***]
For such Compounds developed for the prevention or treatment of
HIV infection, the milestone payments above shall be paid only [***]
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of HIV infection, DPM will
pay milestone payments not to exceed [***] as follows:
(i) [***]
(ii) [***]
5.4.4 Milestone Payments for HCV.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of HCV, DPM shall pay to SIGNAL:
(i) [***]
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(ii) [***]
(iii) [***]
(iv) [***]
For such Compounds developed for the prevention or treatment of
HCV infection, the milestone payments above shall be paid only once upon the
first occurrence of such milestone event.
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of HCV infection, DPM will
pay milestone payments not to exceed [***] as follows:
(i) [***]
(ii) [***]
5.4.5 Milestone Payments for [***]. In the event that DPM
exercises its option with respect to [***] and the [***] are included in the
definition of Assays hereunder, DPM shall pay the following milestone payments.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of [***], DPM shall pay to SIGNAL:
(i) [***]
(ii) [***]
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(iii) [***]
(iv) [***]
For such Compounds developed for the prevention or treatment of
[***], the milestone payments above shall be paid only once upon the first
occurrence of such milestone event.
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of [***], DPM will pay
milestone payments not to exceed [***] as follows:
[***]
5.5 Royalty Payments. Subject to the terms and conditions of this
Agreement, particularly Section 5.5.4, DPM shall pay to SIGNAL a royalty on Net
Sales of Product as set forth below.
5.5.1 Royalty on Products for HIV.
(a) DPM shall pay to SIGNAL the following royalty on Net
Sales of Products for the treatment or prevention of HIV as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***]
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(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.2 Royalty on Products for HCV.
(a) DPM shall pay to SIGNAL the following royalty on Net
Sales of Products for the treatment or prevention of HCV as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.3 Royalty on Products for [***].
(a) In the event that DPM exercises its option with respect
to [***] and the [***] Assays are included in the definition of Assays
hereunder, DPM shall pay to SIGNAL the following royalty on Net Sales of
Products for the treatment or prevention of [***] as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
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Product for aggregate annual Net Sales of such Product between [***] and [***];
(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and
[***]; and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.4 With respect to each Product such royalty payments shall
be payable on a country-by-country basis during the Royalty Term for such
Product in such country.
5.5.5 The royalties payable hereunder shall be subject to the
following conditions:
(i) subject to 5.5.6 and 5.5.7, only one royalty shall be due with
respect to the same unit of Product;
(ii) that no royalties shall be due upon the sale or other transfer
among DPM and its Affiliates, but in such cases the royalty shall be due
and calculated upon DPM's or its Affiliate's Net Sales of Product to the
first independent third party;
(iii) no royalties shall accrue on the disposition of Product in
reasonable quantities by DPM or its Affiliates as bona fide samples or
as donations to non-profit institutions or government agencies for
non-commercial purposes;
(iv) if a compulsory license is granted with respect to Product in
any country with a royalty rate lower than the royalty rate provided
above, then the royalty rate to be paid by DPM shall be [***]; and
(v) notwithstanding the above royalty rates, upon DPM's request, the
parties agree to discuss in good faith a reduction (without any
obligation to agree to such a reduction) of such royalty rate in any
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given country in the event the level of development, patent protection
or general commercial environment affects the commercial viability of
the Product under such royalty rate.
5.5.6 Sales by Distributors in Distributor Markets. In the
case of sales of Product by any Distributor in any Distributor Market, to the
extent that SIGNAL is obligated under any Signal License Agreement to pay
royalty payments on such sales of Product by Distributors in Distributor
Markets, then, in addition to any royalty amounts payable to SIGNAL under
Section 5.5.1, 5.5.2 or 5.5.3, DPM shall pay to SIGNAL an amount equal to the
amount SIGNAL is obligated to pay and actually pays to its licensors with
respect to such Distributor sales under such Signal License Agreement, provided
however, that such amount payable by DPM to SIGNAL under this Section 5.5.6
shall in no event exceed [***] of the applicable annual Pass-Through Net Sales
of Product by such Distributor. In no event, however, shall the total royalties
paid to SIGNAL under this Section 5.5.6 be higher than what they would have been
if calculated on sales to the ultimate third party as set forth in Sections
5.5.1, 5.5.2, and 5.5.3 as if DPM marketed the Product to the ultimate third
party itself rather than through a Distributor. See Appendix 4 for example
calculations.
5.5.7 Sales by Sublicensees.
(a) In the event that DPM licenses or sublicenses the right
to sell Product to a Sublicensee and DPM does not supply and sell Compound or
Product to such Sublicensee, then DPM shall pay to SIGNAL [***] of all
Sublicensing Revenue that DPM receives from such Sublicensee.
(b) In the event that DPM licenses or sublicenses the right
to sell Product to a Sublicensee and DPM supplies and sells Compound or Product
to such Sublicensee, then the term "Net Sales" in Section 5.5.1, 5.5.2 and 5.5.3
with respect to such Compound or Product sold by DPM to such Sublicensee shall
include any payments received by DPM from such Sublicensee based on sales of
Product by such Sublicensee.
(c) To the extent that SIGNAL is obligated under any Signal
License Agreement to pay royalty payments on sales of Product by any
Sublicensee, then, in addition to any royalty amounts payable to SIGNAL under
Section 5.5.1, 5.5.2, 5.5.3, 5.5.7(a) or 5.5.7(b), DPM shall pay to SIGNAL an
amount equal to the amount SIGNAL is obligated to pay and actually pays to its
licensors with respect to such Sublicensee
***Confidential Treatment Requested
<PAGE> 27
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sales under such Signal License Agreement, provided however, that such amount
payable by DPM to SIGNAL under this Section 5.5.7 shall in no event exceed [***]
based on sales of Product by such Sublicensee. In no event, however, shall the
total royalties paid to SIGNAL under this Section 5.5.7 be higher than what they
would have been if calculated on sales to the ultimate third party as set forth
in Sections 5.5.1, 5.5.2, and 5.5.3 as if DPM marketed the Product to the
ultimate third party itself rather than through a Sublicensee. See Appendix 4
for example calculations.
5.6 Signal License Agreements. Unless otherwise specified in this
Agreement SIGNAL shall be responsible for all payment obligations, costs and
expenses with respect to the Signal License Agreements, including but not
limited to, any upfront payments, license maintenance fees, milestone payments,
royalty payments and legal fees and disbursements.
5.7 Third Party Patents. If DPM in its reasonable judgment and after
consultation with SIGNAL is required to obtain a license from a non-Affiliated
third party under a valid claim of a dominating patent in order to import,
manufacture, use or sell a Product or Compound, and to pay a royalty under such
license, and the infringement of such patent cannot reasonably be avoided by
DPM, the reasonableness of which shall be determined mutually by DPM and SIGNAL,
DPM's obligation to pay royalties under Section 5.5 shall be reduced by [***]
the amount of the royalty actually paid to such third party, provided, however,
that the royalties payable under Section 5.5 shall not be reduced in any event
below [***] of the amounts paid according to Section 5.5. In addition, if DPM is
required to pay up-front payments and/or milestone payments in consideration for
such license, then the milestone payments under Section 5.4 shall be reduced by
[***] the amount of the up-front payments and milestone payments paid to such
third party, provided, however, that the amount of such up-front payments and
milestone payments paid to such third party shall not be reduced in any event
below [***] of the amounts set forth in Section 5.4.
5.8 Paid-up License. For each country, upon expiration of DPM's
obligation to pay royalties hereunder with respect to a Product, DPM shall have
a fully paid-up, non-exclusive license under any Signal Know-How or Signal
Patent Rights, to make, have made, use, sell, offer for sale and import the
applicable Product in that country.
***Confidential Treatment Requested
<PAGE> 28
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ARTICLE 6
PAYMENTS; RECORDS; AUDITS
6.1 Payment; Reports. Royalty payments and reports for the sale of
Products shall be calculated and reported for each Calendar Quarter. All royalty
payments due to SIGNAL under this Agreement shall be paid within sixty (60) days
of the end of each Calendar Quarter, unless otherwise specifically provided
herein. Each payment of royalties shall be accompanied by a report of Net Sales
of Products in sufficient detail to permit confirmation of the accuracy of the
royalty payment made, including, without limitation, the number of Products
sold, the gross sales and Net Sales of Products, the royalties, in U.S. dollars,
payable, the method used to calculate the royalty and the exchange rates used.
6.2 Exchange Rate; Manner and Place of Payment. All payments
hereunder shall be payable in U.S. dollars. With respect to each quarter, for
countries other than the United States, whenever conversion of payments from any
foreign currency shall be required, such conversion shall be made at the rate of
exchange reported in The Wall Street Journal on the last business day of the
applicable reporting period. All payments owed under this Agreement shall be
made by wire transfer, unless otherwise specified by SIGNAL.
6.3 Late Payments. In the event that any payment, including royalty,
milestone and research payments, due hereunder is not made when due, the payment
shall accrue interest from the date due at the rate of 1.5% per month; provided,
however, that in no event shall such rate exceed the maximum legal annual
interest rate. The payment of such interest shall not limit SIGNAL from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6.4 Records and Audits. During the Term and for a period of two (2)
years thereafter, DPM shall be obligated to keep complete and accurate records
pertaining to the development and sale or other disposition of Products in
sufficient detail to permit SIGNAL to confirm the accuracy of all payments due
hereunder. SIGNAL shall have the right to cause an independent, certified public
accountant of nationally recognized standing reasonably acceptable to DPM to
audit such records to confirm Net Sales and royalty and other payments for the
preceding year. Such audits may be exercised during normal business hours once a
year upon at least thirty (30) working days' prior written notice to DPM. SIGNAL
shall bear the full cost of such audit unless such audit correctly discloses a
variance of more than 10% from the amount of the Net Sales or royalties or other
payments
<PAGE> 29
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due under this Agreement. In such case, DPM shall bear the full cost of such
audit. DPM's obligation to retain such records shall expire two (2) years after
a payment has been made. DPM shall include in each sublicense granted by it
pursuant to this Agreement and in each distribution agreement with a Distributor
in a Distributor Market, a provision requiring the Sublicensee and the
Distributor to make reports to DPM, to keep and maintain books and records of
sales made pursuant to such sublicense and distribution agreement, and to grant
access to such books and records by DPM's independent accountant to the same
extent and under the same obligations as required by DPM under this Agreement.
SIGNAL shall treat all financial information subject to review under
this Section in accordance with the confidentiality provisions of this
Agreement, and shall cause its accounting firm to enter into an acceptable
confidentiality agreement with DPM obligating it to retain all such financial
information in confidence pursuant to such confidentiality agreement.
6.5 Taxes. All turnover and other taxes levied on account of the
royalties and other payments accruing to SIGNAL under this Agreement shall be
paid by SIGNAL for its own account, including taxes levied thereon as income to
SIGNAL. If provision is made in law or regulation for withholding, such tax
shall be deducted from the royalty or other payment made by DPM to the proper
taxing authority and a receipt of payment of the tax secured and promptly
delivered to SIGNAL. Each party agrees to assist the other party in claiming
exemption from such deductions or withholdings under any double taxation or
similar agreement or treaty from time to time in force.
6.6 Prohibited Payments. Notwithstanding any other provision of this
Agreement, if DPM is prevented from paying any such royalty by virtue of the
statutes, laws, codes or governmental regulations of the country from which the
payment is to be made, then such royalty may be paid by depositing funds in the
currency in which accrued to SIGNAL's account in a bank acceptable to Signal in
the country whose currency is involved.
ARTICLE 7
PATENT RIGHTS AND INFRINGEMENT
7.1 Ownership of Patent Rights. SIGNAL shall own all inventions
invented solely by employees or agents of SIGNAL or its Affiliates in connection
with the Collaboration and all Patent Rights claiming such inventions. DPM shall
own all inventions invented solely by employees or agents of DPM or its
Affiliates in connection with the Collaboration and all
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Patent Rights claiming such inventions. All inventions invented jointly by
employees or agents of SIGNAL and DPM or their respective Affiliates in
connection with the Collaboration, and all Patent Rights claiming such
inventions shall be owned jointly by DPM and SIGNAL as Collaboration Patents
Rights. Inventorship shall be determined under U.S. patent law.
7.2 Prosecution and Maintenance of Patent Rights.
(a) It is the intention of the parties to secure broad
patent protection for discoveries and inventions made in connection with the
Collaboration. SIGNAL shall be responsible for the filing, prosecution and
maintenance of all SIGNAL Patent Rights and all patent applications and patents
covering any inventions owned solely by SIGNAL under Section 7.1. DPM shall be
responsible for the filing, prosecution and maintenance of all patent
applications and patents covering any inventions owned solely by DPM under
Section 7.1. Each party shall consider in good faith the requests and
suggestions of the other party with respect to strategies for filing and
prosecuting such patent applications. The inventing party shall keep the other
party informed of progress with regard to the filing, prosecution, maintenance,
enforcement and defense of patents applications and patents subject to this
Section 7.2(a).
(b) In the case of Collaboration Patent Rights, the parties
shall agree on the allocation of responsibility for the preparation, filing,
prosecution, and maintenance of any such Collaboration Patent Rights. The party
controlling a Collaboration Patent Right shall consult with the other party as
to the preparation, filing, prosecution, and maintenance of such Collaboration
Patent Right reasonably prior to any deadline or action with the U.S. Patent &
Trademark Office or any foreign patent office, and shall furnish to the other
party copies of all relevant documents reasonably in advance of such
consultation. In the event that the party controlling a Collaboration Patent
Right desires to abandon such Collaboration Patent Right, or if the party
assuming control of a Collaboration Patent Right later declines responsibility
for such Collaboration Patent Right, the controlling party shall provide
reasonable prior written notice to the other party of such intention to abandon
or decline responsibility, and such other party shall have the right, at its
expense, to prepare, file, prosecute, and maintain any Collaboration Patent
Rights. The costs for the preparation, filing, prosecution and maintenance of
Collaboration Patent Rights shall be shared on a 50/50 basis; however, neither
party shall be subject to any internal costs for work done in-house by the other
party.
(c) Each party will promptly disclose to the other party
such inventions arising from or made in the performance of the Research Project
and any patent or patent applications claiming such inventions, to the extent
that such inventions are necessary or useful to the Research Project or the
rights licensed hereunder.
<PAGE> 31
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(d) In no event will the Signal Patent Rights be abandoned
without DPM first being given an opportunity to maintain such Signal Patent
Rights. In the event that SIGNAL decides not to continue the prosecution or
maintenance of a patent application or patent within the Signal Patent Rights in
a country, SIGNAL shall provide DPM with prior written notice of this decision
and cooperate with DPM so as to provide DPM reasonable opportunity to assume
full responsibility for the continued prosecution or maintenance of such patent
application or patent. In such event that SIGNAL desires to discontinue
maintenance or prosecution of the Signal Patent Rights, SIGNAL agree to then
assign such SIGNAL Patent Rights to DPM at no cost.
7.3 Cooperation of the Parties. Each party agrees to cooperate fully
in the preparation, filing, and prosecution of any Collaboration Patent Rights
under this Agreement. Such cooperation includes, but is not limited to:
(a) executing all papers and instruments, or requiring its
employees or agents, to execute such papers and instruments, so as to effectuate
the ownership of Patent Rights set forth in Section 7.1 above and to enable the
other party to apply for and to prosecute patent applications in any country;
and
(b) promptly informing the other party of any matters coming
to such party's attention that may affect the preparation, filing, or
prosecution of any such patent applications.
7.4 Infringement by Third Parties.
(a) SIGNAL and DPM each shall immediately give notice to the
other of any potential infringement by a third party of any Signal Patent Rights
or Collaboration Patent Rights in the Field of which they become aware or of any
certification of which they become aware filed under the United States "Drug
Price Competition and Patent Term Restoration Act of 1984" claiming that any
Signal Patent Rights or Collaboration Patent Rights covering any Product are
invalid or unenforceable or that infringement will not arise from the
manufacture, use or sale of Product by a third party.
(b) DPM as exclusive licensee with respect to the Signal
Patent Rights will have the right in the Field to bring suit or other proceeding
at its expense against the infringer in its own name or in the name of SIGNAL
where necessary, after consultation with SIGNAL. SIGNAL shall be kept advised
<PAGE> 32
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at all times of such suit or proceedings brought by DPM. SIGNAL may, in its
discretion and at its expense, join DPM as party to the suit or other
proceeding, provided that DPM shall retain control of the prosecution of such
suit or proceedings in such event. DPM has the right to approve of any outside
counsel selected by SIGNAL. SIGNAL agrees to cooperate with DPM in its efforts
to protect Signal Patent Rights, including joining as a party where necessary.
(c) If DPM does not bring suit or other proceeding against
the infringer, SIGNAL may in its discretion, bring suit or other proceeding at
its expense against the infringer, provided however, that SIGNAL shall first
consult with DPM as to whether such act(s) by a third party reasonably
constitute infringement and whether it is commercially advisable to bring such
suit or proceeding, as reasonably determined by DPM. DPM shall be kept advised
at all times of such suit or proceedings brought by SIGNAL. DPM may, in its
discretion and at its expense, join SIGNAL as party to the suit or other
proceeding, provided that SIGNAL shall retain control of the prosecution of such
suit or proceedings in such event. SIGNAL has the right to approve of any
outside counsel selected by DPM. DPM agrees to cooperate with SIGNAL in its
efforts to protect SIGNAL Patent Rights, including joining as a party where
necessary.
(d) Neither party shall have the right to settle any patent
infringement litigation under this Section 7.4 in a manner that diminishes the
rights or interests of the other party without the consent of the other party.
(e) Each party will bear its own expenses with respect to
any suit or other proceeding against an infringer. Any recovery in connection
with such suit or proceeding will first be applied to reimburse SIGNAL and DPM
for their out-of-pocket expenses, including attorney's fees. The party
controlling the suit will retain the balance of any recovery. However, if
damages are awarded to DPM based on lost sales or profit then DPM shall pay to
SIGNAL royalties that it would have paid had DPM made the sales.
7.5 Infringement of Third Party Rights. DPM and SIGNAL shall
promptly notify the other in writing of any allegation by a Third Party that the
activity of either of the parties in the Field infringes or may infringe the
intellectual property rights of such Third Party. DPM shall have the first right
to control any defense of such claim at its own expense and by counsel of its
own choice, and SIGNAL shall have the right, at its own expense, to be
represented in any such action by counsel of its own choice. If DPM fails to
proceed in a timely fashion with regard to such defense, SIGNAL shall have the
right to control any such defense of such claim at its
<PAGE> 33
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own expense and by counsel of its own choice, and DPM shall have the right, at
its own expense, to be represented in any such action by counsel of its own
choice. Neither party shall have the right to settle any patent infringement
litigation under this Section 7.5 in a manner that diminishes the rights or
interests of the other party without the consent of such other party.
7.6 Patent Term Extension. SIGNAL shall cooperate with DPM in
obtaining patent term restoration or supplemental protection certificates or
their equivalents in any country with respect to the Signal Patent Rights. In
the event that elections with respect to obtaining such patent term restoration,
supplemental protection certificates or their equivalents are to be made, DPM
shall have the right to make the election and SIGNAL agrees to abide by such
election.
ARTICLE 8
CONFIDENTIALITY
8.1 Nondisclosure. The Confidential Disclosure Agreement between the
parties dated November 11, 1996, is hereby incorporated into this Agreement;
and, the obligations therein will be further subject to the terms and conditions
of this Agreement. During the Research Term and any Extended Research Term and
for a period of five (5) years thereafter, each party will maintain all
Confidential Information in trust and confidence and will not disclose any
Confidential Information to any Third Party or use any Confidential Information
for any purpose except (a) as expressly authorized by this Agreement, (b) as
required by law or court order, or (c) to its Affiliates. Each party may use
such Confidential Information only to the extent required to accomplish the
purposes of this Agreement. Each party will use at least the same standard of
care as it uses to protect proprietary or confidential information of its own to
ensure that its Affiliates, employees, agents, consultants and other
representatives do not disclose or make any unauthorized use of the Confidential
Information. Each party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Confidential Information.
8.2 Exceptions. Confidential Information shall not include any
information which the receiving party can prove by competent evidence:
(a) is now, or hereafter becomes, through no act or failure
to act on the part of the receiving party, generally known or available;
(b) is known by the receiving party at the time of receiving
<PAGE> 34
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such information, as evidenced by its records;
(c) is hereafter furnished to the receiving party by a Third
Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving party
without the aid, application or use of Confidential Information; or
(e) is the subject of a written permission to disclose
provided by the disclosing party.
8.3 Publications. Each party to this Agreement recognizes that the
publication of papers regarding results of Collaboration hereunder, including
oral presentations and abstracts, may be beneficial to both parties provided
such publications are subject to reasonable controls to protect Confidential
Information. In particular, it is the intent of the parties to maintain the
confidentiality of any Confidential Information included in any foreign patent
application until such foreign patent application has been published.
Accordingly, each party shall have the right to review and approve any paper
proposed for publication by the other party, including oral presentations and
abstracts, which utilizes data generated from the Collaboration and/or includes
Confidential Information of the other party. Before any such paper is submitted
for publication, the party proposing publication shall deliver a complete copy
to the other party at least sixty (60) days prior to submitting the paper to a
publisher. The receiving party shall review any such paper and give its comments
to the publishing party within twenty (20) days of the delivery of such paper to
the receiving party. The publishing party shall comply with the other party's
request to delete references to such other party's Confidential Information in
any such paper and agrees to withhold publication of same for an additional
ninety (90) days in order to permit the parties to obtain patent protection, if
either of the parties deem it necessary, in accordance with the terms of this
Agreement. With respect to oral presentation materials and abstracts, the
parties shall make reasonable efforts to expedite review of such materials and
abstracts, and shall return such items as soon as practicable to the publishing
party with appropriate comments, if any, but in no event later than thirty (30)
days from the date of delivery to the receiving party.
<PAGE> 35
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ARTICLE 9
REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations and Warranties.
(a) Each party hereby represents and warrants that it is
duly organized and validly existing under the laws of the state of its
incorporation and that it has the corporate power and authority to enter into
this Agreement and to carry out the provisions hereof.
(b) Each party hereby represents and warrants that it is
duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
(c) Each party hereby represents and warrants (i) that this
Agreement is a legal and valid obligation binding upon it and is enforceable in
accordance with its terms, (ii) that the execution, delivery and performance of
this Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having authority over it, (iii) and that it is
not aware of any impediment which would inhibit its ability to perform the terms
and conditions imposed on it by this Agreement.
(d) Each party warrants that it has enforceable written
agreements with all of its employees who receive Confidential Information under
this Agreement assigning to such party ownership of all intellectual property
rights created in the course of their employment.
(e) SIGNAL warrants that the only license agreements it has
as of the Effective Date within the scope of this Agreement are with [***] by
which SIGNAL acquired rights to [***] library of compounds, and [***] HCV
Constructs.
(f) SIGNAL warrants that there is no infringement of [***]
U.S. Patents granted prior to the Effective Date which relate to HCV protease.
(g) SIGNAL warrants that it owns or possesses adequate
licenses or other rights to use all SIGNAL Technology necessary to the conduct
of the Collaboration. As of the Effective Date, no claim is pending or, to the
best of SIGNAL's knowledge, threatened, to the effect that any SIGNAL Patent
Rights owned or licensed by SIGNAL, or which SIGNAL otherwise has the right to
use, is invalid or unenforceable by SIGNAL,
***Confidential Treatment Requested
<PAGE> 36
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and, to the best of SIGNAL's knowledge, there is no basis for any such claim
(whether or not pending or threatened). To the best of SIGNAL's knowledge, all
SIGNAL Know-How developed by and belonging to SIGNAL for which patent protection
has not been sought has been kept confidential. SIGNAL has not granted or
assigned to any Third Party any right to manufacture, have manufactured,
assemble or sell any Compound or Product.
9.2 Disclaimer of Warranties. Neither party guarantees the safety or
usefulness of any Product. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY
NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9.3 Indemnification.
9.3.1 Indemnification by SIGNAL. SIGNAL shall defend,
indemnify, and hold harmless DPM and its directors, officers, agents, parent
companies, affiliates, and employees, from and against any and all claim, loss,
damage, liability, injury (including death), cost or expense, including without
limitation expenses of litigation and reasonable attorneys' fees, in connection
with any claims made or suits brought against DPM relating to this Agreement
which are alleged to arise from the negligence, willful misconduct, or material
breach of this Agreement by SIGNAL, its Affiliates, subcontractors or agents;
provided however that SIGNAL shall not be obligated to provide indemnification
hereunder to the extent that any such claim, loss, damage, liability, injury,
cost or expense results from the negligence, willful misconduct, or material
breach of this Agreement by DPM.
9.3.2 Indemnification by DPM. DPM shall at all times during
the term of this Agreement and thereafter, indemnify, defend and hold SIGNAL,
its directors, agents, officers, employees and affiliates, from and against any
and all claim, loss, damage, liability, injury (including death), cost or
expense, including without limitation expenses of litigation and reasonable
attorneys' fees, in connection with any claims made or suits brought against
SIGNAL relating to this Agreement and alleged to arise: (i) from the negligence,
willful misconduct, or material breach of this Agreement by DPM, its Affiliates,
subcontractors or agents or (ii) out of the death of or injury to any person or
persons or out of any damage to property and resulting from the production,
manufacture, sale, use, lease,
<PAGE> 37
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consumption or advertisement of Product; provided however that DPM shall not be
obligated to provide indemnification hereunder to the extent that any such
claim, loss, damage, liability, injury, cost or expense results from the
negligence, willful misconduct, or material breach of this Agreement by SIGNAL.
9.3.3 Procedure. Should a party or any of its officers,
agents, parent companies, affiliates, or employees (the "Indemnitee") intend to
claim indemnification under this Article, such Indemnitee shall promptly notify
the other party (the "Indemnitor") in writing of any alleged loss, claim,
damage, liability or action in respect of which the Indemnitee intends to claim
such indemnification, and the Indemnitor shall be entitled to assume the defense
thereof with counsel selected by the Indemnitor and approved by the Indemnitee,
such approval not to be unreasonably withheld; provided, however, that if
representation of Indemnitee by such counsel first selected by the Indemnitor
would be inappropriate due to a conflict of interest between such Indemnitee and
any other party represented by such counsel, then Indemnitor shall select other
counsel for the defense of Indemnitee, with the fees and expenses to be paid by
the Indemnitor, such other counsel to be approved by Indemnitee and such
approval not to be unreasonably withheld. The indemnity agreement in this
Article shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor, which consent shall not be withheld unreasonably. The failure
to deliver notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article, but the omission so to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnitee otherwise than
under this Article. The Indemnities under this Article, its employees and
agents, shall cooperate fully with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by this
indemnification.
Article 10
Term And Termination
10.1 Term. This Agreement shall commence as of the Effective Date
and, unless sooner terminated as provided herein, shall expire as of the end of
the Royalty Term.
10.2 Termination for Cause. Either party may terminate this Agreement
upon sixty (60) days' written notice upon the occurrence of any
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of the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of
this Agreement by the other party by causes and reasons within its control, as
shown by credible evidence, if the breaching party has not commenced to cure
such breach within sixty (60) days after notice thereof by the other party.
10.3 Effect of Expiration or Termination.
(a) Expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such expiration or
termination. Without limiting the foregoing, except as set forth in this
Agreement, the obligations and rights of the parties under Articles 5 and 8,
Sections 6.4, 9.2, 9.3 and 10.3 and Articles 12 and 13 shall survive termination
or expiration of this Agreement.
(b) Following the expiration of the Research Term and any
Extended Research Term, (i) the parties will continue to collaborate on the same
terms and conditions for Compounds and Products in development as of the last
day of the Research Term and any Extended Research Term, (ii) the RMC will
continue to manage the Research Project until the date on which the last
Compound and Product in development as of the last day of the Research Term and
any Extended Research Term commences a Phase I clinical trial, and (iii) without
limitation, the rights and obligations of the parties with respect to such
Products under Sections 4.1, 4.2, 4.4, 5.4, 5.5 and 5.6 and Articles 6 and 7
shall survive through the end of the Royalty Term.
(c) Without limiting any remedies otherwise available to
DPM, if DPM terminates this Agreement for cause pursuant to Section 10.2, (a)
all licenses set forth in Article 4 shall continue for so long as DPM is not in
breach of its obligations to pay to SIGNAL all milestone payments and royalty
payments in accordance with this Agreement and complies with the provisions of
Article 6 of this Agreement, and (b) SIGNAL shall return to DPM any Confidential
Information of DPM.
(d) Without limiting any remedies otherwise available to
SIGNAL, if SIGNAL terminates this Agreement for cause pursuant to
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Section 10.2, (a) all licenses granted by SIGNAL to DPM hereunder shall
terminate and revert to SIGNAL, and (b) DPM shall return to SIGNAL any
Confidential Information of SIGNAL.
10.4. Failure to Pursue. If DPM is not diligently pursuing the
development of at least one Product using good faith commercially reasonable
efforts in accordance with industry standards and consistent with the usual
practice followed by DPM in pursuing the development of its other similar
pharmaceutical products, then SIGNAL shall have the right to terminate the
license right granted to DPM pursuant to Article 4 only with respect to such
Product which SIGNAL asserts is not being diligently pursued by DPM. SIGNAL
shall not have the right to terminate under this Section 10.4 with respect to
such Product unless (a) DPM is given ninety (90) days prior written notice by
SIGNAL of SIGNAL's intent to terminate with respect to such Product, stating the
reasons and justification for such termination and recommending steps which DPM
should take in such development, and (b) DPM has not taken good faith
commercially reasonable steps during such ninety (90) day period to diligently
pursue development of such Product. Notwithstanding the foregoing, SIGNAL shall
in no event have the right to terminate such license for such Product if the
development of such Product is not being pursued on the basis that a competitive
product is being diligently developed by DPM pursuant to this Agreement, or that
such Product is deemed by DPM unlikely to yield satisfactory results in clinical
trials or regulatory submissions, or that such Product is believed by DPM to be
commercially unattractive. In the event SIGNAL disagrees with the reasons why
DPM is not pursuing such Product, SIGNAL can so notify DPM and the further
development and commercialization of such Product may be undertaken by SIGNAL at
its risk and expense, and subject to SIGNAL negotiating a license with DPM under
Collaboration Technology for such Product as set forth in Section 4.2, second
paragraph.
10.5. Failure to Retain Qualified Scientists. DPM may terminate this
Agreement upon ninety (90) days prior written notice in the event that SIGNAL is
unable to retain sufficient qualified researchers to provide commercially
reasonable support for the Research Project.
ARTICLE 11
PUBLICITY
11.1 Publicity Review. DPM and SIGNAL will jointly discuss and agree,
based on the principles of Section 11.2, on any statement to the
<PAGE> 40
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public regarding the execution and the subject matter of this Agreement or any
other aspect of this Agreement, except with respect to disclosures required by
law or regulation. Promptly following the Effective Date, the parties shall
issue a joint press release, which press release shall not refer to any
contingent payments in aggregate. Neither party shall use the name of the other
party in any public statement, prospectus, annual report, or press release
without the prior written approval of the other party, which approval shall not
be unreasonably withheld or delayed, provided, however, that both parties shall
endeavor in good faith to give the other party a minimum of five business days
to review such press release, prospectus, annual report, or other public
statement; and provided, further, that either party may use the name of the
other party in any public statement, prospectus, annual report, or press release
without the prior written approval of the other party, if such party is advised
by counsel that such disclosure is required to comply with applicable law.
However, any such use of the name of the other party shall be submitted to that
party in advance of such use in order to make any reasonable, good faith
modifications.
11.2 Standards. In the discussion and agreement referred to in
Section 11.1, the principles observed by DPM and SIGNAL will be accuracy, the
requirements for confidentiality under Article 8, the advantage a competitor of
DPM or SIGNAL may gain from any public or Third Party statements under Section
11.1, the requirements of disclosure under any securities laws or regulations of
the United States, including those associated with public offerings, and the
standards and customs in the pharmaceutical industry for such disclosures by
companies comparable to DPM and SIGNAL.
ARTICLE 12
DISPUTE RESOLUTION
12.1 Disputes. The parties recognize that disputes as to certain
matters may from time to time arise which relate to either party's rights and/or
obligations hereunder. It is the objective of the parties to establish
procedures to facilitate the resolution of such disputes in an expedient manner
by mutual cooperation and without resort to litigation.
Any disputes arising between the parties relating to, arising out of or
in any way connected with the Agreement or any term or condition hereof, or the
performance by either party of its obligations hereunder (including any disputes
between the representatives of SIGNAL and DPM on the RMC), whether before or
after termination of the Agreement, ("Disputes") will be resolved as set forth
in this Section. Any Dispute between
<PAGE> 41
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representatives of SIGNAL and DPM shall be resolved by the RMC. Failing
resolution of such Dispute by the RMC, or in the event of a Dispute between
representatives of SIGNAL and DPM on the RMC, the Dispute will be presented to
the chief executive officers of DPM and SIGNAL, who shall attempt in good faith
to promptly resolve such Dispute. If such chief executive officers are unable to
resolve such Dispute, any litigation instituted by DPM shall, unless otherwise
agreed to in writing by SIGNAL, be filed in a California federal or state court
and any litigation instituted by SIGNAL shall, unless otherwise agreed to in
writing by DPM, be filed in a Delaware federal or state court.
ARTICLE 13
MISCELLANEOUS
13.1 Activities Outside of Collaboration. Except as otherwise
specifically provided herein, all activities of the parties outside of the
Collaboration are outside of the scope of this Agreement and nothing herein is
intended to limit SIGNAL or its Affiliates from using the SIGNAL Technology for
other purposes.
13.2 Assignment.
(a) Either party may assign any of its rights or obligations
under this Agreement in any country to any Affiliates; provided, however, that
such assignment shall not relieve the assigning party of its responsibilities
for performance of its obligations under this Agreement.
(b) This Agreement may not be assigned or otherwise
transferred by either party, except to Affiliates, without the consent of the
other party; provided, however, that DPM or SIGNAL may, without such consent,
assign this Agreement and its rights and obligations hereunder to its Affiliates
and parent corporations, or in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction; and provide further,
that in the event of such a transaction, no intellectual property rights of the
acquiring corporation shall be included in the technology licensed hereunder
except with the approval of the acquiring corporation.
(c) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties. Any assignment
not in accordance with this Agreement shall be void.
<PAGE> 42
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13.3 Force Majeure. Neither party shall lose any rights hereunder or
be liable to the other party for damages or losses on account of failure of
performance by the defaulting party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting party; provided,
however, that the party claiming force majeure has exerted all reasonable
efforts to avoid or remedy such force majeure.
13.4 Notices. Any notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by facsimile on such date, with paper copy being sent by certified
first class mail, postage prepaid, or by next day express delivery service,
addressed to it at its address below (or such address as it shall designate by
written notice given to the other party).
In the case of DPM:
President, DuPont Merck Research Laboratories
The DuPont Merck Pharmaceutical Company
Experimental Station, Bldg. 400
Wilmington, Delaware 19880-0400
(fax number: 302-992-3040)
with copy to:
Associate General Counsel
Legal Department
The DuPont Merck Pharmaceutical Company
974 Centre Road, DuPont Merck Plaza, WR722
Wilmington, Delaware 19807-2802
(fax number: 302-892-8536)
In the case of SIGNAL:
Chief Executive Officer
Signal Pharmaceuticals Inc.
5555 Oberlin Drive
San Diego, CA 92121
<PAGE> 43
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(fax number: 619-558-7513)
with a copy to:
Frederick T. Muto, Esquire
Cooley Godward LLP
4365 Executive Drive
San Diego, CA 92121
(fax number: 619-453-3555)
13.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without reference to any
rules of conflict of laws, except that all questions concerning the construction
or effect of patent rights will be construed in accordance with the laws of the
country granting those rights.
13.6 Waiver. Except as specifically provided for herein, the waiver
from time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such party's rights or remedies provided in
this Agreement.
13.7 Severability. If any term, covenant or condition of this
Agreement or the application thereof to any party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (a) the remainder of this
Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
13.8 Independent Contractors. It is expressly agreed that SIGNAL and
DPM shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership or agency of any kind. Neither SIGNAL
nor DPM shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior written
<PAGE> 44
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authorization of the party to do so.
13.9 Entire Agreement. This Agreement sets forth all of the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the parties hereto with respect to the subject matter
hereof and supersedes and terminates all prior agreements and understanding
between the parties, except all obligations of the parties under the
Confidential Disclosure Agreement referenced in Section 8.1 survive and are
subject to further terms and conditions of this Agreement. There are no
covenants, promises, agreements, warranties, representations conditions or
understandings, either oral or written, between the parties other than as set
forth herein and therein. No subsequent alteration, amendment, change or
addition to this Agreement shall be binding upon the parties hereto unless
reduced to writing and signed by the respective authorized officers of the
parties.
13.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 EEOC Compliance. SIGNAL agrees to comply with the following
Equal Employment Opportunity Compliance statement:
(a) SIGNAL will not discriminate against any individual
performing of behalf of SIGNAL under this Agreement because of race, religion,
sex, age within statutory limits, disability, national origin, or veteran
status. SIGNAL agrees to post in conspicuous places notices setting forth the
provisions of this non-discrimination clause.
(b) SIGNAL will, in all solicitation or advertisements for
candidates or applicants for employment with SIGNAL and involving the
performance of this Agreement, state that all qualified applicants will receive
consideration for employment without regard to race, religion, sex, age within
statutory limits, national origin, disability or veteran status.
(c) In the event of SIGNAL non-compliance with these
non-discrimination clauses or with any laws, rules, regulations, or orders, this
Agreement may be canceled, terminated, or suspended at the discretion of DPM in
accordance with Section 10.2.
SIGNAL warrants that it has complied with all applicable laws, rules, orders and
regulations covering services specified herein, including but not limited to
Executive Order 11246 (and the rules and regulations promulgated thereunder),
the Rehabilitation Act of 1973 and the Vietnam Era Veterans Readjustment Act of
1974.
<PAGE> 45
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13.12 Use of Trade Names. Subject to Section 11.1, neither party will,
without prior written consent of the other party, use any trademark or trade
name owned by the other party, or owned by an Affiliate or Parent corporation of
the other party, in any publication, publicity, advertising, or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized officers as of the date first above
written.
THE DUPONT MERCK PHARMACEUTICAL SIGNAL PHARMACEUTICALS, INC.
COMPANY
By: [SIG] By: /s/ ALAN LEWIS
--------------------------------- -----------------------------------
Name: President & CEO Name: Alan Lewis
------------------------------- ---------------------------------
Title: December 26, 1997 Title: PRES/CEO
------------------------------ --------------------------------
<PAGE> 46
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Appendix 1
[***]
***Confidential Treatment Requested
<PAGE> 47
Appendix 2
List of HCV Constructs
[***]
***Confidential Treatment Requested
<PAGE> 48
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Appendix 3
Signal Compound Libraries
[***]
***Confidential Treatment Requested
<PAGE> 49
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Appendix 4
Example 1
[***]
***Confidential Treatment Requested
<PAGE> 50
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Appendix 5
Signal License Agreement
[***]
***Confidential Treatment Requested
<PAGE> 51
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Appendix 6
Signal Patent Rights
None as of the Effective Date.
<PAGE> 52
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Schedule A
Collaboration Patent Rights or
Signal Patent Rights
None as of the Effective Date
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.44
STOCK PURCHASE AGREEMENT
BETWEEN
SIGNAL PHARMACEUTICALS, INC.
AND
THE DUPONT MERCK PHARMACEUTICAL COMPANY
<PAGE> 2
SIGNAL PHARMACEUTICALS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
December __, 1997 by and between SIGNAL PHARMACEUTICALS, INC., a California
corporation with its principal office at 5555 Oberlin Drive, San Diego, CA 92121
("SIGNAL") and THE DUPONT MERCK PHARMACEUTICAL COMPANY, a Delaware general
partnership with its principal office at DuPont Merck Plaza, Centre Road -
Walnut Run, Wilmington, DE 19805 ("DPM").
RECITALS
WHEREAS, SIGNAL and DPM have entered into that certain Collaborative
Research and License Agreement of even date herewith (the "Collaboration
Agreement"); and
WHEREAS, in connection with, and as a condition of DPM entering
into, the Collaboration Agreement, SIGNAL desires to sell to DPM, and DPM
desires to purchase from SIGNAL, shares of SIGNAL's capital stock, on the terms
and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 PURCHASE AND SALE OF MILESTONE SHARES. Subject to the terms and
conditions hereof, upon SIGNAL's achievement of the milestone set forth in
Section 5.4.2 of the Collaboration Agreement (the "Milestone Closing Event"),
DPM shall purchase from SIGNAL, and SIGNAL shall issue and sell to DPM, shares
of SIGNAL's Preferred Stock (unless an IPO, as described below, has been
completed, in which case such stock shall be Common Stock) having an aggregate
value of [***] (the "Milestone Shares") at a purchase price (the "Milestone
Share Price") which is equal to [***]; provided, however, that if such Milestone
Closing Event occurs more than six (6) months following an equity purchase as
described in (i) and (ii), then DPM will purchase the Milestone Shares at a
1.
***Confidential Treatment Requested
<PAGE> 3
[***] and provided further, that in the event that SIGNAL has completed an
initial public offering of its Common Stock (the "IPO") as of the Milestone
Closing Event, the Milestone Shares shall be purchased at a Milestone Share
Price equal to the average closing price per share for Common Stock of SIGNAL on
the Nasdaq National Market (or any other national securities exchange on which
the Common Stock of SIGNAL is then traded) for the thirty (30) trading days
immediately preceding the Milestone Closing Date (as defined below). The rights,
preferences and privileges of any SIGNAL Preferred Stock that may be issued to
DPM under this Section 1.1 would be substantially the same as SIGNAL's Series D
Preferred Stock, except that the applicable provisions regarding dividends,
liquidation preference and conversion would reflect the original issue price of
the shares issued to DPM.
1.2 PURCHASE AND SALE OF IPO SHARES. Subject to the terms and
conditions hereof, in the event that, at any time during the Research Term (as
such term is defined in the Collaboration Agreement), SIGNAL completes its IPO
in which SIGNAL realizes aggregate net proceeds in excess of $15 million, DPM
shall purchase from SIGNAL, and SIGNAL shall issue and sell to DPM, shares of
SIGNAL's Common Stock having an aggregate value of Two Million Dollars
($2,000,000) (the "IPO Shares") to be issued and sold in a private placement to
close simultaneously with the completion of the IPO at the price per share to
the public in the IPO.
2. CLOSING DATE; DELIVERY.
2.1 MILESTONE CLOSING. Subject to the terms of Section 5, the
closing of the sale and purchase of the Milestone Shares under this Agreement
(the "Milestone Closing") shall be held on the date specified by the parties
within thirty (30) days after the Milestone Closing Event (the "Milestone
Closing Date") at the offices of Cooley Godward LLP ("Cooley Godward"), 4365
Executive Drive, Suite 1100, San Diego, California, or at such time and place as
SIGNAL and DPM may agree.
2.2 IPO CLOSING. Subject to the terms of Section 5, the closing of
the sale and purchase of the IPO Shares under this Agreement (the "IPO Closing")
shall be held at the time and date of the completion of the IPO (the "IPO
Closing Date") at the offices of Cooley Godward, 4365 Executive Drive, Suite
1100, San Diego, California, or at such time and place as SIGNAL and DPM may
agree.
2.3 DELIVERY. At the IPO Closing and, if applicable, the Milestone
Closing, subject to the terms and conditions hereof, SIGNAL shall deliver to DPM
a stock certificate, registered in the name of DPM, representing, respectively,
the IPO Shares and the Milestone Shares, dated as of the IPO Closing Date and
the Milestone Closing Date, respectively, against payment of the purchase price
therefor by wire transfer, unless other means of payment shall have been agreed
upon by SIGNAL and DPM.
2.
***Confidential Treatment Requested
<PAGE> 4
3. REPRESENTATIONS AND WARRANTIES OF SIGNAL.
Subject to and except as disclosed by SIGNAL in the Schedule of
Exceptions attached hereto as Exhibit A, SIGNAL hereby represents and warrants
to DPM as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. SIGNAL is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted.
SIGNAL is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
3.2 AUTHORIZATION. All corporate action on the part of SIGNAL, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement has been taken. SIGNAL has the requisite
corporate power to enter into this Agreement and carry out and perform its
obligations under the terms of this Agreement. At the IPO Closing and the
Milestone Closing, SIGNAL will have the requisite corporate power to sell the
IPO Shares and the Milestone Shares, respectively, to be sold at each such
Closing.
3.3 DUE EXECUTION. This Agreement has been duly authorized, executed
and delivered by SIGNAL and, upon due execution and delivery by DPM, this
Agreement will be a valid and binding agreement of SIGNAL, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by equitable principles.
3.4 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of SIGNAL's Articles of
Incorporation, as amended, or Bylaws; (b) any provision of any judgment, decree
or order to which SIGNAL is a party or by which it is bound; (c) any material
contract or agreement to which SIGNAL is a party or by which it is bound; or (d)
any statute, rule or governmental regulation applicable to SIGNAL.
3.5 ARTICLES OF INCORPORATION; BYLAWS. SIGNAL has delivered to DPM
true, correct and complete copies of the Articles of Incorporation and Bylaws of
SIGNAL, as in effect on the date hereof.
3.6 CAPITALIZATION.
(a) The authorized capital stock of SIGNAL consists, or
will consist prior to the Milestone Closing, of:
3.
<PAGE> 5
(i) 24,453,931 shares of Preferred Stock (the
"Preferred Stock"), of which 2,626,892 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, of which 2,875,000
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, of which 8,791,433 shares have been designated Series C
Preferred Stock, of which 8,791,432 are issued and outstanding, of which 250,000
shares have been designated Series C-1 Preferred Stock, all of which are subject
to issued and outstanding warrants, of which 732,601 shares have been designated
Series D Preferred Stock, all of which are issued and outstanding, of which
6,455,493 shares have been designated Series E Preferred Stock, all of which are
issued and outstanding, and of which 2,722,513 shares have been designated
Series F Preferred Stock, all of which are issued and outstanding. The rights,
privileges and preferences of the Series A, Series B, Series C, Series C-1,
Series D, Series E and Series F Preferred Stock will be as stated in the
Company's Amended and Restated Articles of Incorporation.
(ii) 35,000,000 shares of common stock ("Common
Stock"), of which 2,481,014 shares are issued and outstanding.
(iii) Except for (A) the conversion privileges of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series C-1 Preferred Stock, the Series D Preferred Stock, the Series
E Preferred Stock and the Series F Preferred Stock, (B) 2,500,000 shares of
Common Stock reserved for issuance pursuant to the Company's 1993 Stock Option
Plan, of which 1,428,225 shares are subject to outstanding options and of which
1,015,014 shares are issued and outstanding, (C) 550,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1993 Founders' Stock Option
Plan, 159,000 of which are subject to outstanding options and of which 373,000
shares are issued and outstanding, and (D) 1,000,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1997 Stock Option Plan, of which
774,870 shares are subject to outstanding options and 2,500 of which are issued
and outstanding, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
(b) In the event of an IPO, SIGNAL will update the
capitalization information set forth in subsection (a) above.
3.7 VALID ISSUANCE OF SHARES. The IPO Shares, and the Milestone
Shares, when issued, sold and delivered in accordance with the terms hereof for
the consideration set forth herein, will be duly authorized, validly issued,
fully paid and nonassessable and,
4.
<PAGE> 6
based in part upon the representations of DPM in this Agreement, will be issued
in compliance with all applicable federal and state securities laws.
3.8 ABSENCE OF LITIGATION. There is no action, suit, proceeding nor,
to the best of its knowledge, any investigation pending or currently threatened
against SIGNAL that questions the validity of this Agreement or the
Collaboration Agreement.
3.9 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of SIGNAL is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions
after the IPO Closing and the Milestone Closing, which notices will be filed on
a timely basis.
3.10 FINANCIAL INFORMATION. SIGNAL has provided to DPM audited
financial statements (balance sheet and statement of operations) of SIGNAL as of
and for the year ended December 31, 1996, and unaudited financial statements as
of and for the nine-month period ended September 30, 1997 ("Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly
represent the financial position and operational results of SIGNAL as of the
dates thereof.
4. REPRESENTATIONS AND WARRANTIES OF DPM.
DPM hereby represents and warrants to SIGNAL as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. DPM is a general
partnership duly formed and validly existing under the laws of the State of
Delaware and has all requisite partnership power and authority to carry on its
business as now conducted and as proposed to be conducted. DPM is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business or
properties.
4.2 AUTHORIZATION. DPM has the requisite partnership power to enter
into this Agreement, to carry out and perform its obligations under the terms of
this Agreement and, at the IPO Closing and the Milestone Closing, will have the
requisite partnership power to purchase the IPO Shares and the Milestone Shares,
respectively, to be purchased at each such Closing.
4.3 DUE EXECUTION. This Agreement has been duly authorized, executed
and delivered by DPM, and, upon due execution and delivery by SIGNAL, this
Agreement will be a valid and binding agreement of DPM, enforceable in
accordance with its terms,
5.
<PAGE> 7
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
4.4 INVESTMENT REPRESENTATIONS.
(a) DPM is acquiring the IPO Shares and the Milestone
Shares for its own account, not as nominee or agent, for investment and not with
a view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). By executing this Agreement, DPM further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the IPO Shares or the Milestone Shares.
(b) DPM understands that (x) the IPO Shares and the
Milestone Shares have not been registered under the Securities Act by reason of
a specific exemption therefrom, that such securities must be held by it
indefinitely and that DPM must, therefore, bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration; (y) each
certificate representing the IPO Shares and the Milestone Shares will be
endorsed with the following legends:
(i) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) Any legend required to be placed thereon under
applicable state securities laws;
and (z) SIGNAL will instruct any transfer agent not to register the transfer of
either the IPO Shares (or any portion thereof) or the Milestone Shares (or any
portion thereof) unless the conditions specified in the foregoing legends are
satisfied, until such time as a transfer is made, pursuant to the terms of this
Agreement, and in compliance with Rule 144 or pursuant to a registration
statement or, if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
any provisions of the Securities Act or this Agreement.
(c) DPM has been furnished with all information it
considers necessary or appropriate for deciding whether to purchase the IPO
Shares and the Milestone Shares. DPM has been afforded the opportunity to ask
questions and receive answers from
6.
<PAGE> 8
SIGNAL regarding the terms and conditions of the offering of the IPO Shares and
the Milestone Shares.
(d) DPM is an investor in securities of companies in the
development stage and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the IPO Shares and the Milestone Shares.
(e) DPM is an "accredited investor" as such term is
defined in Rule 501 of the General Rules and Regulations prescribed by the
Securities and Exchange Commission pursuant to the Securities Act, and DPM was
not formed for the specific purpose of acquiring the IPO Shares or the Milestone
Shares.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF DPM AT CLOSING. DPM's obligation to
purchase the IPO Shares at the IPO Closing and the Milestone Shares at the
Milestone Closing is subject to the fulfillment to DPM's satisfaction, on or
prior to the IPO Closing or the Milestone Closing, as applicable, of all of the
following conditions, any of which may be waived by DPM:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by SIGNAL in Section 3
hereof, as modified by the Schedule of Exceptions, shall be true and correct in
all material respects on the dates of the IPO Closing or the Milestone Closing,
as applicable, with the same force and effect as if they had been made on and as
of said dates; provided, however, that the Schedule of Exceptions and the
representations and warranties shall be modified as required to reflect changes
occurring between the date hereof and the date of the IPO Closing or Milestone
Closing, as applicable; provided, further, that, in the event that any
modification to the Schedule of Exceptions or the representations and warranties
(excluding the representations and warranties set forth in Sections 3.6, 3.8 and
3.10) necessary to make such representations and warranties true and correct in
all material respects on the date of the IPO Closing and the Milestone Closing
shall be indicative of a materials adverse change in the business, financial
condition, operations, property or affairs of SIGNAL, the condition to closing
set forth in this Section 5.1(a) shall be deemed to be unsatisfied and DPM shall
have no obligation to purchase the IPO Shares or the Milestone Shares, as the
case may be. SIGNAL shall have performed and complied with all obligations and
conditions herein required to be performed or complied with by it on or prior to
the IPO Closing or the Milestone Closing, as applicable. A certificate duly
executed by an officer of SIGNAL, to the effect of the foregoing, shall be
delivered to DPM on the IPO Closing or the Milestone Closing, as applicable.
7.
<PAGE> 9
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings of SIGNAL in connection with the transactions contemplated at the
IPO Closing or Milestone Closing, as applicable, and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to DPM, and DPM shall have received all such counterpart
originals or certified or other copies of such documents as it may reasonably
request.
(c) OPINION OF SIGNAL'S COUNSEL. DPM shall have received
an opinion dated as of the IPO Closing Date or the Milestone Closing Date, as
applicable from Cooley Godward LLP, counsel to SIGNAL, in the form attached
hereto as Exhibit B.
5.2 CONDITIONS TO OBLIGATIONS OF SIGNAL. SIGNAL's obligation to
issue and sell the IPO Shares at the IPO Closing and, if applicable, the
Milestone Shares at the Milestone Closing is subject to the fulfillment to
SIGNAL's satisfaction, on or prior to the IPO Closing or the Milestone Closing,
as applicable, of the following conditions, any of which may be waived by
SIGNAL:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by DPM in Section 4 hereof
shall be true and correct in all material respects on the dates of the IPO
Closing and the Milestone Closing, as applicable, with the same force and effect
as if they had been made on and as of said dates; provided, however, that the
representations and warranties shall be modified as required to reflect changes
occurring between the date hereof and the date of the IPO Closing or Milestone
Closing, as applicable; provided, further, that, in the event that any
modification to the representations and warranties necessary to make the
representations and warranties true and correct in all material respects on the
dates of the IPO Closing and the Milestone Closing shall be indicative of a
material adverse change in the ability of DPM to consummate the transactions
contemplated hereby, the condition to closing set forth in this Section 5.2(a)
shall be deemed to be unsatisfied and SIGNAL shall have no obligation to issue
and sell the IPO Shares or the Milestone Shares, as the case may be. DPM shall
have performed and complied with all obligations and conditions herein required
to be performed or complied with by it on or prior to the IPO Closing or the
Milestone Closing, as applicable. A certificate duly executed by an officer of
DPM, to the effect of the foregoing, shall be delivered to SIGNAL on the IPO
Closing or the Milestone Closing, as applicable.
(b) PROCEEDINGS AND DOCUMENTS. All partnership and other
proceedings of DPM in connection with the transactions contemplated at the IPO
Closing or Milestone Closing, as applicable, and all documents and instruments
incident to such transactions shall be reasonably satisfactory in substance and
form to SIGNAL, and
8.
<PAGE> 10
SIGNAL shall have received all such counterpart originals or certified or other
copies of such documents as it may reasonably request.
(c) PAYMENT OF PURCHASE PRICE. DPM shall have tendered
delivery of the purchase price for the IPO Shares specified in Section 1.2 at
the IPO Closing or the purchase price for the Milestone Shares specified in
Section 1.1 at the Milestone Closing by wire transfer to account number
4734-943186 at Wells Fargo Bank, 401 B Street, Suite 2201, San Diego, California
92101 (ABA# 121000248) or such other account as SIGNAL shall indicate by written
notice to DPM.
6. ADDITIONAL AGREEMENTS.
6.1 STANDSTILL PROVISION. From and after the date of the first to
occur of the IPO Closing or the Milestone Closing, DPM shall not, and shall
cause its affiliates not to, in any manner, singly or as part of a partnership,
limited partnership, syndicate or other "Group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act")), directly or indirectly, acquire, or offer or agree to acquire,
record ownership or beneficial ownership of any shares of capital stock of
SIGNAL, any securities convertible into or exchangeable for capital stock or any
other right to acquire capital stock from SIGNAL or any other person, without
the prior written consent of SIGNAL; provided, however, that this clause shall
not apply to (i) the IPO Shares and the Milestone Shares, (ii) any securities
issued with respect to the IPO Shares and the Milestone Shares pursuant to a
stock split, stock dividend, recapitalization or reclassification and (iii) any
securities obtained or purchased by DPM pursuant to rights set forth in this
Agreement. This Section 6.1 shall terminate as to the IPO Shares and the
Milestone Shares ten (10) years from the IPO Closing Date and the Milestone
Closing Date, respectively.
6.2 MARKET STAND-OFF PROVISION. DPM agrees that, during the period
of duration specified by SIGNAL and an underwriter of Common Stock or other
securities of SIGNAL following the effective date of a registration statement of
SIGNAL filed under the Securities Act (which period shall not exceed 180 days),
DPM shall not, to the extent requested by SIGNAL, directly or indirectly sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities of SIGNAL
held by it at any time during such period. In order to enforce the provisions of
this Section 6.2, SIGNAL may impose stop-transfer instructions with respect to
the securities held by DPM that are subject to the foregoing restriction until
the end of such period.
9.
<PAGE> 11
7. REGISTRATION RIGHTS.
7.1 CERTAIN DEFINITIONS. When used in this Section 7 of this
Agreement, the following terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"FORM S-3" shall mean Form S-3 under the Securities Act as in effect
on the date of this Agreement, or any substantially similar, equivalent or
successor form under the Securities Act.
"HOLDER" shall mean DPM or any transferee of registration rights
under Section 7.9 hereof who then holds any outstanding Registrable Securities.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means: (i) the Milestone Shares, if such
shares are Common Stock of SIGNAL (or, if the Milestone Shares are shares of
Preferred Stock of SIGNAL, the shares of SIGNAL Common Stock issued or issuable
upon conversion of the Milestone Shares); (ii) the IPO Shares; and (iii) shares
of SIGNAL Common Stock issued in respect of the shares of Common Stock referred
to under the foregoing clauses (i) and (ii) by reason of any stock split, stock
dividend, recapitalization or similar event which have not been sold to the
public.
"REGISTRATION EXPENSES" shall mean all expenses incurred by SIGNAL
in complying with Sections 7.2 and 7.3 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel, blue sky fees and expenses, and the expense
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of SIGNAL which shall be paid in
any event by SIGNAL).
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the applicable sale.
7.2 COMPANY REGISTRATION.
(a) If, at any time or from time to time, SIGNAL shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights, other than a registration relating solely to employee
benefit plans on Form S-8 or similar forms which may be
10.
<PAGE> 12
promulgated in the future or a registration on Form S-4 or similar forms which
may be promulgated in the future relating solely to a Commission Rule 145 or
similar transaction, SIGNAL will (i) promptly give to each Holder written notice
thereof and (ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting involved
therein, all Registrable Securities of such Holders as specified in a written
request or requests made within 15 days after receipt of such written notice
from SIGNAL.
(b) If the registration of which SIGNAL gives notice is
for a registered public offering involving an underwriting, SIGNAL shall so
indicate in the notice given pursuant to Section 7.2(a). In such event the right
of any Holder to registration pursuant to this Section 7.2 shall be conditioned
upon such Holder's agreeing to participate in such underwriting and in the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with SIGNAL and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by SIGNAL or by other holders exercising any
demand registration rights. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
SIGNAL and the underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration. Notwithstanding any
other provision of this Section 7.2, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all of the shares of
Registrable Securities from such registration and underwriting; provided,
however, that there shall first be excluded shares proposed to be included by
holders not possessing legal rights to include the same pursuant to this Section
7.2 or any similar provision.
7.3 FORM S-3 REGISTRATION RIGHTS. After the IPO, SIGNAL shall use
its best efforts to qualify for registration on Form S-3, and to that end SIGNAL
shall use its best efforts to comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE Act"), within twelve
(12) months following the effective date of the IPO. After SIGNAL has qualified
for the use of Form S-3, and subject to the provisions of Section 7.10, each
Holder shall have the right to request registrations on Form S-3 (such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by each such Holder), subject only to the following limitations:
(a) SIGNAL shall not be obligated to cause a registration
on Form S-3 to become effective prior to one hundred eighty (180) days following
the effective date of a SIGNAL-initiated registration (other than a registration
effected solely to qualify an employee benefit plan or to effect a business
combination pursuant to Rule 145);
11.
<PAGE> 13
(b) SIGNAL shall not be required to effect a registration
pursuant to this Section 7.3 unless the Holder or Holders requesting such a
registration propose to dispose of shares of Registrable Securities having an
aggregate disposition price (before deduction of underwriting discounts and
expenses of sale) of at least $1,000,000;
(c) SIGNAL shall not be required to effect a registration
pursuant to this Section 7.3 if SIGNAL shall furnish to the requesting Holders a
certificate signed by the President of SIGNAL stating that in the good faith
judgment of the Board of Directors of SIGNAL it would be seriously detrimental
to SIGNAL or its stockholders for the registration statement to be filed at the
date filing would be required, in which case SIGNAL shall have an additional
period of not more than one hundred twenty (120) days within which to file such
registration statement; provided, however, that SIGNAL shall not use this right
more than once in any twelve (12) month period; and
(d) SIGNAL shall not be required to effect a registration
pursuant to this Section 7.3 more often than once in any twelve (12) month
period.
SIGNAL shall give notice to all Holders of the receipt of a request
for registration pursuant to this Section 7.3 and shall use its best efforts to
cause all Registrable Securities that such Holders have requested, within 15
days after receipt of such written notice, be registered in accordance with this
Section 7.3 to be registered under the Securities Act. Subject to the foregoing,
SIGNAL will use its best efforts to effect promptly any registration pursuant to
this Section 7.3.
7.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 7.2 and 7.3 (exclusive of Selling Expenses but inclusive of the
reasonable fees and expenses of any special counsel to the selling Holders)
shall be borne by SIGNAL. All Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the holders of the securities
registered pro rata on the basis of the number of shares registered.
7.5 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by SIGNAL pursuant to this Section 7,
SIGNAL will keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense SIGNAL will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs;
12.
<PAGE> 14
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that SIGNAL shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement; and
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
7.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Section 7.2 or 7.3:
(a) To the extent permitted by law, SIGNAL will indemnify
each Holder, each of its officers, directors and partners, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 7, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
13.
<PAGE> 15
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by SIGNAL of any rule or
regulation promulgated under the Securities Act applicable to SIGNAL and
relating to action or inaction required of SIGNAL in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers and directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, however, that the indemnity agreement set
forth in this Section 7.6(a) shall not apply to amounts paid in settlement of
any such claim, loss damage, liability or action if such settlement is effected
without the consent of SIGNAL, which consent shall not be unreasonably withheld;
provided further, that SIGNAL will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to SIGNAL by an instrument duly executed by such Holder or underwriter
and stated to be specifically for use therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify SIGNAL, each of its directors and officers, each underwriter, if any,
of SIGNAL's securities covered by such a registration statement, each person who
controls SIGNAL or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and partners and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
and liabilities (or actions in respect thereof) including any of the foregoing
incurred in settlement of any litigation commenced or threatened, arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances in
which they were made, not misleading, or any violation by SIGNAL of any rule or
regulation promulgated under the Securities Act applicable to SIGNAL in
connection with any such registration, qualification, or compliance, and will
reimburse
14.
<PAGE> 16
SIGNAL, such Holders, such directors, officers, partners, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigation, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to SIGNAL by an instrument duly
executed by such Holder and stated to be specifically for use therein; provided,
however, that the indemnity agreement set forth in this Section 7.6(b) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided further, that the
obligations of such Holders hereunder shall be limited to an amount equal to the
proceeds to each such Holder of Registrable Securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this
Section 7.6 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7.6 unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party a release from all liability
in respect of such claim or litigation.
(d) If the indemnification provided for in this Section
7.6 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by
15.
<PAGE> 17
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) The obligations of SIGNAL and Holders under this
Section 7.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 7 and otherwise.
7.7 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to SIGNAL such information
as SIGNAL may request in writing regarding such Holder or Holders and the
distribution proposed by such Holder or Holders and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 7.
7.8 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of SIGNAL, SIGNAL
agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by SIGNAL for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all
reports and other documents required of SIGNAL under the Securities Exchange Act
at any time after it has become subject to such reporting requirements; and
(c) So long as a Holder owns any Registrable Securities,
to furnish to such Holder forthwith upon request a written statement by SIGNAL
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by SIGNAL for an offering of its securities to the general public) and of
the Securities Act and the Securities Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of SIGNAL, and such other reports and documents of SIGNAL as
a Purchaser may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Purchaser to sell any such securities without
registration.
7.9 TRANSFER OF REGISTRATION RIGHTS. The rights to cause SIGNAL to
register securities granted under Sections 7.2 and 7.3 may be assigned or
otherwise conveyed to a
16.
<PAGE> 18
transferee or assignee of Registrable Securities, who shall be considered a
"HOLDER" for purposes of this Section 7, provided that (a) SIGNAL is given
written notice by such Holder at the time of or within a reasonable time (but
not more than thirty (30) days) after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned and (b) the
transferee acquires at least 50,000 Shares in a private transaction.
7.10 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to this Section 7 shall terminate (i) upon the third
anniversary of the effective date of the IPO or (ii) as to any particular
Holder, at such time after the IPO as all Registrable Securities held by such
Holder can be sold without compliance with the registration requirements of the
Securities Act pursuant to Rule 144 (including Rule 144(k)) promulgated
thereunder.
8. MISCELLANEOUS.
8.1 WAIVER. Except as specifically provided for herein, the waiver
from time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such party's rights or remedies provided in
this Agreement.
8.2 NOTICES. Any notices or communications provided for in this
Agreement to be made by either of the parties to the other shall be in writing,
in English, and shall be made by prepaid air mail with return receipt addressed
to the other at its address set forth above. Any such notice or communication
may also be given by hand, or facsimile to the appropriate designation. Either
party may by like notice specify an address to which notices and communications
shall thereafter be sent. Notices sent by mail, facsimile or cable shall be
effective upon receipt and notices given by hand shall be effective when
delivered.
8.3 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California, as such laws are applied to contracts entered into and
to be performed within such state.
8.4 DISPUTE RESOLUTION. Disputes arising under this Agreement shall
be resolved in accordance with Article 12 of the Collaboration Agreement.
8.5 ENTIRE AGREEMENT. This Agreement and the Collaboration Agreement
between the parties of even date herewith set forth all of the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the parties hereto and supersede and terminate all prior agreements and
understanding between the parties. There are no covenants, promises, agreements,
warranties, representations conditions or understandings, either oral or
written, between the parties
17.
<PAGE> 19
other than as set forth herein and therein. No subsequent alteration, amendment,
change or addition to this Agreement shall be binding upon the parties hereto
unless reduced to writing and signed by the respective authorized officers of
the parties.
8.6 SEVERABILITY. If any term, covenant or condition of this
Agreement or the application thereof to any party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (a) the remainder of this
Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
8.7 ASSIGNMENT.
(a) Notwithstanding any provision of this Agreement to the
contrary, either party may assign any of its rights or obligations under this
Agreement in any country to any Affiliates; provided, however, that such
assignment shall not relieve the assigning party of its responsibilities for
performance of its obligations under this Agreement.
(b) Either party may also assign its rights or obligations
under this Agreement in connection with the sale of all or substantially all of
its assets, or otherwise with the prior written consent of the other party. This
Agreement shall survive any merger of either party with or into another party
and no consent for a merger or similar reorganization shall be required
hereunder.
(c) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties. Any assignment
not in accordance with this Agreement shall be void.
8.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.9 BROKERS OR FINDERS. Each party represents that it neither is nor
will be obligated for any broker's or finder's fees or commissions in connection
with this transaction. SIGNAL agrees to indemnify, defend and hold harmless DPM
from and against any and all claims, actions, damages, costs and expenses
arising from any claim of entitlement to any such fee or similar payment from
SIGNAL in connection with this
18.
<PAGE> 20
transaction. DPM agrees to indemnify, defend and hold harmless SIGNAL from and
against any and all claims, actions, damages, costs and expenses arising from
any claim of entitlement to any such fee or similar payment from DPM in
connection with this transaction.
19.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
THE DUPONT MERCK PHARMACEUTICAL COMPANY
By: [SIG]
-------------------------------
Title: President & CEO
----------------------------
SIGNAL PHARMACEUTICALS, INC.
By: [SIG]
-------------------------------
Title: Pres/CEO
----------------------------
20.
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.45
COLLABORATION AGREEMENT
BETWEEN
SIGNAL PHARMACEUTICALS, INC.,
A CALIFORNIA CORPORATION
AND
NIPPON KAYAKU CO., LTD.,
A JAPANESE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS..............................................................2
1.1 "Affiliate"...................................................................2
1.2 "CNS".........................................................................2
1.3 "CNS Field"...................................................................2
1.4 "Collaboration"...............................................................2
1.5 "Collaboration Know-How"......................................................2
1.6 "Collaboration Patents".......................................................2
1.7 "Commercializing Party".......................................................3
1.8 "Compound"....................................................................3
1.9 "Control".....................................................................3
1.10 "Effective Date"..............................................................3
1.11 "FDA".........................................................................3
1.12 "Field".......................................................................3
1.13 "FTE".........................................................................3
1.14 "Joint Commercialization Agreement"...........................................3
1.15 "Joint Commercialization Alternative".........................................3
1.16 "Know-How"....................................................................3
1.17 "Net Sales of Other Products".................................................3
1.18 "Net Sales of Products".......................................................4
1.19 "Nippon Kayaku Know-How"......................................................4
1.20 "Nippon Kayaku Patents".......................................................4
1.21 [***] .....................................................................4
1.22 "Other Product"...............................................................4
1.23 "Patent"......................................................................4
1.24 "Patent Committee"............................................................4
1.25 "Patent Costs"................................................................5
1.26 "PNS Field"...................................................................5
1.27 "Product".....................................................................5
1.28 "Research"....................................................................5
1.29 "Research Lead"...............................................................5
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1.30 "Research Management Committee"...............................................5
1.31 "Research Plan"...............................................................5
1.32 "Research Term"...............................................................5
1.33 "Rest of the World"...........................................................5
1.34 "Royalty Alternative".........................................................5
1.35 "Signal Know-How".............................................................5
1.36 "Signal Patents"..............................................................6
1.37 "Third Party".................................................................6
1.38 "Valid Claim".................................................................6
ARTICLE 2 RESEARCH PHASE OF COLLABORATION..........................................6
2.1 Research......................................................................6
2.2 Responsibilities of the RMC...................................................6
2.3 Determination of Research Lead................................................7
2.4 Know-How, Reports and Delivery of Compounds...................................7
2.5 Animal Models.................................................................8
2.6 Research Contributions........................................................9
2.7 Research Expenses.............................................................9
2.8 Visiting Scientists...........................................................9
ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION PHASE OF COLLABORATION..................10
3.1 Co-Development and Commercialization of the Products in the Field............10
3.2 Royalty Alternative in the Field.............................................11
ARTICLE 4 PAYMENTS..................................................................12
4.1 Funding for Research.........................................................12
4.2 Nippon Kayaku Royalties on Sales of Products in the PNS Field in Japan.......12
4.3 Royalties on Sales of Products Outside the Field.............................12
4.4 Royalties on Sales of Other Products in the Field............................12
4.5 Royalties on Sales of Other Products Outside the Field.......................13
4.6 Royalties Under Royalty Alternative..........................................13
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ARTICLE 5 ROYALTY OBLIGATIONS.....................................................13
5.1 Royalties For Sales of Products or Other Products............................13
5.2 Foreign Exchange.............................................................13
5.3 Blocked Currency.............................................................13
5.4 Taxes........................................................................13
5.5 Payment......................................................................14
5.6 Duration.....................................................................14
5.7 Accounting...................................................................14
5.8 Sales by Sublicensees........................................................14
ARTICLE 6 LICENSE GRANTS..........................................................15
6.1 Licenses During Collaboration................................................15
6.2 Commercialization Licenses...................................................17
6.3 Sublicenses..................................................................18
ARTICLE 7 CONFIDENTIALITY; PUBLICATIONS...........................................18
7.1 Confidentiality; Exceptions..................................................18
7.2 Authorized Disclosure........................................................19
7.3 Publications.................................................................19
7.4 Public Disclosure............................................................19
ARTICLE 8 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS......................20
8.1 Ownership of Collaboration Patents; Nippon Kayaku Patents; Signal
Patents......................................................................20
8.2 Patent Filings...............................................................20
8.3 Enforcement Rights...........................................................21
ARTICLE 9 REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY.............................23
9.1 Representations and Warranties...............................................23
9.2 Limitation on Warranties.....................................................24
9.3 Negative Covenants...........................................................24
ARTICLE 10 TERM AND TERMINATION....................................................25
10.1 Term.........................................................................25
10.2 Termination For Breach.......................................................25
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10.3 Termination For Bankruptcy...................................................25
10.4 Surviving Rights.............................................................25
10.5 Accrued Rights, Surviving....................................................25
10.6 Termination Not Sole Remedy..................................................26
ARTICLE 11 INDEMNIFICATION; INSURANCE..............................................26
11.1 Research and Development Indemnification.....................................26
11.2 Indemnification Procedures...................................................26
11.3 Insurance....................................................................27
ARTICLE 12 DISPUTE RESOLUTION......................................................27
12.1 Disputes.....................................................................27
12.2 Dispute Resolution Procedures................................................27
ARTICLE 13 MISCELLANEOUS...........................................................28
13.1 Assignment...................................................................28
13.2 Research and Development Entities............................................28
13.3 Consents Not Unreasonably Withheld...........................................28
13.4 Force Majeure................................................................29
13.5 Further Actions..............................................................29
13.6 No Trademark Rights..........................................................29
13.7 Notices......................................................................29
13.8 Waiver.......................................................................30
13.9 Severability.................................................................30
13.10 Ambiguities..................................................................30
13.11 Counterparts.................................................................30
13.12 Entire Agreement.............................................................30
13.13 Governing Law................................................................31
13.14 Headings.....................................................................31
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COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is made effective as of
February 9, 1998 by and between SIGNAL PHARMACEUTICALS, INC., a California
corporation having its principal place of business at 5555 Oberlin Drive, San
Diego, California 92121 ("Signal"), and NIPPON KAYAKU CO., LTD., a Japanese
corporation having its principal place of business at Tokyo Fujimi Building,
11-2, Fujimi 1-chome, Chiyoda-ku, Tokyo 102, Japan ("Nippon Kayaku"). Signal and
Nippon Kayaku may be referred to herein as a "Party" or, collectively, as
"Parties."
RECITALS
WHEREAS, Signal has developed and licensed certain technology and
intellectual property in the area of drug discovery and lead optimization and is
experienced in the research and development of small-molecule drugs;
WHEREAS, Nippon Kayaku is a pharmaceutical company dedicated to the
research, development and commercialization of pharmaceutical products;
WHEREAS, Nippon Kayaku has identified the compound [***] (as described
in Exhibit A hereto) and the derivatives thereof;
WHEREAS, Signal and Nippon Kayaku concluded a secrecy agreement dated
September 20, 1996 (the "Secrecy Agreement") and a material transfer agreement
dated May 19, 1997 (the "Material Transfer Agreement"), under which Signal has
conducted the evaluation of certain information and a sample of the compound
[***] received from Nippon Kayaku, and Signal has notified Nippon Kayaku of its
desire to conduct a pilot experiment to examine the effects of the compound
[***] and to conclude a further agreement relating to a right to research and
develop the compound [***] and the derivatives thereof jointly with Nippon
Kayaku;
WHEREAS, Nippon Kayaku has exclusive rights to the compound [***];
WHEREAS, Signal and Nippon Kayaku wish to establish a collaborative
relationship to develop and commercialize novel products based on or derived
from [***] for the treatment and prevention of diseases and disorders of the
central nervous system and peripheral nervous system; and
WHEREAS, Signal and Nippon Kayaku wish to enter into this Agreement to
establish the collaboration on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereto, intending
to be legally bound, do hereby agree as follows:
1.
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ARTICLE 1
DEFINITIONS
The following terms shall have the following meanings as used in the
Agreement:
1.1 "AFFILIATE" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which
(directly or indirectly) is controlled by, controls or is under common control
with a Party. For the purposes of this definition, the term "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") as used with respect to any Party, shall mean the
possession (directly or indirectly) of at least fifty percent (50%) of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity, or, where the laws of the jurisdiction in which such
entity operates prohibit ownership by a Party of fifty percent (50%), such
ownership shall be at the maximum level of ownership allowed by such laws.
1.2 "CNS" means central nervous system.
1.3 "CNS FIELD" means the treatment or prevention of CNS diseases or
disorders in humans.
1.4 "COLLABORATION" means the activities, rights and obligations of
Signal and Nippon Kayaku encompassed in their relationship in accordance with
the Research Plan during the Research Term and, in any further relationship
between the Parties pursuant to the Joint Commercialization Agreement, during
the life of such further relationship.
1.5 "COLLABORATION KNOW-HOW" means Know-How (i) relating to Compounds;
(ii) relating to results and data from animal studies conducted as part of the
Research under this Agreement in accordance with the Research Plan; or (iii)
otherwise arising from or in connection with the conduct of the Research under
this Agreement in accordance with the Research Plan and jointly owned by or
within the common Control of the Parties or their respective Affiliates, but
excluding Collaboration Patents.
1.6 "COLLABORATION PATENTS" means all Patents that claim or cover
inventions (i) made jointly (as determined in accordance with the rules of
inventorship under United States patent law) by officers, employees, consultants
or agents of Signal or one of its Affiliates, on the one hand, and officers,
employees, consultants or agents of Nippon Kayaku or one of its Affiliates, on
the other hand, in connection with activities conducted pursuant to the Research
Plan, (ii) which come under the common Control of Signal or one of its
Affiliates, on the one hand, and Nippon Kayaku or one of its Affiliates, on the
other hand, prior to the end of the Research Term or (iii) based on or derived
from a Compound and conceived or reduced to practice during the Research Term by
officers, employees, consultants or agents of one or both of the Parties.
2.
<PAGE> 8
1.7 "COMMERCIALIZING PARTY" shall have the meaning assigned to it in
Section 5.1.
1.8 "COMPOUND" shall mean a small-molecule compound based on or derived
from [***], which is either synthesized through medicinal chemistry and
combinatorial chemistry techniques or identified through searching the database
of Signal's compound library as described in Section 2.4(c), that, in each case,
is identified in the course of the Research by one or both of the Parties.
1.9 "CONTROL" means, with respect to an item of information or
intellectual property right, possession of the ability to grant a license or
sublicense as provided for herein under such item or right without violating the
terms of any agreement or other arrangement with any Third Party.
1.10 "EFFECTIVE DATE" means the date first written above in this
Agreement.
1.11 "FDA" means the United States Food and Drug Administration.
1.12 "FIELD" means the CNS Field and the PNS Field.
1.13 "FTE" means full-time equivalent scientific personnel.
1.14 "JOINT COMMERCIALIZATION AGREEMENT" shall have the meaning assigned
to it in Section 3.1(a).
1.15 "JOINT COMMERCIALIZATION ALTERNATIVE" shall have the meaning
assigned to it in Section 3.1(a).
1.16 "KNOW-HOW" means techniques, data, materials and chemicals
materially relating to the Field, including, without limitation, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, patent and legal data or descriptions.
1.17 "NET SALES OF OTHER PRODUCTS" means the gross amounts invoiced for
sales of Other Products by Signal or Nippon Kayaku, as the case may be, and its
Affiliates and sublicensees to Third Parties pursuant to one or more of the
licenses granted under Article 6 less (a) discounts actually granted, (b)
credits or allowances actually granted upon claims, damaged goods, rejections or
returns of any such Other Product, including recalls, (c) freight, postage,
shipping and insurance charges actually allowed or paid for delivery of any such
Other Product, to the extent billed and (d) taxes, duties or other governmental
charges (other than income taxes) levied on, absorbed or otherwise imposed on
sales of any such Other Products. Sales of Other Products for use in clinical
trials prior to receipt of regulatory approval for such Other Products shall not
be included in Net Sales of Other Products.
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1.18 "NET SALES OF PRODUCTS" means the gross amounts invoiced for sales
of Products by Signal or Nippon Kayaku, as the case may be, and its Affiliates
and sublicensees to Third Parties pursuant to one or more of the licenses
granted under Article 6 less (a) discounts actually granted, (b) credits or
allowances actually granted upon claims, damaged goods, rejections or returns of
any such Product, including recalls, (c) freight, postage, shipping and
insurance charges actually allowed or paid for delivery of any such Product, to
the extent billed and (d) taxes, duties or other governmental charges (other
than income taxes) levied on, absorbed or otherwise imposed on sales of any such
Products. Sales of Products for use in clinical trials prior to receipt of
regulatory approval for such Products shall not be included in Net Sales of
Products.
1.19 "NIPPON KAYAKU KNOW-HOW" means Know-How that is (i) owned or within
the Control of Nippon Kayaku or an Affiliate of Nippon Kayaku prior to the end
of the Research Term and (ii) necessary or useful for the manufacture, use, sale
or import of products pursuant to one or more of the licenses granted under
Article 6, but excluding Nippon Kayaku Patents and Collaboration Know-How.
1.20 "NIPPON KAYAKU PATENTS" means all Patents owned or Controlled by
Nippon Kayaku or an Affiliate of Nippon Kayaku (excluding Collaboration Patents)
necessary or useful for the manufacture, use, sale or import of products
pursuant to one or more of the licenses granted under Article 6, including,
without limitation, any such Patents related to [***], where such Patents cover
(i) inventions made prior to the Effective Date of this Agreement, (ii)
inventions made solely by employees or agents of Nippon Kayaku or an Affiliate
of Nippon Kayaku after the Effective Date and prior to the end of the Research
Term (but specifically excluding Collaboration Patents covered by Section
1.6(iii)), or (iii) inventions which come under the Control of Nippon Kayaku or
its Affiliates after the Effective Date and prior to the end of the Research
Term; a list of the Nippon Kayaku Patents as of the Effective Date is set forth
on Schedule I.
1.21 "[***]" means the compound Controlled by Nippon Kayaku known as
[***] and described on Exhibit A hereto.
1.22 "OTHER PRODUCT" shall mean any pharmaceutical product based on or
derived from a Compound other than a Research Lead.
1.23 "PATENT" means (i) foreign and domestic Letters Patent including
one or more Valid Claims, including any extension (including Supplemental
Protection Certificate), registration, confirmation, reissue, continuation,
divisional, continuation-in-part, reexamination or renewal thereof, and (ii)
pending applications for any of the foregoing.
1.24 "PATENT COMMITTEE" means the committee established pursuant to
Section 8.2(c) herein.
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1.25 "PATENT COSTS" means the out-of-pocket fees and expenses paid to
outside legal counsel and other Third Parties and filing, prosecution and
maintenance expenses incurred in connection with the establishment and
maintenance of rights under Patents.
1.26 "PNS FIELD" means the treatment or prevention of diabetic
neuropathy, chemotherapy-induced neuropathy or other neuropathies in humans but
specifically excluding therapeutic and diagnostic products directed at pain,
lower urinary tract dysfunction and peripheral vascular disease.
1.27 "PRODUCT" shall mean any pharmaceutical product based on or derived
from any Research Lead that is covered by one or more of Signal Patents, Signal
Know-How, Nippon Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents
or Collaboration Know-How.
1.28 "RESEARCH" means all work performed by the Parties or on their
behalf pursuant to the Research Plan directed towards or in connection with the
discovery, identification and investigation of Research Leads during the
Research Term.
1.29 "RESEARCH LEAD" means a Compound identified by either Party
(separately or jointly) pursuant to Research performed during the Research Term
showing at least [***] more potency than [***], as decided by the RMC. [***]
greater potency will be determined as follows: [***]
1.30 "RESEARCH MANAGEMENT COMMITTEE" or "RMC" means the committee
established pursuant to Section 2.2 herein.
1.31 "RESEARCH PLAN" means the plan for conducting the Research as
described in Section 2.1 hereof and attached as Exhibit B hereto, as such plan
may be modified or amended by the RMC from time to time in writing.
1.32 "RESEARCH TERM" means the period commencing on the Effective Date
and ending on the second anniversary of the Effective Date, unless terminated
earlier pursuant to Sections 10.2 or 10.3.
1.33 "REST OF THE WORLD" means the entire world excluding Japan.
1.34 "ROYALTY ALTERNATIVE" shall have the meaning assigned to it in
Section 3.2.
1.35 "SIGNAL KNOW-HOW" means Know-How that is (i) owned or within the
Control of Signal or an Affiliate of Signal prior to the end of the Research
Term and (ii) necessary or useful for the manufacture, use, sale or import of
products pursuant to
5.
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one or more of the licenses granted under Article 6, but excluding Signal
Patents and Collaboration Know-How.
1.36 "SIGNAL PATENTS" means all Patents owned or Controlled by Signal or
an Affiliate of Signal (excluding Collaboration Patents) necessary or useful for
the manufacture, use, sale or import of products pursuant to one or more of the
licenses granted under Article 6 where such Patents cover (i) inventions made
prior to the Effective Date of this Agreement, (ii) inventions made solely by
employees or agents of Signal or an Affiliate of Signal after the Effective Date
and prior to the end of the Research Term (but specifically excluding
Collaboration Patents covered by Section 1.6(iii)), or (iii) inventions which
come under the Control of Signal or an Affiliate of Signal after the Effective
Date and prior to the end of the Research Term; a list of the Signal Patents as
of the Effective Date is set forth on Schedule II.
1.37 "THIRD PARTY" means any entity or individual other than Signal,
Nippon Kayaku and Affiliates of either.
1.38 "VALID CLAIM" means a claim of an issued patent which claim has not
lapsed, been canceled or become abandoned and has not been declared invalid by a
court or other appropriate body of competent jurisdiction, and which has not
been admitted to be invalid or unenforceable through reissue or disclaimer.
ARTICLE 2
RESEARCH PHASE OF COLLABORATION
2.1 RESEARCH. The purpose of the Research is to identify Research Leads
that are suitable for development into Products for commercialization in the
Field. The Parties agree that the Research shall be conducted as specified in
the Research Plan attached hereto as Exhibit B, as such Research Plan may be
amended from time to time in writing by the RMC, with each Party to use
commercially reasonable and diligent efforts (as defined below) to perform its
responsibilities under the Research Plan.
2.2 RESPONSIBILITIES OF THE RMC. The Parties shall establish a Research
Management Committee ("RMC") promptly after the date of the execution of this
Agreement. The RMC shall be comprised of three (3) representatives of each
Party. The initial members of the RMC are set forth on Schedule III. Either
Party may appoint substitute or replacement members of the RMC to serve as their
representatives as long as any such substitutes or replacements are persons of
comparable standing and authority within the Parties' organizations. Decisions
by the RMC shall be made by unanimous vote. The RMC shall have the
responsibility and authority to:
(a) plan and monitor the Research;
6.
<PAGE> 12
(b) review and modify the Research Plan;
(c) evaluate the results of the Research;
(d) discuss information relating to the Research;
(e) review scientific publications of the Parties concerning the
Research;
(f) determine whether a Compound is a Research Lead;
(g) determine whether a Compound is not suitable for pursuit
under the Collaboration; and
(h) review and approve a protocol of Research furnished by either
Party with respect to animal models in the Field.
Either Party may refer any dispute to the appropriate officers of the Parties
for consideration and resolution pursuant to Article 12. The RMC shall meet at
least once per calendar quarter, with two of such meetings per calendar year
being conducted in each of San Diego, California and Tokyo, Japan, or at such
other times and places agreed to by the Parties, until the end of the Research
Term.
2.3 DETERMINATION OF RESEARCH LEAD. Upon the identification by one or
both of the Parties in the course of the Research of a Research Lead, such Party
or Parties shall promptly provide notice thereof (the "Research Lead Notice"),
which notice shall include all relevant data regarding such Research Lead, to
the RMC and, if applicable, the other Party. The identification of a Research
Lead shall give rise to the Parties' rights set forth in Article 3 with respect
to such Research Lead. In the event that no Research Lead has been identified on
or before the end of the Research Term, the Collaboration shall terminate.
2.4 KNOW-HOW, REPORTS AND DELIVERY OF COMPOUNDS.
(a) Each Party shall disclose to the other Party all
Collaboration Know-How learned, acquired or discovered by such Party at any time
on or before the end of the Research Term, as promptly as is reasonably
practicable after such Collaboration Know-How is learned. At the time of
effectiveness of any license granted hereunder, Signal and/or Nippon Kayaku, as
appropriate under the license granted, (i) shall make available and disclose to
the other Party such Signal Know-How or Nippon Kayaku Know-How, as the case may
be, known by such Party as of such date, and (ii) shall also disclose any Signal
Know-How or Nippon Kayaku Know-How, as the case may be, learned, acquired or
discovered by such Party at any time thereafter for so long as such license
continues in full force and effect, as promptly as is reasonably practicable
after such Signal Know-How or Nippon Kayaku Know-How is learned. The Parties
shall exchange at a minimum quarterly written reports (with copies to the RMC)
presenting a meaningful summary of
7.
<PAGE> 13
Research done under this Agreement. Each Party shall provide the other with raw
data, including QSAR, for work carried out in the course of the Research, if
reasonably requested by the other Party. Know-How and other information
regarding the Research disclosed by one Party to the other Party pursuant hereto
may be used only in accordance with the rights granted under this Agreement.
(b) All Compounds synthesized in the course of the Research shall
first be used for purposes of the Collaboration. When the RMC determines that
Compounds are not suitable for pursuit under the Collaboration, then in order to
avoid any conflict with its other corporate partners, Signal shall, within
thirty (30) days following such determination, test such Compounds in assays
under certain other Signal programs; a list of such Signal programs as of the
Effective Date is set forth on Schedule IV. In the event that a Compound shows
activity in any such assay, Signal shall not be obligated to disclose or provide
such Compound to Nippon Kayaku, and no license granted to Nippon Kayaku
hereunder with respect to such Compound shall be effective, unless and until
such time as Signal is not contractually prohibited from disclosing, providing
or licensing such Compound to Nippon Kayaku. In the event that a Compound shows
no activity in any such assay or if development of such Compound is discontinued
under any such other Signal program, such Compound shall be freely available for
use outside the Field by each of the Parties in accordance with the terms of
this Agreement.
(c) It is understood, and the Parties hereby acknowledge and
agree, that as Signal chemists develop structure-activity relationships from the
active analogues of [***] in the course of the Collaboration, Signal shall,
using its database management program, conduct sub-structure searches of the
Signal compound library for compounds to screen in the Collaboration, which may
include compounds made or acquired with financial support from Signal's existing
collaborative partners, as set forth on Schedule IV hereto. Any of these
compounds that are not active in such existing partners' assays shall be
evaluated in the Collaboration, regardless of whether such compounds were made
or acquired as part of such existing partners' programs.
(d) The mechanism by which Signal will deliver samples and
supplies of Compounds to Nippon Kayaku is described in Exhibit C hereto. Signal
will provide Nippon Kayaku with the experimental details to reproduce any and
all parts of the libraries provided under this Agreement.
2.5 ANIMAL MODELS. Studies in the Research with respect to animal models
in the Field shall be done in the U.S. and in Japan with the RMC's approval.
Signal shall be responsible for the conduct of any such studies done in the
U.S., and Nippon Kayaku shall be responsible for the conduct of any such studies
done in Japan. Costs of animal model studies conducted in the U.S. and in Japan
shall be shared equally by the Parties; provided, however, that, at Nippon
Kayaku's option and expense, Nippon Kayaku may conduct any such animal model
studies Signal does not agree to do.
8.
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2.6 RESEARCH CONTRIBUTIONS.
(a) BY SIGNAL. Signal agrees to exert commercially reasonable and
diligent efforts to perform its obligations under the Research Plan. In the
performance of such work, Signal shall maintain and utilize scientific and other
staff (including consultants), laboratories, offices and other facilities
consistent with such undertaking. Nippon Kayaku understands that Signal has
engaged certain scientific collaborators and consultants to perform research
services relating to the Field, and that the efforts of such collaborators and
consultants relating to the Field shall be included within the Research to the
extent contemplated by the Research Plan. Subject to Nippon Kayaku's fulfillment
of its obligation to provide research funding as set forth in Section 4.1,
Signal agrees to commit an average of at least [***] FTEs to the Research
during the Research Term. Notwithstanding the foregoing, the Parties hereby
acknowledge that during the initial calendar quarter of the Research Term,
Signal may commit [***] FTEs to the Research.
(b) BY NIPPON KAYAKU. Nippon Kayaku agrees to exert commercially
reasonable and diligent efforts to perform its obligations under the Research
Plan. In the performance of such work, Nippon Kayaku shall maintain and utilize
scientific and other staff (including consultants), laboratories, offices and
other facilities consistent with such undertaking.
(c) COMMERCIALLY REASONABLE AND DILIGENT EFFORTS. As used herein,
the term "commercially reasonable and diligent efforts" will mean, unless the
Parties agree otherwise in writing, those efforts consistent with the exercise
of prudent scientific and business judgment, as applied to research activities
conducted with regard to other products of similar potential and market size. In
the event of any unanticipated and severe changes in regulatory affairs or
technical developments or in the event of extreme conditions or similar
unforeseen events with respect to the Research, the Parties agree to discuss
such changed circumstances and appropriate mechanisms to address them.
2.7 RESEARCH EXPENSES. All expenses of the Research shall be borne by
the Party incurring such expenses without contribution from or offset by the
other Party, unless otherwise agreed in writing by the Parties or expressly
provided herein.
2.8 VISITING SCIENTISTS. Nippon Kayaku may, at its option, send up to
[***] visiting scientists [***], each of whom must be
acceptable to Signal) to Signal's facilities in San Diego. Nippon Kayaku shall
be responsible for such scientists' salaries and living and other expenses, and
Signal shall provide laboratory space and supervision. Such scientists shall
sign Signal's standard form of Confidential Disclosure Agreement and shall work
exclusively on projects relating to the Research while at Signal's facilities.
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Signal shall give Nippon Kayaku's scientists full and correct
instructions necessary to avoid any loss, damage, death or injury, and Nippon
Kayaku shall cause such scientists to obey such instructions.
ARTICLE 3
DEVELOPMENT AND COMMERCIALIZATION PHASE OF COLLABORATION
3.1 CO-DEVELOPMENT AND COMMERCIALIZATION OF THE PRODUCTS IN THE FIELD.
(a) STRUCTURE. Within thirty (30) days following the date of any
Research Lead Notice pursuant to which the RMC has determined that a Compound
identified in the course of the Research is a Research Lead (the "Election
Period"), the Parties will meet to discuss whether to pursue the development of
such Research Lead jointly by entering into a joint venture arrangement through
the creation of a separate entity or otherwise sharing the expenses and profits
of the development and commercialization of Products based on such Research Lead
worldwide in the CNS Field and in the Rest of the World in the PNS Field (the
"Joint Commercialization Alternative"). If, during the Election Period, the
Parties agree to pursue the Joint Commercialization Alternative, the Parties
will negotiate in good faith the formal structure of such development and
commercialization arrangement pursuant to separate agreement or arrangement (a
"Joint Commercialization Agreement"), which shall include the principles set
forth in this Section 3.1 and in Exhibit D, within six (6) months following
delivery of the Research Lead Notice. A new six (6) month period will commence
upon the subsequent delivery of a Research Lead Notice with respect to a
different Research Lead or the substitution by the RMC or the Parties of one
Research Lead for another. Any such Joint Commercialization Agreement shall
specify the Parties' relative rights and responsibilities with respect to
continued pre-clinical development, clinical development, and marketing and
promotion rights, and shall include all appropriate licenses pursuant to Article
6 hereof.
(b) PROFITS, LOSSES AND OPERATING EXPENSES. The Joint
Commercialization Agreement shall reflect equal sharing by the Parties of
Profits and Losses and Operating Expenses for Products based on the applicable
Research Lead (except for Products developed and commercialized by Nippon Kayaku
pursuant to the license granted under Section 6.1(b)(i)); provided, however,
that in the event the Parties agree with respect to a particular country to some
other cost-sharing arrangement, Profits and Losses and Operating Expenses in
such country will be shared according to costs incurred.
Royalties and license fees payable by either Party (or any joint venture entity
formed by the Parties hereunder or under the Joint Commercialization Agreement
by the Parties) to Third Parties with respect to such Products shall be treated
as an expense. Under any
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such Joint Commercialization Agreement, the terms "Profits," "Losses" and
"Operating Expenses" would have the meanings given them in Exhibit D.
(c) CONTRACTING FOR SERVICES. Any such Joint Commercialization
Agreement would further contemplate contracting with each Party and/or their
Affiliates, or contracting with Third Parties, for services such as pre-clinical
and clinical development, clinical trials, regulatory affairs, manufacturing,
marketing, promotion, training, distribution and sales of Products. Any such
contracting shall be determined by the Parties on a Product-by-Product basis.
Each Party and its Affiliates shall provide any such service at cost plus a
commercially reasonable mark-up determined with reference to prevailing
standards in the industry for similar services.
(d) SUPPLY OF BULK DRUG SUBSTANCE AND DRUG PRODUCT. The Joint
Commercialization Agreement between the Parties shall, at Nippon Kayaku's
option, provide for Nippon Kayaku to supply bulk drug substance on a worldwide
basis for a percentage of Net Sales of Products on commercially reasonable terms
to be negotiated in good faith by the Parties. In anticipation of this supply
arrangement, Nippon Kayaku will provide compounds and formulations of Research
Leads for all pre-clinical and clinical studies (including toxicology studies)
at a price and on such other commercially reasonable terms to be negotiated in
good faith by the Parties, and Nippon Kayaku will ensure that its facilities
meet all GMP and GLP standards, maintain DMFs and comply with all regulatory
requirements necessary to obtain regulatory and marketing approvals. In the
event that Nippon Kayaku does not provide such bulk drug substance and such drug
product for all pre-clinical and clinical studies (including toxicology
studies), then the foregoing option to supply bulk drug substance on a worldwide
basis for a percentage of Net Sales of Products shall lapse and be of no further
force or effect.
(e) ADDITIONAL TERMS. The Joint Commercialization Agreement would
also provide for: (i) common Product brand names; (ii) common regulatory filings
and indications; (iii) common Product positioning and marketing plans; and (iv)
with respect to the development and commercialization of Products in the CNS
Field, an option to seek Third Party support for funding and/or expertise;
provided, however, that, notwithstanding any such Third Party support, Nippon
Kayaku shall have the right to develop and commercialize Products jointly with
any entity formed by the Parties hereunder or under the Joint Commercialization
Agreement in the CNS Field in Japan.
3.2 ROYALTY ALTERNATIVE IN THE FIELD. In the event that, during the
Election Period, one Party (the "non-participating Party") elects not to
participate in the development and commercialization of Products, then the other
Party, if it elects to proceed with development and commercialization of
Products in the Field (the "Royalty Alternative"), shall be solely responsible
for the costs of development and commercialization and shall pay to the
non-participating Party a royalty of [***] of Net Sales of
Products by such Commercializing Party (as defined below) or its Affiliates or
sublicensees. In addition, in the event that the Parties have entered into a
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Joint Commercialization Agreement, either Party may thereafter at any time elect
by written notice to the other Party to convert to the Royalty Alternative in a
particular country and receive the royalty described in the preceding sentence
with respect to Net Sales of Products in such country.
ARTICLE 4
PAYMENTS
4.1 FUNDING FOR RESEARCH. Nippon Kayaku agrees to fund the Research at
Signal over a two (2) year period in the aggregate amount of [***] for
(a) the costs and expenses for Signal's committing an average of at least
[***] to the Research, (b) any supervision provided by Signal relating to the
Research to the visiting scientists of Nippon Kayaku and (c) the use of Signal's
facilities by such visiting scientists of Nippon Kayaku for the purposes of
Research. Such amount shall be payable in advance in two (2) installments of
[***] within one (1) week following each of the Effective Date and the
first anniversary of the Effective Date.
4.2 NIPPON KAYAKU ROYALTIES ON SALES OF PRODUCTS IN THE PNS FIELD IN
JAPAN. In consideration of the license granted to Nippon Kayaku pursuant to
Section 6.1(b)(i), Nippon Kayaku shall pay to Signal a royalty of [***] of Net
Sales of Products by Nippon Kayaku, its Affiliates or sublicensees of Products
in the PNS Field in Japan.
4.3 ROYALTIES ON SALES OF PRODUCTS OUTSIDE THE FIELD.
(a) In consideration of the license granted to Signal under
Section 6.2.1(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Products by Signal, its Affiliates or sublicensees outside
the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.1(b), Nippon Kayaku shall pay to Signal, a royalty of
[***] of Net Sales of Products by Nippon Kayaku, its Affiliates or
sublicensees outside the Field plus any pass through royalties.
4.4 ROYALTIES ON SALES OF OTHER PRODUCTS IN THE FIELD
(a) In consideration of the license granted to Signal under
Section 6.2.2(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Other Products by Signal, its Affiliates or sublicensees in
the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.2(b), Nippon Kayaku shall pay to Signal, a royalty of [***]
of Net
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Sales of Other Products by Nippon Kayaku, its Affiliates or sublicensees in the
Field plus any pass through royalties.
4.5 ROYALTIES ON SALES OF OTHER PRODUCTS OUTSIDE THE FIELD.
(a) In consideration of the license granted to Signal under
Section 6.2.3(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Other Products by Signal, its Affiliates or sublicensees
outside the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.3(b), Nippon Kayaku shall pay to Signal, a royalty of
[***] of Net Sales of Other Products by Nippon Kayaku, its Affiliates or
sublicensees outside the Field plus any pass through royalties.
4.6 ROYALTIES UNDER ROYALTY ALTERNATIVE. In the event of election of the
Royalty Alternative by a Party pursuant to Section 3.2, the Commercializing
Party shall pay to the non-participating Party the royalty specified in Section
3.2.
ARTICLE 5
ROYALTY OBLIGATIONS
5.1 ROYALTIES FOR SALES OF PRODUCTS OR OTHER PRODUCTS. Any royalty
obligations of a Party (the "Commercializing Party") shall be subject to the
provisions of this Article 4.
5.2 FOREIGN EXCHANGE. All amounts payable hereunder shall be paid in
U.S. dollars. The remittance of royalties payable on Net Sales of Products or
Net Sales of Other Products will be payable in U.S. dollars to the Party
entitled to receive the royalty hereunder (the "Receiving Party") at a bank and
to an account designated by the Receiving Party using the selling rate of
exchange for the currency of the country from which the royalties are payable as
published by the Wall Street Journal, New York, NY, USA, for the last business
day of the quarterly period for which the royalties are due.
5.3 BLOCKED CURRENCY. In each country where the local currency is
blocked and cannot be removed from the country, at the election of the
Commercializing Party, royalties accrued in that country shall be paid to the
Receiving Party in the country in local currency by deposit in a local bank
designated by the Receiving Party.
5.4 TAXES. The Receiving Party shall pay any and all taxes levied on
account of such payments it receives under this Agreement. If laws or
regulations require that taxes be withheld, the Commercializing Party will (i)
deduct those taxes from the remittable payment, (ii) timely pay the taxes to the
proper taxing authority, and (iii) send
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proof of payment to the Receiving Party and certify its receipt by the tax
authorities within sixty (60) days following that payment.
5.5 PAYMENT. Royalty payments under this Agreement shall be made to the
Receiving Party or its designee quarterly within sixty (60) days following the
end of each calendar quarter for which royalties are due from the
Commercializing Party. Each royalty payment shall be accompanied by a report
summarizing the Net Sales of Products or Net Sales of Other Products during the
relevant three-month period.
5.6 DURATION. The Commercializing Party shall pay royalties hereunder,
on a country by country basis, until the later of: (i) the last to expire Signal
Patent or Collaboration Patent (if Nippon Kayaku is the Commercializing Party)
or Nippon Kayaku Patent or Collaboration Patent (if Signal is the
Commercializing Party), a Valid Claim of which covers the manufacture, use or
sale of such Product or Other Product in such country, or (ii) the date ten (10)
years after the date of first commercial sale of such Product or Other Product
in such country by the Party, its Affiliates, or sublicensees; provided,
however, that all royalty obligations of the Parties shall cease thirty (30)
years after the Effective Date.
5.7 ACCOUNTING. The Commercializing Party shall maintain complete and
accurate records, consistent with its general internal recordkeeping policies,
which are relevant to costs, expenses and payments under this Agreement and
shall make its internal sales ledgers for sales of Products or Other Products
upon which royalties are payable available during reasonable business hours for
a period of five (5) years from creation of individual records for examination
of any one calendar year's records at the other Party's expense and not more
often than once every two (2) years by a certified public accountant selected by
the other Party and reasonably acceptable to the Commercializing Party, audited
for the sole purpose of verifying for the inspecting Party the correctness of
calculations of such costs, expenses or payments made under this Agreement. If
any such audit fails to identify material underpayments (in excess of five
percent (5%) of the amounts that should have been paid) by the Commercializing
Party for any calendar year audited, the out-of-pocket expenses of both Parties
in such audit shall be borne by the Party requesting the audit. If any such
material discrepancies are identified by any such audit for any calendar year
audited, the Commercializing Party shall reimburse the Party requesting the
audit for such discrepancies and shall bear the out-of-pocket expenses of both
Parties in such audit. Any records or accounting information received from the
other Party shall be Confidential Information for purposes of Article 7.
5.8 SALES BY SUBLICENSEES. In the event the Commercializing Party grants
licenses or sublicenses to Third Parties to make, use and sell a Product or
Other Product with respect to which a royalty payment is due hereunder, and the
Commercializing Party is not otherwise supplying any Product or Other Product to
such licensee or sublicensee, such licenses or sublicenses shall include an
obligation for the licensee or sublicensee to
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account for and report its Net Sales of such Products or Net Sales of such Other
Products on the same basis as if such sales were Net Sales of such Products or
Net Sales of such Other Products by the Party granting the license or
sublicense, and such Party shall account for, report and pay appropriate
royalties to the Party receiving royalties under this Agreement as if the Net
Sales of such Products or Net Sales of such Other Products of the sublicensee
were Net Sales of such Products or Net Sales of such Other Products of the Party
granting the license or sublicense (regardless of whether such Party has
actually received payment from the party to whom it granted such license or
sublicense), subject to the provisions of Section 5.3 above regarding blocked
currency payments.
ARTICLE 6
LICENSE GRANTS
6.1 LICENSES DURING COLLABORATION.
(a) RESEARCH TERM LICENSES.
(i) Signal grants to Nippon Kayaku an exclusive, except as
to Signal, royalty-free, worldwide license to make and use methods and materials
solely to carry out the Research for the discovery, identification and
investigation of Compounds in the Field, with the right to grant sublicenses to
Affiliates only (except as agreed by the Parties in writing), under Signal
Patents, Signal Know-How, Collaboration Patents and Collaboration Know-How,
during the Research Term.
(ii) Nippon Kayaku grants to Signal an exclusive, except
as to Nippon Kayaku, royalty-free, worldwide license to make and use methods and
materials solely to carry out the Research for the discovery, identification and
investigation of Compounds in the Field, with the right to grant sublicenses to
Affiliates only (except as agreed by the Parties in writing), under Nippon
Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents and Collaboration
Know-How, during the Research Term.
(b) LICENSES IN THE PNS FIELD.
(i) Signal shall and hereby does grant to Nippon Kayaku an
exclusive (even as to Signal), royalty-bearing license, with the right to grant
sublicenses, under Signal Patents, Signal Know-How, Collaboration Patents and
Collaboration Know-How to make, have made, use and sell Products in the PNS
Field solely in Japan.
(ii) In the event of the election of the Joint
Commercialization Alternative, effective upon execution or consummation by the
Parties of a definitive Joint Commercialization Agreement, Signal shall and
hereby does grant to Nippon Kayaku or to the joint venture (in the event that a
separate joint venture entity is formed), such licenses under Signal Patents,
Signal Know-How, Collaboration Patents and
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Collaboration Know-How, and Nippon Kayaku shall and does hereby grant to Signal
or to the joint venture (in the event that a separate joint venture entity is
formed) such licenses under the Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How, as are necessary or useful to
make, have made, use, sell and import Products in the PNS Field in the Rest of
the World in the manner agreed to by the Parties under the Joint
Commercialization Agreement.
(iii) In the event of election of the Royalty Alternative,
the non-participating Party shall and hereby does grant to the Commercializing
Party an exclusive (even as to the non-participating Party) license, with the
right to grant sublicenses, under non-participating Party Patents,
non-participating Party Know-How, Collaboration Patents and Collaboration
Know-How to make, have made, use, sell and import Products in the PNS Field in
those countries in the Rest of the World as to which the Royalty Alternative
applies.
(c) LICENSES IN THE CNS FIELD.
(i) In the event of the election of the Joint
Commercialization Alternative, effective upon execution or consummation by the
Parties of a definitive Joint Commercialization Agreement, Signal shall and
hereby does grant to Nippon Kayaku or to the joint venture (in the event that a
separate joint venture entity is formed), such licenses under Signal Patents,
Signal Know-How, Collaboration Patents and Collaboration Know-How, and Nippon
Kayaku shall and does hereby grant to Signal or to the joint venture (in the
event that a separate joint venture entity is formed) such licenses under the
Nippon Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents and
Collaboration Know-How, as are necessary or useful to make, have made, use, sell
and import Products in the CNS Field in the manner agreed to by the Parties
under the Joint Commercialization Agreement.
(ii) In the event of election of the Royalty Alternative,
the non-participating Party shall and hereby does grant to the Commercializing
Party an-exclusive (even as to the non-participating Party) license, with the
right to grant sublicenses, under non-participating Party Patents,
non-participating Party Know-How, Collaboration Patents and Collaboration
Know-How to make, have made, use, sell and import Products in the CNS Field in
those countries as to which the Royalty Alternative applies.
The licenses granted pursuant to subsections (b)(ii) and (c)(i) above shall be
subject to the obligation of the Parties to share Profits and Losses and
Operating Expenses in accordance with Section 3.1 above and shall not be
royalty-bearing.
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6.2 COMMERCIALIZATION LICENSES.
6.2.1 PRODUCTS OUTSIDE THE FIELD.
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How to make, have made, use and
sell Products outside the Field, subject to the Parties' rights and obligations
under Section 4.3; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Products
outside the Field, subject to the Parties' rights and obligations under Section
4.3.
Promptly following the effectiveness of such license grants, each Party shall
deliver to the other Party copies of all confidential information and materials
relating to the applicable Patents and Know-How to enable such other Party to
fully utilize the license rights granted hereunder.
6.2.2 OTHER PRODUCTS IN THE FIELD.
Effective upon expiration of the Research Term:
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How to make, have made, use and
sell Other Products in the Field, subject to the Parties' rights and obligations
under Section 4.4; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Other
Products in the Field, subject to the Parties' rights and obligations under
Section 4.4.
6.2.3 OTHER PRODUCTS OUTSIDE THE FIELD.
Effective upon expiration of the Research Term:
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration
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Patents and Collaboration Know-How to make, have made, use and sell Other
Products outside the Field, subject to the Parties' rights and obligations under
Section 4.5; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Other
Products outside the Field, subject to the Parties' rights and obligations under
Section 4.5.
6.3 SUBLICENSES. Each Party shall notify any permitted sublicensee
hereunder of all rights and obligations of such Party under this Agreement
licensed to such sublicensee. Upon termination of this Agreement for breach
pursuant to Section 10.2, no existing sublicenses granted by the defaulting or
terminating Party shall be affected by such termination, and all such
sublicenses shall remain in effect according to their terms as sublicenses of
the non-defaulting Party.
ARTICLE 7
CONFIDENTIALITY; PUBLICATIONS
7.1 CONFIDENTIALITY; EXCEPTIONS.
(a) NONDISCLOSURE. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree that, during
the term of this Agreement and a ten (10) year period thereafter, the receiving
Party shall keep confidential and shall not publish or otherwise disclose or use
for any purpose, other than as provided for in this Agreement, any Know-How,
information included in any pending application included in the applicable
Patents or other materials furnished to it by the other Party pursuant to this
Agreement or developed or acquired in connection with the Collaboration
(collectively, "Confidential Information").
(b) EXCEPTIONS. The restrictions under this Section 7.1 shall not
apply to the extent that it can be established by the receiving Party that such
Confidential Information:
(i) was already known to the receiving Party, other than
under an obligation of confidentiality, at the time of disclosure by the other
Party;
(ii) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to the receiving Party;
(iii) becomes generally available to the public or
otherwise part of the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this Agreement; or
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(iv) is lawfully received by the receiving Party from a
Third Party who does not acquire it, directly or indirectly, from the other
Party under an obligation of confidence after its disclosure.
7.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential
Information hereunder to the extent such disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or conducting pre-clinical or
clinical trials, provided that a Party making any such disclosure will give
prompt notice to the other Party of such disclosure requirement and, except to
the extent inappropriate in the case of patent applications, will use its
reasonable efforts to secure confidential treatment of such Confidential
Information required to be disclosed and to minimize the extent of such
disclosure. Each Party also may disclose to its collaborators for the
Collaboration, under confidentiality obligations, Confidential Information
developed by such Party during the course of this Collaboration.
7.3 PUBLICATIONS. Either Party may publish or present the results of the
Research subject to the prior review by the other Party for patentability and
protection of Confidential Information. Each party (the "submitting Party")
shall provide to the other the opportunity to review any proposed abstract,
manuscript or presentation which covers the results of the Research by
delivering a copy thereof to the other Party (the "reviewing Party") no less
than forty-five (45) days before its intended submission for publication or
presentation. The reviewing Party shall have thirty (30) days from its receipt
of any such abstract, manuscript or presentation in which to notify the
submitting Party in writing of any specific concern, based upon either the need
to seek patent protection or concern regarding competitive disadvantage arising
from the proposal. In the absence of such a notice within such thirty (30) day
period, the publication or presentation of such abstract, manuscript or
presentation shall be deemed approved by the reviewing Party. In the event of
concern, the submitting Party agrees not to submit such publication or to make
such presentation that contains such Confidential Information until the
reviewing Party is given a reasonable period of time (not to exceed forty-five
(45) days) to seek patent protection for any material in such publication or
presentation which it believes is patentable or to resolve any other issues.
Each Party also agrees to delete from any such proposed publication any
Confidential Information of the other Party upon its reasonable request based
upon the commercial value of the secrecy of such Confidential Information.
7.4 PUBLIC DISCLOSURE. The Parties shall agree to the public
announcement of the execution of this Agreement excluding provisions relating to
economical conditions; provided, however, that the Parties shall negotiate the
contents of the public announcement with each other and decide on them prior to
the public announcement. Thereafter, the Parties shall consult and agree with
each other prior to the issuances of any press releases that discuss aspects of
the Collaboration; provided, however, that each
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Party shall be entitled to make public disclosures required by law, including
compliance with securities laws.
ARTICLE 8
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
8.1 OWNERSHIP OF COLLABORATION PATENTS; NIPPON KAYAKU PATENTS; SIGNAL
PATENTS. Nippon Kayaku and Signal shall be joint owners of all Collaboration
Patents with all ownership rights under such Collaboration Patents as fully
entitled by law, subject only to the licenses expressly granted herein. The
Parties agree to take all such actions, including execution of all documents,
necessary or appropriate so that the Collaboration Patents shall be owned
jointly by Nippon Kayaku and Signal. Nippon Kayaku shall retain all right, title
and interest in and to any Nippon Kayaku Patents, subject only to the licenses
expressly granted herein. Signal shall retain all right, title and interest in
and to any Signal Patents, subject only to the licenses expressly granted
herein. Each Party acknowledges and agrees, subject to the first sentence of
this Section 8.1, that any and all discoveries, know-how, inventions, methods
and ideas and the like made or discovered solely by its officers, employees,
consultants or agents shall be owned solely by it and that any and all
discoveries, know-how, inventions, methods, ideas and the like made jointly by
officers, employees, consultants or agents of each will be jointly owned, as
determined in accordance with the rules of inventorship under United States
patent law.
8.2 PATENT FILINGS.
(a) NIPPON KAYAKU PATENTS. Nippon Kayaku shall supervise and
direct patenting of all inventions covered by any Nippon Kayaku Patents, and
shall file and prosecute all patent applications covering any Nippon Kayaku
Patents. All Patent Costs and Nippon Kayaku's internal costs and expenses of
filing, prosecuting and maintaining the Nippon Kayaku Patents shall be borne by
Nippon Kayaku. Nippon Kayaku shall maintain all Patents that issue on such
applications.
(b) SIGNAL PATENTS. Signal shall supervise and direct patenting
of all inventions covered by any Signal Patents, and shall file and prosecute
all patent applications covering any Signal Patents. All Patent Costs and
Signal's internal costs and expenses of filing, prosecuting and maintaining the
Signal Patents shall be borne by Signal. Signal shall maintain all Patents that
issue on such applications.
(c) COLLABORATION PATENTS. The responsibility for the
preparation, filing, prosecution and maintenance of Collaboration Patents will
be administered through a Patent Committee comprised of two (2) members: one (1)
appointed by Signal and one (1) appointed by Nippon Kayaku. The Parties intend
that:
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(i) The Patent Committee shall meet together at such site
and timing or conduct discussion by means of telephone calls, by letter, by
telefax or by E-mail at such site and means, as may be agreed by the Parties.
Each Party shall pay its own costs in attending Patent Committee meetings. The
Patent Committee shall provide reports to the RMC on a semi-annual basis of the
status of the Collaboration Patents. Either Party may refer any dispute to the
appropriate officers of the Parties for consideration and resolution pursuant to
Article 12;
(ii) Unless otherwise determined by the Patent Committee,
the supervision and direction of patenting of all inventions covered by the
Collaboration Patents, and filing and prosecution of all patent applications
covering Collaboration Patents, shall be the responsibility of Signal in the
United States and shall be the responsibility of Nippon Kayaku in Japan; and
(iii) The Parties shall share equally the Patent Costs of
preparing, filing, prosecuting and maintaining the Collaboration Patents and
shall each bear their own internal costs and expenses of filing, prosecuting and
maintaining the Collaboration Patents.
(d) COOPERATION. Each Party agrees to cooperate with the Party
responsible for the filing, prosecution and maintenance of Patents. Such
cooperation will include the execution of all documents necessary or appropriate
for such responsible Party to fulfill its obligations hereunder.
(e) RESTRICTIONS ON TRANSFER. No Collaboration Patents shall be
assigned, transferred or licensed by a Party to any Third Party without the
prior written consent of the other Party; provided, however, that a Party may,
without the consent of the other Party, grant sublicenses under Section 6.2.2 or
6.2.3.
(f) ELECTION NOT TO PURSUE. If a Party decides, at any time, not
to file or maintain any Patent as provided hereunder, it shall give the other
Party notice to this effect and upon such notice such other Party shall have the
right, but not the obligation, to file and maintain such Patent, in its own name
and at its own expense, and, if it so elects to file and maintain, then the
Party deciding not to so file or maintain shall assign to such other Party the
rights in such Patent.
8.3 ENFORCEMENT RIGHTS.
(a) DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third
Party asserts that a Patent or other right owned by it is infringed by the
manufacture, use or sale of any pharmaceutical product subject to any of the
licenses granted under Article 6 during the term of this Agreement, the Party
commercializing such product shall control the defense of such claim at its
initial cost and expense; provided, however, that in the event that such matter
includes claims with respect to the Collaboration Patents or
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Collaboration Know-How, the RMC (or, if after the Research Term, the Parties
mutually) shall determine how to respond to such claim, and shall control the
defense of such claim, with the initial cost and expense of such defense to be
shared equally by the Parties. No settlement shall be entered into without the
prior written consent of the Party commercializing any such product if such
settlement would adversely affect its interests, which consent shall not be
unreasonably withheld.
(b) INFRINGEMENT BY THIRD PARTIES WITH RESPECT TO PRODUCTS DURING
RESEARCH TERM. If any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent is infringed by a Third Party in any country in connection with the
manufacture, use and sale of any pharmaceutical product subject to any of the
licenses granted under Article 6 in such country during the Research Term, the
Party to this Agreement first having knowledge of such infringement shall
promptly notify the other in writing. The notice shall set forth the facts of
that infringement in reasonable detail. In the event a Collaboration Patent is
infringed by a Third Party, the RMC shall control any action or proceeding with
respect to such infringement, at its expense by counsel of its choice, and the
Parties shall share equally in the costs thereof. In the case of Signal Patents
or Nippon Kayaku Patents, the Party owning or Controlling such Patent shall have
the primary right, but not the obligation, to institute, prosecute, and control
any action or proceeding with respect to such infringement, by counsel of its
own choice, and the other Party shall have the right, at its own expense, to be
represented in any action involving any such Patent by counsel of its own
choice. If the Party owning or Controlling such Patent fails to bring an action
or proceeding within a period of sixty (60) days after having knowledge of
infringement of such Patent and such infringement would have a commercially
significant adverse effect on such products, the other Party shall have the
right to bring and control any such action by counsel of its own choice, and the
first Party shall have the right to be represented in any such action by counsel
of its own choice at its own expense. If one Party brings any such action or
proceeding, the other Party agrees to be joined as a Party plaintiff if
necessary to prosecute the action and to give the first Party reasonable
assistance and authority to file and prosecute the suit.
(c) INFRINGEMENT BY THIRD PARTIES WITH RESPECT TO PRODUCTS AFTER
RESEARCH TERM. If any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent is infringed by a Third Party in any country in connection with the
manufacture, use or sale of any pharmaceutical product subject to this Agreement
in such country following the Research Term and prior to any termination of the
Collaboration, the Party to this Agreement first having knowledge of such
infringement shall promptly notify the other in writing. The notice shall set
forth the facts of that infringement in reasonable detail. In the event that the
Parties have entered into a Joint Commercialization Agreement, infringement
matters shall be handled in the manner specified in such Agreement. Otherwise,
the Commercializing Party shall have the primary right, but not the obligation,
to institute, prosecute, and control any action or proceeding with respect to
such infringement of any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent,
22.
<PAGE> 28
by counsel of its own choice, and the other Party shall have the right, at its
own expense, to be represented in any action involving any of its Patents or any
Collaboration Patent by counsel of its own choice. If the Commercializing Party
fails to bring an action or proceeding within a period of sixty (60) days after
having knowledge of infringement of such Patent and such infringement would have
a commercially significant adverse effect on such products, the other Party
shall have the right to bring and control any such action by counsel of its own
choice, and the Commercializing Party shall have the right to be represented in
any such action by counsel of its own choice at its own expense. If one Party
brings any such action or proceeding, the other Party agrees to be joined as a
party plaintiff if necessary to prosecute the action and to give the first Party
reasonable assistance and authority to file and prosecute the suit.
(d) MONETARY AWARDS. Any damages or other monetary awards
recovered shall be allocated first, to the costs and expenses of the Party
bringing suit, and the costs and expenses, if any, of the other Party. Any
amounts remaining shall be allocated as follows: (i) in accordance with the
allocation of Profits and Losses if the Parties have entered into a Joint
Commercialization Agreement, or (ii) to the Party bringing the suit, which
amounts shall be treated as Net Sales of Products or Net Sales of Other Products
subject to the applicable royalty obligations set forth in this Agreement. A
settlement or consent judgment or other voluntary final disposition of a suit
under Sections 8.4(b) or (c) may not be entered into without the prior written
consent of the Party not bringing the suit.
(e) INFRINGEMENT OF COLLABORATION PATENTS OUTSIDE THE FIELD. With
respect to infringement of the Collaboration Patents outside the Field, the
Parties shall consult with each other regarding the institution, prosecution and
control of any action or proceeding with respect to the infringement of any of
the Collaboration Patents. In the absence of agreement, each Party may proceed
in such manner as the law permits. Each Party shall bear its own expenses, with
any recovery allocated pro rata according to costs and any excess shared equally
by the Parties.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY
9.1 REPRESENTATIONS AND WARRANTIES. Each of the Parties hereby
represents and warrants and covenants as follows:
(a) BINDING OBLIGATION. This Agreement is legally and validly
binding upon each Party and enforceable in accordance with its terms. The
execution, delivery and performance of the Agreement by each Party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it is bound, nor violate any law or regulation
of any court, governmental body or administrative or other agency having
jurisdiction over it.
23.
<PAGE> 29
(b) NO CONFLICTING GRANTS. Except as set forth in Section 2.4(b)
and Schedule IV hereto, each Party has not granted, and during the term of the
Agreement will not grant, any right to any Third Party relating to its
respective technology including Know-How and Patents in the Field which would
conflict with the rights granted to the other Party hereunder.
(c) VALID LICENSE. Each Party owns or Controls under valid
licenses with right of sublicense all of the rights, title and interest in and
to its Know-How. Each Party warrants that to the best of its knowledge, except
as otherwise disclosed, no license, sublicense or any of its Patents for which
the other Party is granted rights hereunder is invalid as of the Effective Date
and each Party will inform the other Party immediately if it makes any
determination to the contrary.
(d) NO THIRD PARTY LICENSES NEEDED. Neither Party is currently
aware of any license from any Third Party (other than any license such Party has
previously obtained) necessary to enable the Parties to conduct the Research
contemplated by the Research Plan or commercialize the pharmaceutical products
contemplated by this Agreement.
9.2 LIMITATION ON WARRANTIES. Nothing herein shall be construed as a
representation or warranty by either Party to the other that any Patent or
Know-How or other intellectual property right owned or Controlled by such Party
is valid, enforceable, or not infringed by any Third Party, or that the practice
of such rights does not infringe any property right of any Third Party. Neither
Party makes any warranties, express or implied, concerning the success of the
Research, or the commercial utility of Research Leads or any pharmaceutical
products developed or commercialized hereunder.
EXCEPT AS EXPRESSLY MADE HEREIN, EACH PARTY DISCLAIMS ANY WARRANTY, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, OF ANY PRODUCT, OR ANY REPRESENTATION OR WARRANTY THAT
A PRODUCT ENCOMPASSED BY THE RIGHTS LICENSED HEREUNDER WILL NOT INFRINGE ANY
THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS.
9.3 NEGATIVE COVENANTS. Each Party hereby covenants to the other that
such Party shall not use or practice the other Party's Patents or Know-How in
any field or in any manner except as specifically licensed under this Agreement.
24.
<PAGE> 30
ARTICLE 10
TERM AND TERMINATION
10.1 TERM. This Agreement shall commence as of the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect until the
later of (i) the conclusion of the Collaboration between the Parties or (ii) the
date on which all royalty obligations of the Parties cease pursuant to Section
5.6.
10.2 TERMINATION FOR BREACH.
(a) BREACH BY SIGNAL. If Signal materially breaches this
Agreement at any time, and has not cured such breach within ninety (90) days
after written notice thereof from Nippon Kayaku, then Nippon Kayaku shall have
the right to terminate this Agreement effective upon written notice thereof,
whereupon (i) all licenses granted by Nippon Kayaku to Signal hereunder shall
terminate and revert to Nippon Kayaku, (ii) all licenses granted to Nippon
Kayaku shall remain in full force and effect so long as Nippon Kayaku is not in
breach of its obligations to Signal under this Agreement and (iii) Signal shall
return to Nippon Kayaku all Confidential Information of Nippon Kayaku.
(b) BREACH BY NIPPON KAYAKU. If Nippon Kayaku materially breaches
this Agreement, at any time, and has not cured such breach within ninety (90)
days after written notice thereof from Signal, then Signal shall have the right
to terminate this Agreement effective upon written notice thereof, whereupon (i)
all licenses granted by Signal to Nippon Kayaku hereunder shall terminate and
revert to Signal, (ii) all licenses granted to Signal shall remain in full force
and effect so long as Signal is not in breach of its obligations to Nippon
Kayaku under this Agreement and (iii) Nippon Kayaku shall return to Signal all
Confidential Information of Signal.
10.3 TERMINATION FOR BANKRUPTCY. Either Party hereto shall have the
right to terminate this Agreement forthwith by written notice to the other Party
(i) if the other Party is declared insolvent or bankrupt by a court of competent
jurisdiction, (ii) if a voluntary or involuntary petition in bankruptcy is filed
in any court of competent jurisdiction against the other Party, or (iii) if the
other Party shall make or execute an assignment for the benefit of creditors.
10.4 SURVIVING RIGHTS. In addition to the rights described in Section
10.2, the obligations and rights of the Parties under Sections 6.3, 8.1, 8.2(c),
8.2(d), 10.4, 10.5, 10.6, 11.1 and 11.2 and Articles 5, 7, 12 and 13 shall
survive termination or expiration of this Agreement.
10.5 ACCRUED RIGHTS, SURVIVING. Termination or expiration of the
Agreement for any reason shall be without prejudice to any rights which shall
have accrued to the benefit of either Party prior to such termination or
expiration, including, without
25.
<PAGE> 31
limitation, any payment obligations of the Parties and any and all damages
arising from any breach hereunder. Such termination or expiration shall not
relieve either Party from obligations which are expressly indicated to survive
termination or expiration of the Agreement.
10.6 TERMINATION NOT SOLE REMEDY. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available except as agreed to otherwise herein.
ARTICLE 11
INDEMNIFICATION; INSURANCE
11.1 RESEARCH AND DEVELOPMENT INDEMNIFICATION. Each Party (the
"Indemnifying Party") shall indemnify, defend and hold the other Party (the
"Indemnified Party") harmless from and against any and all suits, judgments,
damages, claims, actions, demands, liabilities, expenses and/or losses,
including reasonable legal expenses and attorneys' fees ("Losses"):
(a) arising out of (i) any injuries to person and/or damage to
property resulting from negligent acts of the Indemnifying Party performed in
carrying out the Research hereunder, including failure by the Indemnifying Party
to provide the Indemnified Party with any Know-How of the Indemnifying Party
which, if timely received, would have avoided injury, death or damage, provided
such failure to provide such Know-How is due to negligence on the part of the
Indemnifying Party, or (ii) personal injury to the Indemnified Party's employees
or agents or damage to the Indemnified Party's property resulting from acts
performed by, under the direction of, or at the request of the Indemnifying
Party (other than acts otherwise required to be performed by the Indemnified
Party by this Agreement) in carrying out activities contemplated by this
Agreement; or
(b) with respect to pharmaceutical products covered by this
Agreement (determined on a country-by-country basis), resulting directly from
the manufacture, use, handling, storage, sale or other disposition of chemical
agents or such products by the Indemnifying Party, its Affiliates, agents or
sublicensees, except to the extent such Losses result directly from the
negligence of the Indemnified Party, its Affiliates, agents or sublicensees.
11.2 INDEMNIFICATION PROCEDURES. In the event that Indemnified Party is
seeking indemnification under Section 11.1, it shall inform the Indemnifying
Party of a claim as soon as reasonably practicable after it receives notice of
the claim, shall permit the Indemnifying Party to assume direction and control
of the defense of the claim (including the right to settle the claim solely for
monetary consideration), and shall
26.
<PAGE> 32
cooperate as requested (at the expense of the Indemnifying Party) in the defense
of the claim.
11.3 INSURANCE. The Parties will work with one another to coordinate
appropriate insurance coverage for the activities contemplated by the Parties
under this Agreement.
ARTICLE 12
DISPUTE RESOLUTION
12.1 DISPUTES. The Parties recognize that disputes as to certain matters
may from time to time arise which relate to either Party's rights and/or
obligations hereunder. It is the objective of the Parties to establish
procedures to facilitate the resolution of such disputes in an expedient manner
by mutual cooperation and without resort to litigation. To accomplish this
objective, the Parties agree to follow the procedures set forth in this Article
12 if and when such a dispute arises between the Parties.
12.2 DISPUTE RESOLUTION PROCEDURES.
(a) If the Parties or the RMC cannot resolve the dispute within
twenty (20) days of formal request by either Party to the other, any Party may,
by written notice to the other (the "Dispute Notice"), have such dispute
referred to their respective officers designated below or their successors, for
attempted resolution by good faith negotiations within thirty (30) days after
such notice is received. Said designated officers are as follows:
<TABLE>
<S> <C>
For Nippon Kayaku: Head, Research & Development Division
Pharmaceuticals Group
For Signal: Chief Executive Officer
</TABLE>
(b) Any such dispute arising out of or relating to this Agreement
which is not resolved between the Parties or the designated officers of the
Parties pursuant to the foregoing shall be resolved by final and binding
arbitration conducted in Honolulu, Hawaii, USA under the current Licensing
Agreement Arbitration Rules of the American Arbitration Association ("AAA");
provided, however, that depositions shall be permitted as follows: each Party
may take no more than seven (7) depositions with a maximum of six (6) hours of
examination time per deposition, and each such deposition shall take place in
Honolulu, Hawaii, USA, unless otherwise agreed by the Parties. The arbitration
shall be conducted by three (3) arbitrators who are knowledgeable in the subject
matter which is at issue in the dispute and who are selected by mutual agreement
of the Parties or, failing such agreement, shall be selected according to the
AAA rules. In conducting the arbitration, the arbitrators shall be able to
decree any and all relief of an equitable
27.
<PAGE> 33
nature, including but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction or replevin of property.
The arbitrators shall also be able to award actual, general or consequential
damages, but shall not award any other form of damages (i.e., punitive damages).
The Parties shall share equally the arbitrators' fees and expenses pending the
resolution of the arbitration unless the arbitrators, pursuant to their right
but not their obligations, require the nonprevailing Party to bear all or any
portion of the costs of the prevailing Party. The decision of the arbitrators
shall be final and may be sued on or enforced by the Party in whose favor it
runs in any court of competent jurisdiction at the option of such Party.
ARTICLE 13
MISCELLANEOUS
13.1 ASSIGNMENT.
(a) TO AFFILIATES. Notwithstanding any provision of this
Agreement to the contrary, either Party may assign any of its rights or
obligations under this Agreement in any country to any Affiliates; provided,
however, that such assignment shall not relieve the assigning Party of its
responsibilities for performance of its obligations under this Agreement.
(b) ON SALE OF COMPANY. Either Party may also assign its rights
or obligations under this Agreement in connection with the sale of all or
substantially all of its assets, or otherwise with the prior written consent of
the other Party. This Agreement shall survive any merger of either Party with or
into a Third Party and no consent for a merger or similar reorganization shall
be required hereunder; provided, that in the event of such merger or in the
event of a sale of all assets, no intellectual property rights of the acquiring
corporation shall be included in the technology licensed hereunder.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the Parties.
Any assignment not in accordance with this Agreement shall be void.
13.2 RESEARCH AND DEVELOPMENT ENTITIES. Either Party may assign its
rights and obligations under this Agreement to an entity or entities (e.g.,
partnership or corporation) that are specifically formed for financial purposes
that would not jeopardize the collaboration hereunder and that finance research
and development performed by such Party, which entity able to carry out such
Party's obligations hereunder; provided, however, that such assignment shall not
relieve the assigning Party of responsibility for performance of its obligations
under this Agreement.
13.3 CONSENTS NOT UNREASONABLY WITHHELD. Whenever provision is made in
this Agreement for either Party to secure the consent or approval of the other,
that
28.
<PAGE> 34
consent or approval shall not unreasonably be withheld, and whenever in this
Agreement provision is made for one Party to object to or disapprove a matter,
such objection or disapproval shall not unreasonably be exercised.
13.4 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting Party, provided
that the Party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such force majeure; provided, however, that in no event shall a
Party be required to settle any labor dispute or disturbance.
13.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or useful in order to carry out the purposes and intent of this
Agreement.
13.6 NO TRADEMARK RIGHTS. Except as otherwise provided herein, no right,
express or implied, is granted by the Agreement to use in any manner the name
"Signal" or "Nippon Kayaku" or any other trade name or trademark of the other
Party or its Affiliates in connection with the performance of the Agreement.
13.7 NOTICES. All notices hereunder shall be in writing and shall be
deemed given if delivered personally, mailed by registered or certified mail
(return receipt requested), postage prepaid, or sent by express courier service,
to the Parties at the following addresses (or at such other address for a Party
as shall be specified by like notice; provided, that notices of a change of
address shall be effective only upon receipt thereof):
If to Signal, to: Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attention: Alan J. Lewis, Ph.D.
Chief Executive Officer
Telephone: (619) 558-7500
Telecopy: (619) 558-7513
29.
<PAGE> 35
If to Nippon Kayaku, to: Nippon Kayaku Co., Ltd.
Tokyo Fujimi Building
11-2, Fujimi 1-chome
Chiyoda-ku, Tokyo 102
Japan
Attention: Mr. Motonobu Yazaki
Managing Director
Telephone: 03-3237-5011
Telecopy: 03-3237-5081
13.8 WAIVER. Except as specifically provided for herein, the waiver from
time to time by either of the Parties of any of their rights or their failure to
exercise any remedy shall not operate or be construed as a continuing waiver of
same or of any other of such Party's rights or remedies provided in this
Agreement.
13.9 SEVERABILITY. If any term, covenant or condition of this Agreement
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (i) the remainder of this Agreement,
or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the Parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the Parties that the basic purposes and economic terms of this Agreement are to
be effectuated.
13.10 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
13.11 COUNTERPARTS. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
13.12 ENTIRE AGREEMENT. This Agreement sets forth all the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersedes and terminates all prior agreements
and understanding between the Parties, except the Secrecy Agreement and the
Material Transfer Agreement. There are no covenants, promises, agreements,
warranties, representations conditions or understandings, either oral or
written, between the Parties other than as set forth herein and therein. No
subsequent alteration, amendment, change or addition to this Agreement shall be
binding upon the Parties hereto unless reduced to writing and signed by the
respective authorized officers of the Parties.
30.
<PAGE> 36
13.13 GOVERNING LAW. Resolution of all disputes arising out of or
related to this Agreement or the performance, enforcement, breach or termination
of this Agreement and any remedies relating thereto, shall be governed by and
construed under the substantive laws of the State of California and the federal
law of the United States of America, without regard to conflicts of law rules.
13.14 HEADINGS. The Article headings and Section headings are placed
herein merely as a matter of convenience and are not to be constructed as a part
of this Agreement.
31.
<PAGE> 37
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
NIPPON KAYAKU CO., LTD.
By: /s/ MOTONOBU YAZAKI
--------------------------------------
Name: Motonobu Yazaki
------------------------------------
Title: Managing Director
-----------------------------------
SIGNAL PHARMACEUTICALS, INC.
By: /s/ ALAN LEWIS
--------------------------------------
Name: Alan Lewis
------------------------------------
Title: Pres/CEO
-----------------------------------
32.
<PAGE> 38
EXHIBIT A
[***]
33.
***Confidential Treatment Requested
<PAGE> 39
EXHIBIT B
RESEARCH PLAN
[***]
34.
***Confidential Treatment Requested
<PAGE> 40
EXHIBIT C
[***]
35.
***Confidential Treatment Requested
<PAGE> 41
EXHIBIT D
PROFITS, LOSSES AND OPERATING EXPENSES
For purposes of the Joint Commercialization Agreement, the terms set
forth below shall have the following meaning (all references to "overhead" in
this Exhibit D shall be determined in accordance with generally accepted
accounting principles):
1. "ADVERTISING AND EDUCATION EXPENSE" means costs, including direct
overhead directly attributable to the Collaboration but excluding other
overhead, incurred by a Party or for its account which are specifically
identifiable to the advertising and marketing of Products, and related
professional education, of a Product and consistent with a marketing plan and
budget mutually acceptable to the Parties; provided, however, that such term
shall exclude Selling and Promotion Expenses.
2. "CLINICAL DEVELOPMENT COSTS" means costs, including direct overhead
directly attributable to the Collaboration but excluding other overhead,
incurred by a Party or for its account, specifically identifiable to the
development of a Product, which is aimed at achieving regulatory approval to
market such Product or an expanded or significantly modified label for a Product
as to which regulatory approval to market such Product has been previously
obtained, including Cost of Goods for Product for use in clinical trials and
costs incurred with regulatory submissions, wages and benefits to the extent
employees work on clinical trials or regulatory submissions (calculated on a
full-time equivalent basis) and investigator grants and laboratory materials.
3. "COST OF GOODS" means the cost of Products shipped in either bulk or
final therapeutic form, as the Parties may then agree. As used herein, the cost
of Products means (i) in the case of products and services acquired from Third
Parties, payments made to such Third Parties, and (ii) in the case of
manufacturing services performed by the Parties, including manufacturing
services in support of Third Party manufacturing, the actual unit costs of
manufacture in bulk form or final manufacturing, as the case may be, plus the
variances and other costs specifically provided for herein. Actual unit costs
shall consist of direct material and direct labor costs plus manufacturing
overhead directly attributable to the Products at standard, all calculated in
accordance with reasonable cost accounting methods, consistently applied, of the
Party performing the work.
Direct material costs shall include the costs incurred in purchasing
materials, including sales and excise taxes imposed thereon and customs duty and
charges levied by government authorities, and all costs of packaging components.
Direct labor shall include the cost of employees engaged in direct
manufacturing activities and direct or indirect quality control and quality
assurance activities who are directly employed in Product manufacturing and
packaging.
36.
<PAGE> 42
Overhead attributable to the Products shall include a reasonable
allocation of indirect labor (not previously included in direct labor), a
reasonable allocation of administrative costs, and a reasonable allocation of
facilities costs. Such allocations shall be in accordance with reasonable cost
accounting methods, consistently applied, of the Party performing the work.
4. "DISTRIBUTION COSTS" means the costs, including direct overhead
directly attributable to the Collaboration but excluding other overhead,
incurred by a Party or for its account, specifically identifiable to the
distribution of a Product to a Third Party including (i) handling and
transportation to fulfill orders (excluding such costs, if any, treated as a
deduction in the definition of Net Sales), (ii) customer services including
order entry, billing and adjustments, inquiry and credit and collection, and
(iii) direct cost of facilities utilized for the storage and distribution of
Products.
5. "LOSSES" means Net Sales of Products less Operating Expenses, if such
amount is less than zero (0).
6. "OPERATING EXPENSES" means (i) Clinical Development Costs, (ii) Cost
of Goods, (iii) Distribution Costs, (iv) Selling and Promotion Expenses, (v)
Advertising and Education Expenses, (vi) royalties payable to a Third Party for
the manufacture, use or sale of Products, (vii) the direct costs of ongoing
medical studies to support such Product, excluding overhead, (viii) direct
expenses associated with market withdrawals, field adjustments or recalls, (ix)
capital expenditures specifically identifiable to the development and
commercialization of Products (and not otherwise included herein), and (x)
direct expenses relating to selling by non-Affiliates, training, adverse event
reporting, patents and trademarks.
7. "PROFITS" means Net Sales of Products less Operating Expenses, if
such amount is greater than or equal to zero (0).
8. "SELLING AND PROMOTION EXPENSES" means costs incurred to operate and
maintain the sales force which promotes Products, sales bulletins and other
communications, sales meetings, specialty sales forces, consultants, call
reporting and other monitoring/tracking costs, district and regional sales
management, home office personnel who support the sales force, and other
ancillary services.
37.
<PAGE> 43
SCHEDULE I
[***]
***Confidential Treatment Requested
<PAGE> 44
SCHEDULE II
[***]
***Confidential Treatment Requested
<PAGE> 45
SCHEDULE III
INITIAL MEMBERS OF RESEARCH MANAGEMENT COMMITTEE
Initial Signal Representatives:
[***]
Initial Nippon Kayaku Representatives:
[***]
42.
***Confidential Treatment Requested
<PAGE> 46
SCHEDULE IV
CERTAIN SIGNAL PROGRAMS
1. Molecular Targets
[***]
2. Cell Based Targets
[***]
3. Viral Targets
[***]
43.
***Confidential Treatment Requested
<PAGE> 1
Exhibit 10.46
PROMISSORY NOTE
$62,000.00 San Diego, California
May 8, 1998
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of SIGNAL PHARMACEUTICALS, INC., a California corporation (the
"Company"), at 5555 Oberlin Drive, San Diego, California 92121, or at such other
place as the holder hereof may designate in writing, in lawful money of the
United States of America and in immediately available funds, the principal sum
of Sixty-Two Thousand Dollars ($62,000.00) together with interest accrued from
the date hereof on the unpaid principal at the rate of 5.69% per annum, or the
maximum rate permissible by law (which under the laws of the State of California
shall be deemed to be the laws relating to permissible rates of interest on
commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder
shall be due and payable in full on May 8, 2003.
INTEREST PAYMENTS. Interest shall be payable annually in arrears
and shall be calculated on the basis of a 360-day year for the actual
number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable ninety (90) days after such
termination.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company (the "Pledged Shares"), and is subject to all of the terms
and provisions of the Stock Purchase Agreement and the Stock Pledge Agreement,
each of even date herewith between the undersigned and the Company.
If the undersigned sells or transfers any of the Pledged Shares (whether
or not such sale or transfer is for consideration or for no consideration), this
Note shall be accelerated and all remaining unpaid principal and interest shall
become immediately due and payable after such sale or transfer.
1.
<PAGE> 2
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ ALAN J. LEWIS, PH.D.
------------------------------------
ALAN J. LEWIS, PH.D.
EXHIBIT A - Stock Pledge Agreement
2.
<PAGE> 3
EXHIBIT A
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by ALAN J.
LEWIS PH.D., an individual residing at 6510 Monte Fuego, Rancho Santa Fe,
California 92067 ("Pledgor"), in favor of SIGNAL PHARMACEUTICALS, INC., a
California corporation with its principal place of business at 5555 Oberlin
Drive, San Diego, California 92121 ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of Sixty-Two
Thousand Dollars ($62,000.00) in payment of the purchase price of Four Hundred
Twenty-Five Thousand (425,000) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such indebtedness
being the "Liabilities"), together with, without limitation, the prompt payment
of all expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incidental to the collection of the Liabilities and the
enforcement or protection of Pledgee's lien in and to the collateral pledged
hereunder, Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first
priority security interest in all of the following (collectively, the "Pledged
Collateral"):
(a) Four Hundred Twenty-Five Thousand (425,000) shares of Common
Stock of Pledgee represented by Certificate No.(s) ____________ (the "Pledged
Shares"), and all dividends, cash, instruments, and other property or proceeds
from time to time received, receivable, or otherwise distributed in respect of
or in exchange for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from
time to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
1.
<PAGE> 4
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (i) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (ii) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (iii) insure, process and preserve the
Pledged Collateral; (iv) cause the Pledged Collateral to be transferred to its
name or to the name of its nominee; or (v) exercise as to such Pledged
Collateral all the rights, powers and remedies of an owner, except that so long
as no default exists under the Note or hereunder Pledgor shall retain all voting
rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (i) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (ii) failure to pay any installment of principal or
interest on the Note when due; (iii) the levy of any attachment, execution or
other process against the Pledged Collateral; or (iv) the insolvency, commission
of an act of bankruptcy, general assignment for the benefit of creditors, filing
of any petition in bankruptcy or for relief under the provisions of Title 11 of
the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the Pledged Collateral in such order as Pledgee may elect, and any such sale may
be made either at public or private sale at its place of business or elsewhere,
or at any broker's board or securities exchange, either for cash or upon credit
or for future delivery; provided, however, that if such disposition is
2.
<PAGE> 5
at private sale, then the purchase price of the Pledged Collateral shall be
equal to the public market price then in effect, or, if at the time of sale no
public market for the Pledged Collateral exists, then, in recognition of the
fact that the sale of the Pledged Collateral would have to be registered under
the Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and Pledgor hereby agree that such private sale shall be at a
purchase price mutually agreed to by Pledgee and Pledgor or, if the parties
cannot agree upon a purchase price, then at a purchase price established by a
majority of three independent appraisers knowledgeable of the value of such
collateral, one named by Pledgor within 10 days after written request by the
Pledgee to do so, one named by Pledgee within such 10 day period, and the third
named by the two appraisers so selected, with the appraisal to be rendered by
such body within 30 days of the appointment of the third appraiser. The cost of
such appraisal, including all appraiser's fees, shall be charged against the
proceeds of sale as an expense of such sale. Pledgee may be the purchaser of any
or all Pledged Collateral so sold and hold the same thereafter in its own right
free from any claim of Pledgor or right of redemption. Demands of performance,
notices of sale, advertisements and presence of property at sale are hereby
waived, and Pledgee is hereby authorized to sell hereunder any evidence of debt
pledged to it. Any sale hereunder may be conducted by any officer or agent of
Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate of
one share for each fourteen cents ($0.14) of principal amount of indebtedness
paid. Release from pledge, however, shall not result in release from the
3.
<PAGE> 6
provisions of those certain Joint Escrow Instructions, if any, of even date
herewith among the parties to this Pledge Agreement and the Escrow Agent named
therein.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State. Dated: May 8, 1998
PLEDGOR
/s/ ALAN J. LEWIS, Ph.D.
- -------------------------------
ALAN J. LEWIS, Ph.D.
4.
<PAGE> 1
EXHIBIT 10.47
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 CFR Sections 200.80,
200.83 and 230.406
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
AXYS PHARMACEUTICALS, INC.
AND
SIGNAL PHARMACEUTICALS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS..................................................................1
1.1 "Active Compound"............................................................1
1.2 "Affiliate"..................................................................2
1.3 "Availability Pool"..........................................................2
1.4 "Axys Know-How"..............................................................2
1.5 "Axys Patents"...............................................................2
1.6 "Back-Up Compound"...........................................................2
1.7 "Collaboration Compound".....................................................3
1.8 "Commercialization Budget"...................................................3
1.9 "Commercialization Plan".....................................................3
1.10 "Confidential Information"...................................................3
1.11 "Control"....................................................................3
1.12 "Effective Date".............................................................3
1.13 "Fair Market Value"..........................................................3
1.14 "FDA"........................................................................3
1.15 "Field"......................................................................3
1.16 "First Commercial Sale"......................................................3
1.17 "FTE"........................................................................3
1.18 "IND"........................................................................4
1.19 "Information"................................................................4
1.20 "Joint Know-How".............................................................4
1.21 "Joint Patents"..............................................................4
1.22 "Joint Research Committee" or "JRC"..........................................4
1.23 "Joint Development Committee" or "JRC".......................................4
1.24 "Know-How"...................................................................4
1.25 "Licensed Product"...........................................................4
1.26 "Major Pharmaceutical Market"................................................4
1.27 "Materials"..................................................................4
1.28 "NDA"........................................................................4
1.29 "Net Sales"..................................................................5
1.30 "Option".....................................................................5
1.31 "Option".....................................................................5
1.32 "Patent Right"...............................................................5
1.33 "Person".....................................................................5
1.34 "Phase I"....................................................................5
1.35 "Phase II"...................................................................5
1.36 "Phase III"..................................................................6
1.37 "Product Development Plan"...................................................6
1.38 "Profits or Losses"..........................................................6
1.39 "Regulatory Approval"........................................................6
1.40 "Research"...................................................................6
1.41 "Research Plan"..............................................................6
1.42 "Research Technology"........................................................6
1.43 "Research Term"..............................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.44 "Retained Compound"..........................................................6
1.45 "Retained Product"...........................................................6
1.46 "Reversion Compound".........................................................6
1.47 "Reversion Product"..........................................................6
1.47 "Signal Designee"............................................................7
1.48 "Signal ER Beta Selective Compounds".........................................7
1.49 "Signal Know-How"............................................................7
1.50 "Signal Patents".............................................................7
1.52 "Sublicensee"................................................................7
1.53 "Territory"..................................................................7
1.54 "Third Party"................................................................7
1.55 "Valid Claim"................................................................7
ARTICLE 2 RESEARCH.....................................................................7
2.1 Collaborative Research.......................................................7
2.2 Conduct of the Research......................................................8
2.3 Signal Research Efforts......................................................8
2.4 Research Funding.............................................................9
2.5 Research Information and Reports.............................................9
2.6 Identification of Active Compounds...........................................9
2.7 Treatment for Commercial or Scientific Impracticability......................9
2.8 Material Transfer...........................................................10
2.9 Liability...................................................................10
2.10 Subcontractors..............................................................10
ARTICLE 3 LICENSES....................................................................11
3.1 Research and Commercialization License to Axys..............................11
3.2 Commercialization License Option to Signal..................................12
3.3 Commercialization License for Retained Compounds and Retained Products
to Signal...................................................................13
3.4 Negative Covenants..........................................................13
ARTICLE 4 MANAGEMENT OF THE COLLABORATION.............................................14
4.1 Creation and Structure of the Joint Research Committee......................14
4.2 Creation and Structure of the Joint Development Committee...................16
ARTICLE 5 PRODUCT DEVELOPMENT, commercialization and option...........................19
5.1 Selection of Compounds and Diligence........................................19
5.2 Development Information and Reporting.......................................20
5.3 Commercialization Activities................................................21
5.4 Profit-Share Option.........................................................22
5.5 Diagnostics; Animals........................................................23
ARTICLE 6 MILESTONES, ROYALTIES AND OTHER PAYMENTS....................................24
6.1 Research and Milestone Payments.............................................24
6.2 Payments for Sales Inside the Territory.....................................24
6.3 Payments for Sales Outside the Territory....................................24
6.4 Term of Royalty Obligation..................................................25
6.5 Timing of Payment; Reporting Obligations....................................25
6.6 Third Party Licenses........................................................25
6.7 Mode of Payment.............................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.8 Obligation to Pay Royalties.................................................26
6.9 Records Retention...........................................................26
6.10 Audits......................................................................26
6.11 Taxes.......................................................................27
ARTICLE 7 INVENTIONS AND PATENTS......................................................27
7.1 Title to Inventions.........................................................27
7.2 Rights to Other Compounds...................................................27
7.3 Patent Prosecution..........................................................28
7.4 Enforcement of Patents......................................................30
7.5 Third Party Patent Rights...................................................31
ARTICLE 8 CONFIDENTIALITY.............................................................31
8.1 Confidentiality Obligations.................................................31
8.2 Publications................................................................32
8.3 Press Releases..............................................................33
ARTICLE 9 INDEMNIFICATION.............................................................33
9.1 Indemnification by Axys.....................................................33
9.2 Indemnification by Signal...................................................34
9.3 Notification of Claims; Conditions to Indemnification Obligations...........34
ARTICLE 10 TERMINATION AND EXPIRATION..................................................34
10.1 Term and Termination........................................................34
10.2 Termination of the Agreement upon Material Breach...........................35
10.3 Consequences of Termination.................................................35
10.4 Accrued Rights; Surviving Obligations.......................................36
10.5 Rights in Bankruptcy........................................................36
ARTICLE 11 MISCELLANEOUS PROVISIONS....................................................36
11.1 Relationship of the Parties.................................................36
11.2 Assignments.................................................................37
11.3 Representations and Warranties..............................................37
11.4 Additional Representations and Warranties of Signal.........................38
11.5 Disclaimer of Warranties....................................................38
11.6 Further Actions.............................................................38
11.7 Force Majeure...............................................................38
11.8 No Trademark Rights.........................................................38
11.9 Entire Agreement of the Parties; Amendments.................................38
11.10 Captions....................................................................39
11.11 Applicable Law..............................................................39
11.12 Disputes....................................................................39
11.13 Notices and Deliveries......................................................39
11.14 No Consequential Damages....................................................40
11.15 Non-Solicitation............................................................40
11.16 Waiver......................................................................41
11.17 Compliance with Law.........................................................41
11.18 Severability................................................................41
11.19 Counterparts................................................................41
</TABLE>
iii
<PAGE> 5
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This Collaborative Research and License Agreement (this "Agreement") is
made and entered into effective as of October 15, 1999, by and between Axys
Pharmaceuticals, Inc., a Delaware corporation having its principal place of
business at 180 Kimball Way, South San Francisco, CA 94080 ("Axys"), and Signal
Pharmaceuticals, Inc., a California corporation having a place of business at
5555 Oberlin Drive, San Diego, CA 92121 ("Signal"). Axys and Signal may be
referred to herein as a "Party" or, collectively, as "Parties."
RECITALS
WHEREAS, Signal and its Affiliates possess proprietary technology and
know-how related to selective estrogen receptor modulators ("SERMs"); and
WHEREAS, Axys and its Affiliates are engaged in the research,
development and marketing of products for the treatment of, among other things,
diseases within the field of cancer; and
WHEREAS, Axys and Signal desire to collaborate in the discovery,
development and commercialization of SERMs for use in the prevention, and/or
treatment of certain human diseases as identified below.
NOW, THEREFORE, in consideration of the various promises and
undertakings set forth herein, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
Unless otherwise specifically provided herein, the following terms will
have the following meanings:
1.1 "ACTIVE COMPOUND" means any compound that:
(a) meets those criteria for ER Beta receptor potency and
selectivity set forth in Schedule 1.1(a) hereto; and
(b) satisfies one or more of the following:
(i) is Controlled by Signal as of the Effective Date,
including without limitation, [***]; or
(ii) is discovered or identified, by or on behalf of
either Party, to meet the criteria of Section 1.1(a) in the course of the
Research conducted under this Agreement or is discovered or identified by or on
behalf of Axys to meet the criteria of Section 1.1(a) in the course of Axys'
continuation of the Research during the license period set forth in Section
3.1(a)(ii); or
*** Confidential Treatment Requested
<PAGE> 6
(iii) is acquired (including, without limitation, the
acquisition of rights thereto) during the Research Term by either Party from a
Third Party, on an absolute or contingent basis (such as rights under an
option), and is determined to meet the criteria of Section 1.1(a); or
(iv) is generically described within a claim describing
a genus of compounds the utility of which is given as estrogen receptor
modulation, as defined in any pending or issued claim of any unexpired Axys
Patent, Signal Patent or Joint Patent filed in the United States or Japan or as
a European Patent Application, or as a Patent Cooperation Treaty ("PCT")
application designating the United States and the contracting states of the
European Patent Convention, and as to which at least one member of such genus
meets the requirements of Section 1.1(a) and either Section 1.1(b)(i),
1.1(b)(ii) or 1.1(b)(iii); provided that such compound is synthesized and
assayed within [***] after the end of the Research Term.
1.2 "AFFILIATE" with respect to either Party, will mean any Person
controlling, controlled by, or under common control with such Party. For the
purposes of this Section 1.2 only, "control" will refer to (a) the possession,
directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, or (b) the ownership, directly or indirectly, of at least 50% (or, if
less, the maximum ownership interest permitted by law) of the voting securities
or other ownership interest of a Person.
1.3 "AVAILABILITY POOL" will have the meaning assigned to such term in
Section 5.1(a).
1.4 "AXYS KNOW-HOW" means all Information Controlled by Axys at any time
during the Research Term or during the license period set forth in Section
3.1(a)(ii) that is necessary or useful for the identification, development,
synthesis, assaying, manufacture, use or sale of Active Compounds and Licensed
Products, but excluding the Axys Patents, any Joint Patents and any Information
that Axys is restricted from disclosing due to confidentiality obligations to
any Third Party.
1.5 "AXYS PATENTS" means all Patent Rights that are Controlled by Axys
that claim (i) Active Compounds or Licensed Products, (ii) the manufacture or
use of Active Compounds or Licensed Products, or (iii) methods or materials used
for discovering, identifying, or assaying for, Active Compounds or Licensed
Products, in each case where such Patent Rights claim inventions made prior to
the Effective Date or during the Research Term or during the license period set
forth in Section 3.1(a)(ii), but excluding any Joint Patents.
1.6 "BACK-UP COMPOUND" means any Active Compound that has been selected
by the JRC as a back-up compound with respect to a particular Collaboration
Compound, as provided in Section 5.1, together with any salt, solvate or prodrug
of such selected back-up compound.
***CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE> 7
1.7 "COLLABORATION COMPOUND" means any Active Compound that has been
selected by the JRC for further development and commercialization as a
Collaboration Compound, as provided in Section 5.1, together with any salt,
solvate or prodrug of such selected compound.
1.8 "COMMERCIALIZATION BUDGET" will have the meaning ascribed to such
term in Section 5.3(b).
1.9 "COMMERCIALIZATION PLAN" will have the meaning ascribed to such term
in Section 5.3(b).
1.10 "CONFIDENTIAL INFORMATION" means a Party's confidential
information, inventions, know-how, data and materials relating to the Research
or Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii), or the Active Compounds or Licensed Products, including
without limitation research, technical, clinical development, manufacturing,
marketing, financial, personnel and other business information and plans, which,
if disclosed in written, graphic or electronic form, is marked or otherwise
designated as "confidential" or "proprietary" and, if disclosed orally, is
summarized and designated as "confidential" or "proprietary" in a writing
provided to the receiving Party not later than sixty (60) days after such
disclosure. All information presented at the JRC or JDC meetings will be
rebuttably presumed to be Confidential Information, regardless of whether it
would otherwise qualify as such pursuant to the preceding sentence.
1.11 "CONTROL" means, with respect to an item of Information or an
intellectual property right, possession of the ability, whether by ownership or
license, to grant a license or sublicense as provided for herein under such item
or right without violating the terms of any agreement or other arrangements with
any Third Party.
1.12 "EFFECTIVE DATE" means the effective date of this Agreement as set
forth in the first paragraph hereof.
1.13 "FAIR MARKET VALUE" means the cash consideration which a willing
seller would realize from an unaffiliated, unrelated and willing buyer in an
arm's length sale of an identical item sold in the same quantity and at the same
time and place of the transaction.
1.14 "FDA" means the United States Food and Drug Administration, or the
successor federal agency thereto.
1.15 "FIELD" means any and all uses of Active Compounds for the
prevention and treatment of human cancers.
1.16 "FIRST COMMERCIAL SALE" means, with respect to any Licensed
Product, Reversion Product or Retained Product in any country, the first sale
for use or consumption by the general public of such Licensed Product, Reversion
Product or Retained Product in such country after all Regulatory Approvals have
been obtained in such country.
1.17 "FTE" means a full-time scientific person dedicated by Signal to
the Research, or in the case of less than a full-time dedicated scientific
person, a full-time, equivalent scientific
3
<PAGE> 8
person year, based upon a total of forty-seven (47) weeks (i.e., one thousand
eight hundred eighty (1,880) hours) per year of scientific work on or directly
related to the Research. Scientific work on or directly related to the Research
to be performed by a Party's employees may include, without limitation, and to
the extent consistent with the Party's past practices, experimental laboratory
work, recording and writing up results, reviewing literature and references,
holding scientific discussions, attending appropriate meetings, seminars and
symposia, managing and directing scientific staff, and carrying out management
duties related to the Research, including attendance at JRC meetings.
1.18 "IND" means an investigational new drug application filed with the
FDA for approval to commence human clinical trials, or the equivalent in other
countries or regulatory jurisdictions.
1.19 "INFORMATION" means any data, results, information, know-how, trade
secrets, techniques, methods, development, material, or compositions of matter
of any type or kind.
1.20 "JOINT KNOW-HOW" means all Research Technology that is made jointly
by employees or agents of Axys and by employees or agents of Signal during the
Research Term or during the license period set forth in Section 3.1(a)(ii), but
excluding the Joint Patents.
1.21 "JOINT PATENTS" means all Patent Rights that claim or cover
inventions within the Research Technology that are made jointly by employees or
agents of Axys and by employees or agents of Signal during the Research Term or
during the license period set forth in Section 3.1(a)(ii) and name as inventors
one or more employees or agents of Axys together with one or more employees or
agents of Signal.
1.22 "JOINT RESEARCH COMMITTEE" or "JRC" means that committee to be
formed pursuant to Section 4.1.
1.23 "JOINT DEVELOPMENT COMMITTEE" or "JDC" means that committee to be
formed pursuant to Section 4.2.
1.24 "KNOW-HOW" means Axys Know-How and/or Signal Know-How.
1.25 "LICENSED PRODUCT" means any product, including any formulation
thereof, containing or comprising a Collaboration Compound.
1.26 "MAJOR PHARMACEUTICAL MARKET" means each of the United States, the
countries of the European Union and Japan.
1.27 "MATERIALS" will have the meaning assigned to such term in Section
2.8.
1.28 "NDA" means a New Drug Application and all supplements filed
pursuant to the requirements of the FDA, including all documents, data and other
information concerning products which are necessary for or included in FDA
approval to market a Licensed Product in the United States.
4
<PAGE> 9
1.29 "NET SALES" means the gross amounts received by Axys or any of its
Affiliates or Sublicensees from all sales by Axys or any of its Affiliates or
Sublicensees to Third Parties, of any Licensed Product, as reflected in the
books and records of Axys or its Affiliates or Sublicensees, as applicable,
maintained in accordance with the accounting principles used by the applicable
entity consistently applied across all of its products, less the following
deductions with respect to such sale, to the extent included in the amounts
invoiced or subsequently actually allowed and taken: (i) all trade, cash and
quantity credits, discounts, refunds or rebates or retroactive price reductions;
(ii) allowances or credits for returns or rejected product; (iii) handling fees
and restocking expenses; (iv) freight, transportation, postage and insurance
paid by Axys or any of its Affiliates or Sublicensees; (v) sales taxes, tariffs,
duties and other governmental charges (including value added tax) actually paid
in connection with the sale (but excluding what are commonly known as income
taxes), and (vi) reasonable and customary accrual-basis deductions from such
gross amounts consistent with Axys' or its Affiliate's or Sublicensee's
accounting policy, as the case may be, for governmental chargebacks or rebates
(including without limitation Medicaid rebates). A "sale" will not include
transfers or dispositions for charitable or promotional purposes or for
preclinical, clinical, regulatory or governmental purposes prior to receiving
marketing approval. In the event a Licensed Product is sold in the form of a
combination product containing one or more active ingredients which are
themselves not Licensed Products, the Net Sales will be calculated by
multiplying the sales price of such combination product by the fraction A/(A+B)
where A is the invoice price or Fair Market Value, whichever is greater, of the
Licensed Product and B is the total invoice price or Fair Market Value,
whichever is greater, of the other product(s).
1.30 "OPTION" will have the meaning ascribed to such term in Section
5.4.
1.31 "OPTION PERIOD" will have the meaning ascribed to such term in
Section 5.4.
1.32 "PATENT RIGHT" means (i) an issued and existing letters patent,
including any extensions, supplemental protection certificates, registrations,
confirmations, reissues, reexaminations or renewals thereof, (ii) pending
applications, including any continuation, divisional, or continuation-in-part
application thereof, for any of the foregoing, and (iii) all counterparts to any
of the foregoing issued by or filed in any country or other jurisdiction.
1.33 "PERSON" means any natural person, corporation, firm, business
trust, joint venture, association, organization, company, limited liability
company, partnership or other business entity, or any government or agency or
political subdivision thereof.
1.34 "PHASE I" means that portion of the clinical development program
which generally provides for the first introduction into humans of a product
with the primary purpose of determining safety, metabolism and pharmacokinetic
properties and clinical pharmacology of the product.
1.35 "PHASE II" means that portion of the clinical development program
which provides for the initial trials of a product in a limited number of
patients with the primary purpose of determining safety, dosing range and
efficacy in the proposed therapeutic indication.
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1.36 "PHASE III" means that portion of the clinical development program
which provides for the pivotal trials of a product on sufficient numbers of
patients to establish the safety and efficacy of a product for the desired label
claims and indications.
1.37 "PRODUCT DEVELOPMENT PLAN" will have the meaning ascribed to such
term in Section 5.4.
1.38 "PROFIT OR LOSS" will have the meaning ascribed to such term in
Exhibit A.
1.39 "REGULATORY APPROVAL" means any and all approvals (including price
and reimbursement approvals), licenses, registrations, or authorizations of any
federal, national, state, provincial or local regulatory agency, department,
bureau or other government entity, necessary for the manufacture, use, storage,
import, transport and sale of a Licensed Product, Reversion Product or Retained
Product in a country.
1.40 "RESEARCH" means the collaborative research program undertaken by
the Parties pursuant to this Agreement to discover, identify, synthesize and
evaluate Active Compounds for use in the Field during the Research Term.
1.41 "RESEARCH PLAN" means the specific plan for conducting the
Research, as described in Section 2.1, which will be attached hereto as Exhibit
B, as such plan may be amended or revised from time-to-time by the JRC.
1.42 "RESEARCH TECHNOLOGY" means all tangible and intangible know-how,
trade secrets, inventions (whether or not patentable), discoveries,
developments, data, clinical and preclinical results, information, and physical,
chemical or biological materials, and any replication of or any part of any of
the foregoing, that was made by employees or agents of Axys and/or Signal,
either alone or jointly, during the course of and in the conduct of the Research
during the Research Term or by employees or agents of Axys or jointly by
employees or agents of Axys and Signal during the course of and in the conduct
of Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii).
1.43 "RESEARCH TERM" means the period commencing on the Effective Date
and terminating upon the second anniversary of the Effective Date (or the third
anniversary of the Effective Date if Axys exercises the extension option set
forth in Section 2.2(a)) or such earlier date as of which this Agreement is
terminated pursuant to Section 10.2.
1.44 "RETAINED COMPOUND" will have the meaning ascribed to such term in
Section 3.3(a).
1.45 "RETAINED PRODUCT" will have the meaning ascribed to such term in
Section 3.3(a).
1.46 "REVERSION COMPOUND" will have the meaning ascribed to such term in
Section 3.2(a).
1.47 "REVERSION PRODUCT" will have the meaning ascribed to such term in
Section 3.2(a).
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1.48 "SIGNAL DESIGNEE" will have the meaning ascribed to such term in
Section 4.1(e).
1.49 "SIGNAL ER BETA SELECTIVE COMPOUNDS" means all Signal-Controlled
compounds during the Research Term which are active modulators of the ER Beta
receptor.
1.50 "SIGNAL KNOW-HOW" means all Information Controlled by Signal at any
time during the Research Term that is necessary or useful for the
identification, development, synthesis, assaying, manufacture, use or sale of
Active Compounds and Licensed Products, but excluding the Signal Patents, any
Joint Patents and any Information that Signal is restricted from disclosing due
to confidentiality obligations to a Third Party.
1.51 "SIGNAL PATENTS" means all Patent Rights that are Controlled by
Signal that claim (i) Active Compounds or Licensed Products, (ii) the
manufacture or use of Active Compounds or Licensed Products or (iii) methods or
materials useful for discovering, identifying, or assaying for, Active Compounds
or Licensed Products, in each case where such Patent Rights claim inventions
made prior to the Effective Date or during the Research Term, but excluding any
Joint Patents.
1.52 "SUBLICENSEE" means a Person other than an Affiliate of Axys to
which Axys has granted sublicense rights under the licenses granted Axys
hereunder, which rights include at least the rights to make and sell Licensed
Products. Third Parties that are permitted only to distribute and resell
finished Licensed Products or that manufacture or finish Licensed Products for
supply to Axys or any of its Affiliates are not "Sublicensees."
1.53 "TERRITORY" means the United States and its territories and other
countries in which Axys sells Licensed Products directly or through any of its
Affiliate.
1.54 "THIRD PARTY" means any Person other than Axys, Signal or
Affiliates of either of them, or any Sublicensee.
1.55 "VALID CLAIM" means a claim of an issued and unexpired patent which
has not been revoked or held unenforceable or invalid by a decision of a court
or governmental agency of competent jurisdiction from which no appeal can be
taken or, after mutual consultation and agreement, an appeal is not taken within
the time allowed for appeal, and which has not been disclaimed, denied or
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.
ARTICLE 2
RESEARCH
2.1 COLLABORATIVE RESEARCH. Within thirty (30) days following the
Effective Date, the Parties will mutually agree upon a written Research Plan
which will be generally consistent with the research plans discussed previously
by the Parties and will be attached hereto as Exhibit B and thereby become
incorporated into this Agreement. As promptly as practicable thereafter, subject
to the terms and conditions herein, the Parties will each use commercially
reasonable diligent efforts to conduct the Research on a collaborative basis,
with the goal of discovering, identifying, synthesizing and performing
preclinical research on Active Compounds and with the
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further goal of identifying and selecting certain Active Compounds that are
suitable for development as Collaboration Compounds and for commercialization as
Licensed Products for use in the Field. Subject to Section 2.3 and other
applicable provisions, the Parties will conduct the Research as generally
specified in the Research Plan (as amended or revised by the JRC from
time-to-time). The Research Plan, among other things, will specify the
scientific direction and research milestones, and allocate Research
responsibilities and resources between the Parties in a manner consistent with
this Agreement.
2.2 CONDUCT OF THE RESEARCH.
(a) The Research will be managed and directed by the JRC, as
provided in Article 4 hereof. Axys will have the option, but not the obligation,
in its sole discretion, to extend the Research Term for an additional one (1)
year period subject to its continuation of the funding provided for in Section
2.4. Axys will exercise such option, if at all, by giving Signal written notice
not less than ninety (90) days prior to the second anniversary of the Effective
Date. Thereafter, the Research Term may be extended by the Parties for an
additional year upon the written agreement of the Parties.
(b) During the course of the Research, each Party will disclose
to the other the Know-How and patent applications of such Party included in such
Party's Patents as the other Party reasonably needs to conduct its obligations
and assigned tasks under the Research Plan. All work conducted by either Party
in the course of the Research, or by Axys during the license period set forth in
Section 3.1(a)(ii) in the course of its continuation of the Research, will be
completely and accurately recorded, in sufficient detail and in good scientific
manner, in separate laboratory notebooks distinct from other work being
conducted by the Parties. On reasonable notice, and at reasonable intervals,
each Party will have the right to inspect and copy all such records of the other
Party reflecting Research Technology, to the extent reasonably required to carry
out its respective obligations and to exercise its respective rights hereunder.
Notwithstanding Section 1.10, all such records will constitute Confidential
Information of the Party creating such records. The Parties acknowledge and
agree that neither Party guarantees the success of the Research tasks undertaken
hereunder.
(c) In order to protect the Parties' patent rights in any
inventions conceived or reduced to practice during or as a result of the
Research, each Party agrees to maintain a policy which requires its employees to
record and maintain all data and information developed during the Research in
such a manner as to enable the Parties to use such records to establish the
earliest date of invention and/or diligence to reduction to practice. At a
minimum, the policy will require such individuals to record all inventions
generated by them in standard laboratory notebooks which are dated and
corroborated by non-inventors on a regular, contemporaneous basis.
2.3 SIGNAL RESEARCH EFFORTS. Signal agrees to commit the resources set
forth in this Section 2.3 to perform its obligations under the Research Plan. In
conducting the Research, Signal will be responsible for the tasks allocated to
it under the Research Plan. In the performance of such work, Signal will
maintain and utilize scientific staff, laboratories, offices and other
facilities consistent with such undertaking and will use personnel with
sufficient skills and experience as are required to accomplish efficiently and
expeditiously the objectives of the Research as set forth in the Research Plan
in good scientific manner and in compliance in all
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material respects with all requirements of applicable laws, rules and
regulations, and all other requirements of applicable good laboratory practices.
Signal will commit [***] ([***]) FTEs [***] ([***]) of whom will be chemists
except as otherwise agreed to by the JRC), or such greater number of FTEs as
will be specified from time-to-time in the Research Plan and as will be
necessary to conducting Signal's obligations under the Research Plan, subject to
Axys' fulfillment of its payment obligations with respect to any such additional
FTEs under Section 2.4.
2.4 RESEARCH FUNDING. Axys will support Signal's efforts under the
Research for two (2) years, and for any extension of the Research Term, by
paying Signal an amount per year per Signal FTE (the "FTE Reimbursement Rate"),
as provided in the Research Plan. The FTE Reimbursement Rate will be equal to
$[***] per FTE per year. The amounts due Signal under this Section 2.4 will be
payable in equal installments on a quarterly basis, on the first day of each
January, April, July and October of each year during the Research Term (except
that the first payment will be due on the Effective Date, and such payment will
be pro rata based on the remaining portion of the then current calendar
quarter). Axys will be solely responsible for supporting the costs of Axys'
Research efforts as Axys determines to be appropriate and consistent with the
Research Plan, as well as its preclinical development efforts hereunder.
2.5 RESEARCH INFORMATION AND REPORTS. Subject to restrictions imposed by
a Party's confidentiality obligations to any Third Party, each Party will also
disclose at any time on or before the end of the Research Term and (in the case
of Axys) during the license period set forth in Section 3.1(a)(ii), any Know-How
learned, acquired or discovered by such Party reasonably promptly after such
Know-How is learned, acquired or discovered to the extent reasonably useful to
the other Party for conducting its tasks under the Research. Further, each Party
will disclose to the other all Research Technology discovered, invented, or
acquired by such Party during the Research Term and (in the case of Axys) during
the license period set forth in Section 3.1(a)(ii), including, without
limitation, information regarding Active Compounds, Collaboration Compounds or
Back-Up Compounds, activities of Active Compounds, Collaboration Compounds or
Back-Up Compounds, derivatives thereof, and results of in vitro and in vivo
studies. Nothing herein will require either Party to disclose information
received from a Third Party which remains subject to confidentiality obligations
to such Third Party.
2.6 IDENTIFICATION OF ACTIVE COMPOUNDS. Each Party will inform the other
Party's members on the JRC in writing as promptly as practicable upon the
Party's discovery, synthesis, acquisition or identification of Active Compounds
during the Research Term and (in the case of Axys) during the license period set
forth in Section 3.1(a)(ii). The notifying Party will include in such notices
the structure of such Active Compounds and the assay information showing the
required functional criteria as provided in Section 1.1(a).
2.7 TREATMENT FOR COMMERCIAL OR SCIENTIFIC IMPRACTICABILITY. If, during
the Research Term, the JRC determines that (a) the then current Research Plan is
not expected to lead to or result in Collaboration Compounds or that it would be
commercially or scientifically impractical, imprudent or inadvisable to continue
with the then current Research Plan, or (b) a Patent Right owned by a Third
Party is either granted or published in a Major Pharmaceutical Market and such
Patent Right (a "Blocking Patent") claims (i) methods of treating cancer using a
compound that is a Signal ER Beta Selective Compound, or (ii) the composition of
matter of a
***CONFIDENTIAL TREATMENT REQUESTED
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substantial number of the compounds identified by Axys and/or Signal as Active
Compounds as of the date the Parties become aware of such Patent Right (each, a
"Blocking Claim"), and (c) there is no reasonable revision that could be made to
such Research Plan so that the Research can continue in a productive manner
consistent with the objectives of the Research and this Agreement, then upon
such determination, the Parties will meet and confer to discuss the continuation
of research during the remainder of the Research Term on a substitute oncology
program to be mutually agreed to by the Parties. The terms and conditions of
such research and appropriate revisions to the Research Plan will be negotiated
by the Parties in good faith for a reasonable period not to exceed ninety (90)
days; [***].
2.8 MATERIAL TRANSFER. In order to facilitate the Research, either Party
may provide to the other Party certain biological materials or chemical
compounds including, but not limited to Active Compounds, receptors, reagents
and screens (collectively, "Materials") Controlled by the supplying Party (other
than under this Agreement) for use by the other Party in furtherance of the
Research. Except as otherwise provided under this Agreement, all such Materials
delivered to the other Party will remain the sole property of the supplying
Party, will be used only in furtherance of the Research (or, in the case of
Axys, in furtherance of its continuation of the Research during the license
period set forth in Section 3.1(a)(ii)) and solely under the control of the
other Party, will not be used or delivered to or for the benefit of any Third
Party without the prior written consent of the supplying Party, and will not be
used in research or testing involving human subjects. The Materials supplied
under this Section 2.8 must be used with prudence and appropriate caution in any
experimental work, since not all of their characteristics may be known. EXCEPT
AS EXPRESSLY SET FORTH IN SECTION 11.3 HEREOF, THE MATERIALS ARE PROVIDED "AS
IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT
INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.
2.9 LIABILITY. In connection with the conduct of the Research or, in the
case of Axys, in connection with the conduct of its continuation of the Research
during the license period set forth in Section 3.1(a)(ii), each Party will be
responsible for, and hereby assumes, any and all risks of personal injury or
property damage attributable to the negligent acts or omissions of that Party
and its directors, officers, employees and agents.
2.10 SUBCONTRACTORS. Axys and Signal may perform some of their
obligations under the Research Plan or (in the case of Axys) in connection with
Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii) through one or more subcontractors; provided that (i) none of
the rights of either Party hereunder are diminished or otherwise adversely
affected as a result of such subcontracting, and (ii) the subcontractor
undertakes in writing obligations of confidentiality and non-use regarding
Confidential Information which are substantially the same as those undertaken by
the Parties pursuant to Article 8 hereof. In the event either Party performs one
or more of its obligations under the Research Plan or (in the case of Axys) in
connection with Axys' continuation of the Research during the license period set
*** Confidential Treatment Requested
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forth in Section 3.1(a)(ii) through a subcontractor, then such Party will at all
times be responsible for the performance and payment of such subcontractor.
ARTICLE 3
LICENSES
3.1 RESEARCH AND COMMERCIALIZATION LICENSE TO AXYS.
(a) Subject to the other provisions of this Agreement, Signal
hereby grants Axys and any Affiliate subsequently designated in writing by Axys
to Signal pursuant hereto (i) during the Research Term an exclusive (except with
regard to Signal) worldwide, paid up right and license (without the right to
sublicense) under the Signal Patents and the Signal Know-How and under Signal's
rights in the Joint Know-How and Joint Patents solely to conduct the Research
and to discover, synthesize and, in connection with the Research, make and use
Active Compounds for use in the Field, and (ii) commencing at the expiration of
the Research Term and for a period of [***] thereafter, a non-exclusive,
worldwide, paid up right and license (without the right to sublicense) under the
Signal Patents and Signal Know-How and under Signal's rights in the Joint
Know-How and Joint Patents solely to discover, synthesize, and, in connection
with Axys' activities under this Agreement, make and use Active Compounds for
use in the Field; provided, however, that neither Axys nor any designated
Affiliate may conduct any development (other than preclinical development
activities which precede the initiation of IND-enabling studies) or
commercialization activities with respect to any Active Compound discovered,
synthesized, made or used by Axys or such designated Affiliate under this
Section 3.1(a)(ii) unless such Active Compound is first selected as a
Collaboration Compound in accordance herewith; and provided, further, that the
manufacture, use, sale and import of any Licensed Product containing or
comprising any such Collaboration Compound will be subject to all provisions of
this Agreement relating to Licensed Products.
(b) Subject to the other provisions of this Agreement
(including, without limitation, Section 5.1 hereof), Signal hereby grants to
Axys and any Affiliate of Axys subsequently designated in writing by Axys to
Signal pursuant hereto an exclusive (including with regard to Signal),
worldwide, royalty-bearing right and license, with the right to sublicense,
under the Signal Patents and the Signal Know-How and under Signal's rights in
the Joint Know-How and Joint Patents, solely to conduct development on, and to
make, have made and use for such purpose, Collaboration Compounds and Back-Up
Compounds for use in the Field and to make, have made, import, use, sell and
offer for sale Licensed Products for use in the Field; provided, however, that
neither Axys nor any designated Affiliate will be permitted to sublicense the
foregoing right and license in [***] to any Sublicensee prior to the earlier of
(i) [***], or (ii) [***]. For the avoidance of doubt, it is understood that
Axys' and its designated Affiliates' right to sell Licensed Products will
include the right to sell such Licensed Products under the foregoing license
through distributors. Without limiting any other provision of this Agreement, in
no event will Axys have any right under the Signal Patents, the Signal Know-How
or Signal's rights in the Joint Patents or Joint Know-How to develop, make, have
made, import, use, sell or offer for sale
***CONFIDENTIAL TREATMENT REQUESTED
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any products containing or comprising analogs or derivatives (other than salts,
solvates and prodrugs) of Collaboration Compounds or Back-Up Compounds, unless
any such analog or derivative itself has been selected as a Collaboration
Compound or Back-Up Compound.
3.2 COMMERCIALIZATION LICENSE OPTION FOR REVERSION COMPOUNDS AND
REVERSION PRODUCTS TO SIGNAL.
(a) Subject to the other provisions of this Agreement, in the
event that (i) any Collaboration Compound or Back-Up Compound ceases to be
included in the Availability Pool pursuant to Section 5.1(a), then, in any such
case, Axys hereby grants to Signal, subject to the terms and conditions hereof,
an exclusive option (the "License Option") during the [***] period following
each determination pursuant to such Section (the "License Option Period"), to
obtain an exclusive (including with regard to Axys), worldwide, royalty-bearing
right and license, with the right to sublicense, under the Axys Patents and the
Axys Know-How and under Axys' rights in the Joint Patents and Joint Know-How
solely (x) to conduct development on, and to make, have made and use for such
purpose, such former Collaboration Compound or Back-Up Compound, as the case may
be (each, a "Reversion Compound"), for use outside of the Field and (y) to make,
have made, import, use, sell and offer for sale pharmaceutical products
containing or comprising such Reversion Compound (each, a "Reversion Product"),
for use outside of the Field; provided, however, that [***]. Each License Option
will be exercisable by written notice from Signal to Axys during the applicable
License Option Period, and any such license will become effective automatically
upon Axys' receipt of written notice of exercise from Signal. Notwithstanding
any contrary provision of the first sentence of this Section 3.2(a), the rights
granted to Signal under the License Option will not include any right or license
to use or reference any pre-clinical or clinical data Controlled by Axys for any
purpose, including without limitation, submission of such data to a government
agency for Regulatory Approval, except as otherwise agreed in writing by Axys.
(b) If Signal exercises a License Option under this Section 3.2,
Signal will pay to Axys royalties equal to [***] percent ([***]%) of the net
sales of the applicable Reversion Products. For purposes of this Section 3.2
only, net sales will have the meaning set forth in Section 1.29, except that all
references to Axys in such definition will be changed to Signal. Signal's
royalty obligations under this Section 3.2(b) as to a particular Reversion
Product will terminate on the same basis as Axys' royalty obligations terminate
as provided in Section 6.4. All royalty payments under this Section 3.2(b) will
be made on the terms set forth in Sections 6.5, 6.6, 6.7, 6.8, 6.9 and 6.11 as
though such sections referred to Signal instead of Axys and will be subject to
Axys' right to audit Signal on terms equivalent to those set forth in Section
6.10.
(c) For the avoidance of doubt, if Signal does not exercise any
License Option under this Section 3.2 with respect to a former Collaboration
Compound or Back-Up Compound and conducts development and commercialization
activities with respect to such compound without practicing, using or infringing
the Axys Patents or the Axys Know-How or any of Axys' rights in the Joint
Patents and Joint Know-How, Signal will not be obligated to make any royalty
payments to Axys with respect to sales of pharmaceutical products containing or
comprising such compound.
***CONFIDENTIAL TREATMENT REQUESTED
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3.3 COMMERCIALIZATION LICENSE FOR RETAINED COMPOUNDS AND RETAINED
PRODUCTS TO SIGNAL.
(a) For the avoidance of doubt, Signal will at all times retain,
subject to the provisions of Section 3.4, the exclusive right to develop and
commercialize without any payment to Axys, Signal-Controlled Active Compounds
and pharmaceutical products containing or comprising Signal-Controlled Active
Compounds (excluding Active Compounds that are then also Collaboration Compounds
or Back-Up Compounds) (each, a "Retained Compound") for use outside of the
Field. Subject to the provisions of Section 3.4, Axys hereby grants to Signal an
exclusive (including with regard to Axys), worldwide, royalty-bearing right and
license, with the right to sublicense, under the Axys Patents and the Axys
Know-How and Axys' interest in the Joint Patents and Joint Know-How solely to
conduct development on, and to make, have made and use for such purpose, each
Axys-Controlled and jointly-Controlled Active Compound (excluding Active
Compounds that are then also Collaboration Compounds or Back-Up Compounds) for
use outside of the Field and to make, have made, import, use, sell and offer for
sale pharmaceutical products containing or comprising such Axys-Controlled or
jointly-Controlled Active Compound (each, a "Retained Product") for use outside
of the Field; provided, however, that to the extent Signal has exercised its
License Option pursuant to Section 3.2 with respect to a former Collaboration
Compound or Back-Up Compound, Signal will be obligated to make royalty payments
to Axys with respect to sales of the applicable Reversion Product in accordance
with Section 3.2.
(b) Except in cases in which Signal pays Axys royalties under
Section 3.2, Signal will pay to Axys royalties equal to [***] percent ([***]%)
of the net sales of the applicable Retained Product. For purposes of this
Section 3.3(b) only, net sales will have the meaning set forth in Section 1.29,
except that all references to Axys in such definition will be changed to Signal.
Signal's royalty obligations under this Section 3.3(b) as to a particular
Retained Product will terminate on the same basis as Axys' royalty obligations
terminate as provided in Section 6.4. All royalty payments under this Section
3.3(b) will be made on the terms set forth in Sections 6.5, 6.6, 6.7, 6.8, 6.9
and 6.11 as though such sections referred to Signal instead of Axys and will be
subject to Axys' right to audit Signal on terms equivalent to those set forth in
Section 6.10.
3.4 NEGATIVE COVENANTS.
(a) Signal covenants to Axys that neither Signal nor any
Affiliate of Signal will develop or commercialize or license any Third Party to
develop or commercialize (i) any Active Compound for use in the Field, or (ii)
any Collaboration Compound or Back-Up Compound (in each case, as long as it
remains such) for any use or purpose. [***]
(b) Signal covenants to Axys that neither Signal nor any
Affiliate or Sublicensee of Signal will research, develop or commercialize, or
license any Third Party to research, develop or commercialize any compound or
product whose primary mode of action is
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[***] for use in the Field during the Research Term and thereafter for so long
as [***].
(c) Except as expressly provided in Section 3.2(a), Signal will
not actively facilitate or encourage the off-label use in the Field of any
Active Compound (including any Collaboration Compound or Back-Up Compound)
removed from the Availability Pool by the JRC pursuant to Section 5.1(a). Axys
will not actively facilitate or encourage the off-label use outside the Field of
any Active Compound (including any Collaboration Compound or Back-Up Compound).
ARTICLE 4
MANAGEMENT OF THE COLLABORATION
4.1 CREATION AND STRUCTURE OF THE JOINT RESEARCH COMMITTEE.
(a) CREATION OF JRC. Within ten (10) days of the Effective Date,
the Parties will create a Joint Research Committee of six (6) persons to
facilitate the research collaboration called for herein. The JRC will consist of
an equal number of representatives nominated by each Party, as listed in the
Research Plan. Members of the JRC may be represented at any meeting by a
designee appointed by such member for such meeting. Each Party will be free to
change its representatives on notice to the other or to send a substitute
representative to any JRC meeting.
(b) REGULAR MEETINGS. Axys will call the meetings of the JRC and
chair such meetings. The JRC will meet in person at least once every three (3)
months during the Research Term and thereafter as reasonably requested by either
of the Parties until (i) the expiration or termination of Axys' license under
Section 3.1(a)(ii), or (ii) such later date as the Parties may agree if Signal
has exercised the Option and the Parties are continuing the Research.
Thereafter, the JRC will cease to exist. Meetings will alternate between the
offices of Axys and Signal. A JRC member of the Party hosting the meeting will
serve as Secretary of that meeting. Each Party will disclose to the other
proposed agenda items in advance of each meeting of the JRC. The Secretary of
the meeting will prepare and distribute to all members of the JRC minutes of the
meeting sufficiently in advance of the next meeting to allow adequate review and
comment prior to the meeting. Such minutes will provide a description in
reasonable detail of the discussions had at the meeting and a list of any
actions, decisions or determinations approved by the JRC. Minutes of each JRC
meeting will be approved or disapproved, and revised as necessary, at the next
meeting. Final minutes of each meeting will be distributed to the members of the
JRC. The JRC may also convene, or be polled or consulted from time-to-time by
means of telecommunications, video conferencing or written correspondence, as
deemed necessary or appropriate.
(c) RESPONSIBILITIES OF THE JRC DURING THE RESEARCH TERM. During
the Research Term, the JRC will be the primary vehicle for interaction between
the Parties with respect to the Research. Without limiting the foregoing, during
the Research Term, the JRC will be responsible for: (i) reviewing, approving and
amending the Research Plan; (ii) directing, managing and monitoring the progress
of the Research; (iii) determining from time-to-time the
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appropriate number of Signal FTEs who will be chemists; (iv) identifying and
selecting the specific Active Compounds to become or to cease as Collaboration
Compounds or Back-Up Compounds as contemplated in Section 5.1(a); (v)
determining in good faith from time-to-time as promptly as practicable the
composition and scope of the Availability Pool pursuant to Section 5.1(a); and
(vi) reviewing and commenting upon (but not approving) the patent filing
strategies of the Parties as provided in Article 7. The Research Plan will
contain the specific research objectives to be achieved, the specific
responsibilities of the Parties, and the timeline for the Research.
(d) RESPONSIBILITIES OF THE JRC AFTER THE RESEARCH TERM. After
the Research Term, the JRC will continue to exist primarily as a vehicle to
inform Signal about, and to obtain Signal's input regarding, Axys' continuation
of the Research subject to the other provisions of this Section 4.1(d). After
the end of the Research Term, the JRC will cease to manage and direct the
Research or any continuation of the Research by Axys as permitted hereunder,
and, except as provided hereinafter, the JRC shall no longer have the
responsibilities and decision-making authority otherwise provided for in this
Agreement; provided, however, that in the event that Signal exercises the Option
and the Parties agree to a further continuation of the Research thereafter, the
JRC will again be responsible for managing and directing the continuation of the
Research to the same extent it is responsible for managing and directing the
Research during the Research Term. During the period that the JRC does not have
responsibility for managing and directing any continuation of the Research, Axys
will be responsible for managing and directing any continuation of the Research
it deems appropriate subject to the following provisions:
(i) In the event Axys decides to continue the Research
as permitted hereunder, Axys will do so in good faith with the same goals as set
forth in Section 2.1.
(ii) While the Parties acknowledge that the JRC will not
be managing and directing Axys' continuation of the Research during this period,
the Parties intend that the collaborative and consultative nature of the
Research should continue. In connection with any continuation of the Research by
Axys, Axys will make a reasonable, good faith effort to keep Signal
appropriately informed of, solicit Signal's input and advice about, and give due
consideration to Signal's comments on, its continuation of the Research.
(iii) In addition, at the JRC meetings during the period
described in this Section 4.1(d), the Parties will continue to review and
comment upon (but not approve) the patent filing strategies of the Parties as
provided in Article 7.
(iv) During any continuation of the Research by Axys,
the Parties anticipate that additional Active Compounds may be synthesized by
Axys' employees or agents who are continuing the Research and that, as provided
herein, such Active Compounds will become part of the Availability Pool. In
recognition of both Parties' interests in appropriately retaining and releasing
Active Compounds from the Availability Pool, the JRC will continue, after the
end of the Research Term, to determine (as provided in Section 4.1(e)) in good
faith from time to time as promptly as practicable the composition and scope of
the Availability Pool.
(e) DECISIONS OF THE JRC. At least four (4) members of the JRC
will constitute a quorum for any meeting of the JRC; provided, that there are at
least two (2) members
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present from each Party. All decisions of the JRC will be made by the unanimous
vote of all JRC members participating in the meeting. In the event that the
members of the JRC cannot agree with respect to a particular issue (other than
any disagreement over matters described in Section 4.1(c)(iii)), such issue will
be referred to Axys' Chief Technical Officer and Signal's Chief Scientific
Officer who will discuss such issue in good faith (each party giving due
consideration to the other) and who will make a reasonable good faith effort to
reach agreement thereon within the ten (10) day period after such JRC meeting.
In the event such persons are unable to reach an agreement on such issue, it
will be referred to the Chief Executive Officer of Axys and Harry F. Hixson (or
such other member of the Board of Directors of Signal as Signal may designate by
written notice to Axys or, if the Chief Executive Officer of Axys is no longer a
member of the Board of Directors of Signal, the Chief Executive Officer of
Signal) (the "Signal Designee") for resolution pursuant to Section 11.12.
(f) EXPENSES. Each Party will be responsible for all travel and
related costs for its representatives to attend meetings of, and otherwise
participate on, the JRC.
4.2 CREATION AND STRUCTURE OF THE JOINT DEVELOPMENT COMMITTEE.
(a) CREATION OF JDC. If Signal exercises the Option pursuant to
Section 5.4, then within ten (10) days thereafter the Parties will create a
Joint Development Committee (the "JDC") with the purpose of providing direction,
as provided herein, in the subsequent development through Regulatory Approval of
Licensed Products, including without limitation, pre-clinical research, if any,
and clinical research. The JDC will be composed of three (3) representatives
appointed by each of Axys and Signal. Such representatives will include
individuals with expertise and responsibilities in the areas of preclinical
development and clinical development and other relevant areas of expertise.
Either Party may replace any or all of its representatives at any time upon
written notice to the other Party.
(b) REGULAR MEETING. The JDC will meet at least once each
calendar quarter, or more frequently, as agreed by the Parties until the First
Commercial Sale of the last Licensed Product being developed by Axys. Axys will
call the meetings of the JDC and will chair such meetings. At least four (4)
members of the JDC will constitute a quorum for any meeting of the JDC;
provided, that there are at least two (2) members present from each Party. Each
representative will have one (1) vote on all matters within the JDC's purview.
On matters requiring the approval of the JDC, such approval will be by the
unanimous vote of all JDC members participating in the meeting.
(c) ROLE OF JDC. The Parties acknowledge that the JDC is
intended to fulfill a different role than the role of the JRC and that in the
event that both research and development are occurring, both the JDC and the JRC
may exist. The Parties further acknowledge that two significant reasons for the
different JDC role are the fact that (i) Signal will have effectively accepted
Axys' Product Development Plan by its decision to exercise the Option and (ii)
Axys has responsibility as contemplated in Section 5.1(b) for the further
development and Regulatory Approval of Collaboration Compounds and Back-Up
Compounds and the commercialization of Licensed Products even after the JDC is
formed.
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(d) INTERACTIONS OF THE JDC AND AXYS. The Parties anticipate
that Axys, as the Party performing on a day-to-day basis the development
activities and the Regulatory Approval activities and planning and implementing
on a day-to-day basis the commercialization activities, will possess
substantially all of the knowledge, information and documentation pertaining to
its development, Regulatory Approval and commercialization plans, activities and
results. The Parties acknowledge that they do not intend that the JDC
micro-manage the development or Regulatory Approval activities of Axys with
respect to Collaboration Compounds and Back-Up Compounds. The Parties also
recognize that Axys' development, Regulatory Approval and (to the extent
relevant) commercialization plans for Collaboration Compounds and Back-Up
Compounds will change, will be defined and refined and will evolve from
quarter-to-quarter. As part of the interaction process with the JDC, Axys will
update the JDC at the quarterly JDC meetings, or more often as required, on
important development plans, Regulatory Approval and (to the extent relevant to
the development process) commercialization plans, activities and results. In
addition, Axys will (where practicable) include Signal's JDC personnel in its
significant internal discussions of important development plans and Regulatory
Approval and (to the extent relevant to the development process)
commercialization issues. Axys' Chief Medical Officer will also make himself
reasonably available to meet with Signal's Chief Medical Officer or appropriate
designee at mutually convenient times to discuss Axys' development, Regulatory
Approval and (to the extent relevant to the development process)
commercialization plans, activities and results. In its updates, reports and
plans, Axys will provide the JDC to the extent practicable with information
comparable to that relied on by Axys for its own internal decision-making and
all such updates, reports and plans will be in such form and will contain such
detail as the JDC may reasonably require in order to fulfill its purposes.
(e) THE PRODUCT DEVELOPMENT PLAN PROCESS. At the quarterly JDC
meetings (which, upon agreement of the Parties, may be part of Axys' internal
development review meetings) the Parties anticipate that Axys will present the
significant updates, revisions and modifications to its Product Development Plan
for a Collaboration Compound. The Product Development Plan and any update,
revision or modification thereto will be consistent with generally accepted
development practices in the industry for development of similar products. Axys'
presentations will include the rationale for such significant revisions or
modifications, as well as timing and cost implications and other meaningful
information. The JDC will review such updates, revisions and modifications and
will provide Axys with input, advice and guidance with respect thereto and with
additional revisions and modifications as deemed appropriate. To the extent that
the revisions and modifications being proposed are in the nature of further
definition or refinement to a Product Development Plan and JDC approval thereof
is not required hereunder, Axys will give due consideration to input and advice
from JDC personnel and other Signal personnel who interact with Axys in its
development activities and the Product Development Plan will then be further
defined and refined in accordance therewith and based upon Axys' best
developmental decision-making. In addition, from time-to-time Axys may request
approval of the JDC for certain proposed modifications to a Product Development
Plan. Following such approval, all references in this Agreement to such Product
Development Plan will thereafter be deemed to be references to the Product
Development Plan as modified with the JDC's approval. Notwithstanding the
foregoing, any proposed revision which (i) [***], or (ii) [***], or (iii) [***].
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[***] (each a "Major Change") will require the express approval of the JDC.
(f) MAJOR CHANGE DISPUTE RESOLUTION. In the event the JDC cannot
reach agreement on a Major Change, Axys' Chief Medical Officer and Signal's
Chief Medical Officer or appropriate designee will discuss such disagreement in
good faith (each party giving due consideration to the other) and will make a
reasonable good faith effort to reach agreement thereon within the ten (10) day
period after such JDC meeting. In the event the Parties are unable to resolve
their differences, such disagreement will be referred to the Chief Executive
Officer of Axys and the Signal Designee for resolution pursuant to Section
11.12.
(g) ADDITIONAL INDICATIONS. Although the Product Development
Plan may anticipate more than one indication, the Parties anticipate that the
Product Development Plan (as initially presented to Signal) will be very
specific for the first indication to be pursued in Phase III clinical trials and
relatively less specific for any additional indication. The Parties also
anticipate that the portions of the Product Development Plan addressing
additional indications will be updated, revised and modified from time-to-time
as part of the evolutionary process of the Product Development Plan. The Parties
further contemplate that, prior to initiating further clinical trials for any
additional indication (which are not on-going when Signal exercises the Option
or which are not scheduled at such time for commencement in the near term), Axys
will prepare and present to the JDC a specific trial plan and budget for each
subsequent further clinical trial for an additional indication. As such
additional indication is a part of the overall Product Development Plan, the
process as set forth in Section 4.2(e) and (f) will govern all proposed
revisions or modifications to the Product Development Plan.
(h) ADDITIONAL COMPOUNDS.
(i) In the event that, after Signal exercises the
Option, Axys desires to engage in any additional research or clinical
development with respect to any additional Collaboration Compound (such as a
Back-Up Compound or a second generation compound), Axys will prepare and present
to the JDC (and the JRC to the extent additional research is contemplated) an
initial Product Development Plan for such additional Collaboration Compound. The
JDC (and, if applicable, the JRC) will review, revise and approve such Product
Development Plan or additional research (as the case may be) for such additional
Collaboration Compound in good faith. Any disagreements with respect to approval
of such proposed Product Development Plan will be resolved in the manner that
disagreements over Major Changes are resolved under Section 4.2(f). Following
approval of such Product Development Plan, updates, revisions and modifications
will be governed by Sections 4.2(e), (f) and (g).
(ii) The Parties agree that fundraising constraints
should not affect their decision-making regarding the development of additional
Collaboration Compounds. Accordingly, in the event that a Party has a good faith
concern about its fundraising ability for a second Collaboration Compound, the
Parties will meet in good faith to achieve a mutually satisfactory resolution
for continued research and development and achieving the risk-return objectives
contemplated herein. Towards that end, and subject to Axys' financial ability to
do so, the following will be offered by Axys: In the event that, prior to
commercialization of the first Licensed Product, Signal indicates its inability
to fund its share of the research and
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development of a second Collaboration Compound as contemplated in the Product
Development Plan, then Axys would fund [***] of the research and development
costs of such second Collaboration Compound, provided that [***] of such
research and development costs (plus interest at the reference rate for the Bank
of America or any successor rate thereto) would be fully credited against
amounts due Signal hereunder with respect to the commercialization of the first
Licensed Product. In the event that the first Collaboration Compound does not
receive Regulatory Approval or ceases to be marketed before Axys has been repaid
in full by Signal, Signal would have the option to either (A) repay all amounts
due to Axys (plus interest) within a reasonable period of time (not to exceed
six (6) months) and to reaffirm its agreement to pay equally for the research
and development of any additional Collaboration Compound thereafter or (B)
revert prospectively to the status and rights it would have had if the Option
had never been exercised, including without limitation, the right to receive a
royalty and other amounts as set forth in Section 6.2 and 6.3, with respect to
such additional Collaboration Compound and any future Collaboration Compounds to
be developed and commercialized hereunder. In such later case, Axys would
forgive all amounts owed by Signal (including accrued interest) with respect to
such second Collaboration Compound.
ARTICLE 5
PRODUCT DEVELOPMENT, commercialization and option
5.1 SELECTION OF COMPOUNDS AND DILIGENCE.
(a) Upon the determination that a compound satisfies the
criteria for an Active Compound, then such Active Compound will become part of a
pool of Active Compounds for potential further development and commercialization
by Axys in accordance with the terms of this Agreement (the "Availability
Pool"). Active Compounds identified by Axys, if any, during the license period
set forth in Section 3.1(a)(ii), if any, will also be added to the Availability
Pool. From time-to-time the JRC will determine in good faith which of the Active
Compounds in the Availability Pool (including Collaboration Compounds and
Back-Up Compounds) are no longer viable candidates for further development and
commercialization for use in the Field (which determination will be noted in the
minutes of the applicable JRC meeting) and thereafter such Active Compounds will
no longer be considered to be part of the Availability Pool. Based on criteria
established by the JRC, the JRC will decide as promptly as practicable which
Active Compounds in the Availability Pool will be further optimized during the
Research and which of such Active Compounds should be deemed to be a
Collaboration Compound and which should be deemed to be Back-Up Compounds for
such Collaboration Compound. The Parties anticipate that there may be more than
one Collaboration Compound from time-to-time. The Collaboration Compounds and
Back-up Compounds identified as such at a particular JRC meeting shall be noted
in the minutes of that JRC meeting. After selection by the JRC as a
Collaboration Compound or Back-Up Compound, as the case may be, Axys will
perform such further preclinical development as agreed by the JRC on such
Collaboration Compounds and/or Back-Up Compounds in order to advance a
Collaboration Compound to the point of commencement of IND-enabling studies;
provided however, that Axys will have no obligation to, but may choose to, move
more than [***] into preclinical development at a time. Based on criteria
established by the JRC, the JRC may recommend to Axys the commencement
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of IND-enabling studies for one or more Collaboration Compounds. Axys will
determine, using its good faith judgment, which Collaboration Compound(s) will
commence IND-enabling studies.
(b) Subject to Section 4.2, if applicable, once a Collaboration
Compound is selected by Axys for IND-enabling studies, Axys will be solely
responsible for directing the development of, and will have the sole right to
carry out the development of, such Collaboration Compound through Axys' final
stage of preclinical development (IND-enabling studies), and all phases of
clinical trials, and to make all applications for and obtain all Regulatory
Approvals on a worldwide basis. In connection with its development
responsibilities hereunder, Axys will act in good faith, using its best
developmental decision-making and in a manner consistent with generally accepted
development practices in the industry for the development of similar products.
Axys will use commercially reasonable and diligent efforts to pursue the
preclinical and clinical development and commercialization of [***]
Collaboration Compounds, taking into account Axys' prioritization of multiple
Collaboration Compounds from time-to-time, in [***] in a time frame determined
in good faith by Axys under all the circumstances; provided, however, that Axys
will be entitled at any time (without breaching this Agreement) to determine not
to pursue further development or commercialization of any Collaboration Compound
or Back-Up Compounds. In addition, in the event that Axys determines not to
pursue further development or commercialization of any Collaboration Compounds
or Back-Up Compounds, then Axys will provide Signal with written notice of such
determination and, effective upon Signal's receipt of such notice, all such
compounds will cease to be Collaboration Compounds and Back-Up Compounds, as the
case may be. If Signal believes that Axys has failed to satisfy its diligence
obligations hereunder in any material respect Signal may give Axys written
notice specifying in detail the basis for Signal's belief that Axys has not met
its diligence obligations. Within ninety (90) days following Axys' receipt of
any such notice from Signal, Axys will provide Signal with a written response
specifying as applicable, in reasonable detail, how it has begun to use
commercially reasonable and diligent efforts and/or the basis of Axys' belief
that it is in compliance with its diligence obligations hereunder. In the event
of a dispute between the Parties with respect to whether Axys is using its
commercially reasonable and diligent efforts as provided herein, such dispute
will be referred to the Chief Executive Officer of Axys and the Signal Designee
for resolution pursuant to Section 11.12.
(c) Axys will be solely responsible for all costs and expenses
incurred by Axys in connection with its preclinical and clinical development and
regulatory efforts with respect to Active Compounds, Collaboration Compounds and
Back-Up Compound except as otherwise provided herein in the event that Signal
exercises the Option pursuant to Section 5.4.
5.2 DEVELOPMENT INFORMATION AND REPORTING. Commencing upon the
initiation of IND-enabling studies for a Collaboration Compound, Axys will keep
Signal appropriately informed about, and to solicit Signal's input and advice
about, and give due consideration to Signal's comments on, Axys' subsequent
preclinical and clinical development of such Collaboration Compound. Without
limiting the generality of the foregoing, Axys will inform appropriate Signal
personnel of important development, Regulatory Approval and (to the extent
relevant to the development process) commercialization plans, activities and
results, including without limitation, by providing Signal with drafts of the
Product Development Plan prior to its
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presentation to Signal under Section 5.4. In addition, Axys will (where
practicable) include appropriate Signal personnel in significant internal
discussion of important development plans and Regulatory Approval and (to the
extent relevant to the development process) commercialization issues. Axys'
Chief Medical Officer will also make himself reasonably available to meet with
Signal's Chief Medical Officer or appropriate designee at mutually convenient
times to discuss Axys' development, Regulatory Approval and (to the extent
relevant to the development process) commercialization plans, activities and
results. At least once every six (6) months, Axys' development personnel will
meet with Signal development personnel, which meeting may (upon the agreement of
the Parties) be part of Axys' internal development review meetings, to present
and discuss significant updates, revisions and modifications to Axys'
development plans for Collaboration Compounds. Axys' presentations will include
the rationale for such significant revisions and modifications and supporting
documentation similar to that relied on by Axys for its own internal
decision-making.
5.3 COMMERCIALIZATION ACTIVITIES.
(a) GOOD FAITH COMMERCIALIZATION. The Parties anticipate that in
connection with Axys' commercialization of Licensed Products in the Territory,
Axys will engage in various activities involving, among other things, planning,
annual budgeting, commercial manufacturing or subcontracting, marketing, sales
and distribution of Licensed Products. Axys will conduct its commercialization
activities (including without limitation development of its Commercialization
Plans) in good faith, using its best commercialization decision-making and in a
manner consistent with generally accepted commercialization practices in the
industry for commercialization of similar products.
(b) COMMERCIALIZATION PLAN. The Parties further anticipate that
Axys will develop commercialization plans (each a "Commercialization Plan") for
each Licensed Product for the Territory, which will generally encompass, among
other things, (i) demographics, market dynamics and market strategies in the
Territory, estimated country launch dates in the Territory, a sales and expense
forecast in the Territory, manufacturing plans and expected product profile
based upon the development plan; (ii) a marketing plan (including pricing
strategies pertaining to discounts, and samples) for the Territory; and (iii) a
commercialization budget (containing the annual and quarterly forecasts),
including launch plan and launch budget ("Commercialization Budget") for each
Licensed Product for the Territory. The Parties acknowledge that
Commercialization Plans and Commercialization Budgets are not static and are not
guarantees and that each will be revised and updated by Axys from time-to-time.
(c) AXYS-SIGNAL INTERACTIONS. Once Axys has begun internal
planning for commercialization for a Licensed Product, the following will apply.
Axys will regularly update Signal on important commercialization activities and
results. In addition, Axys will (where practicable) include appropriate Signal
personnel in discussions of important commercialization issues. The Axys officer
or other employee responsible for commercialization of a Licensed Product will
make himself reasonably available to meet with his counterpart at Signal at
mutually convenient times to discuss Axys' commercialization plans, activities
and results. On a semi-annual basis, appropriate Axys and Signal personnel will
meet for one (1) day during which meeting Axys will update Signal on its then
current Commercialization Plans and Commercialization Budgets (which will have
been provided to Signal no less than ten (10)
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business days prior to such meeting date) and will receive any input and advice
from Signal with respect thereto. The scheduling of such meeting will be
mutually agreed by the Parties, taking into account each Party's annual
budgeting timetable. Axys' commercialization presentations will include the
rationale for significant revisions or modifications, as well as timing and cost
implications and other meaningful information. Axys will give due consideration
to the input and advice of Signal in connection with its commercialization
plans, activities and results. In its updates, reports and presentations, Axys
will provide Signal to the extent practicable with information comparable in
form and substance to that relied on by Axys for its own decision-making.
Notwithstanding the other provisions of this Section 5.3(c), in the event that
Signal does not exercise the Option, Axys' obligations to inform Signal of its
commercialization activities will be limited to presentation, on a semi-annual
basis, of a written report describing its commercialization activities during
the prior six (6) months, delivery to Signal of its Commercialization Budget
when approved internally by Axys, and a one (1) day meeting (no more than once
every six (6) months) at which appropriate Axys and Signal personnel will
discuss ongoing commercialization activities.
5.4 PROFIT-SHARE OPTION. Signal will have the one-time option to elect
to share equally with Axys in the Profits or Losses (as defined in Exhibit A)
from sales of Licensed Products in the Territory (the "Option") pursuant to the
terms and conditions provided in Exhibit A, in lieu of the payments provided for
in Sections 6.2 and 6.3. Signal will have the right to exercise the Option only
by written notice to Axys during a [***] period (the "Option Period") after
[***]. Prior to the start of the Option Period, Axys will make available to
Signal at Axys' offices (to the extent not previously provided) all relevant
information pertaining to Axys' decision and will make its Chief Medical Officer
available at a mutually agreeable time to present and discuss Axys' rationale
for its decision as well as its product development plan (the "Product
Development Plan") for such Collaboration Compound, including (among other
things) a reasonably specific description of the [***] for such Collaboration
Compound, a reasonably detailed budget for such [***], the identification of any
other indication for such Collaboration Compound which Axys then intends in good
faith to pursue, the projected cost through the conclusion of Phase III clinical
trial for such other indication and an overall Product Development Plan budget.
The Option Period will commence on the date Signal begins its review of such
information, but in no event later than five (5) business days after receipt by
Signal of written notice from Axys of [***] and that all such information is
available at Axys' offices for Signal's review. If Signal exercises the Option
as provided herein the following will apply, subject to Section 4.2:
(a) With respect to such Collaboration Compound, the Parties
will share equally in all subsequent development and pre-market launch costs,
including without limitation, those pertaining to such [***] incurred prior to
the end of Signal's [***] decision period.
(b) With respect to any additional Collaboration Compounds and
Back-Up Compounds for which Axys pursues further development, the Parties will
share equally all subsequent research, development and pre-market launch costs
for any such additional Collaboration Compounds and Back-Up Compounds under this
Agreement, including without
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limitation, those pertaining to commitments made or arising during Signal's
[***] decision period.
(c) Subject to Section 6.10, Signal will pay to Axys on a
quarterly basis its share of all such documented costs within sixty (60) days of
Signal's receipt from Axys of a reasonably detailed invoice of such costs for
such quarter. Without limiting Axys' obligations under Section 5.3(a), Axys will
provide Signal with reasonably prompt written notice in the event that Axys
becomes aware that actual costs for a quarter will exceed forecasted costs for
such quarter (as provided to the JDC) by [***] or more, together with an
explanation of the reason(s) for such variance.
(d) The Parties will share equally in Profits or Losses from
sales of Licensed Products, calculated on a product-by-product basis, in the
Territory as provided in Exhibit A and from applicable royalties included in
Profits or Losses in accordance with Section 5.4(e)(i).
(e) Axys will pay to Signal the following amounts from payments
received from its Sublicensee(s) with respect to Licensed Products, or
sublicensed rights related thereto:
(i) With respect to any royalties received, such
royalties will be treated as if they were Net Sales and Signal will be deemed to
have been paid with respect thereto through the sharing in Profits or Losses in
the Territory as provided in Exhibit A.
(ii) [***] percent ([***]%) of non-royalty payments to
Axys or its designated Affiliates.
(iii) [***] percent ([***]%) of any premium paid for
equity taken in Axys or its designated Affiliates contemporaneously with the
sublicense or pursuant to terms set forth in such sublicense if and to the
extent that the stock premium is a substitute for other non-royalty payments
that would have been made as part of the sublicensing of a Licensed Product.
5.5 DIAGNOSTICS; ANIMALS. Nothing in this Agreement will be construed as
granting to either Party any rights with respect to the use or commercialization
of Active Compounds as diagnostics or of Active Compounds for use in animals.
The Parties will negotiate commercially reasonable terms and conditions for
rights to commercialize diagnostics involving Active Compounds and for rights to
Active Compounds for use in animals within six (6) months of the Effective Date
and any such rights and obligations pertaining to Active Compounds for use in
animals may be assigned by Axys to Akkadix Corporation and assumed by Akkadix
Corporation.
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ARTICLE 6
MILESTONES, ROYALTIES AND OTHER PAYMENTS
6.1 RESEARCH AND MILESTONE PAYMENTS.
In consideration of the licenses granted to Axys, Axys will make
an initial payment of two million dollars ($2,000,000) within five (5) business
days of the Effective Date. Axys will make the following additional payments to
Signal within thirty (30) days after the occurrence of each of the listed
Milestone Events:
<TABLE>
<CAPTION>
MILESTONE EVENT PAYMENT AMOUNT
--------------- --------------
<S> <C>
[***] $[***]
[***] $[***]
</TABLE>
As used in this Section 6.1, the following definition applies:
[***]
6.2 PAYMENTS FOR SALES INSIDE THE TERRITORY. Subject to the terms and
conditions of this Agreement, if Signal does not exercise the Option pursuant to
Section 5.4, Axys will pay to Signal royalties equal to [***] percent ([***]%)
of the Net Sales of Licensed Products in the Territory; provided, however, that
if Axys desires to sublicense its rights in [***] after the Option Period has
expired, but finds it commercially unpalatable to do so in light of the [***]
percent ([***]%) royalty obligation to Signal, the Parties will discuss in good
faith and seek to agree on an appropriate adjustment to such royalty rate or
another mutually agreeable solution.
6.3 PAYMENTS FOR SALES OUTSIDE THE TERRITORY. If Signal does not
exercise the Option pursuant to Section 5.4, in addition to the royalty payable
pursuant to Section 6.2 in the Territory, Axys will pay to Signal the following
to the extent such amounts are actually received from its Sublicensee(s) with
respect to Licensed Products, or sublicensed rights related thereto, outside the
Territory.
(a) [***] percent ([***]%) of royalty payments to Axys or its
designated Affiliates for sales of Licensed Products outside the Territory;
(b) [***] percent ([***]%) of non-royalty payments to Axys or
its designated Affiliates in connection with the sale of Licensed Products, or
sublicensed rights related thereto outside the Territory;
(c) [***] percent ([***]%) of any premium paid for equity taken
in Axys or its designated Affiliates contemporaneously with the sublicense or
pursuant to terms set forth in such sublicense if and to the extent that the
stock premium is a substitute for other non-royalty payments that would have
been made as part of the sublicensing of a Licensed Product outside the
Territory.
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6.4 TERM OF ROYALTY OBLIGATION. The royalty obligations to Signal under
Section 6.2 as to a particular Licensed Product will terminate, on a
country-by-country basis, on the later of (a) the expiration date in such
country of the last to expire of issued Axys Patents, Signal Patents or Joint
Patents in such country that contains at least one Valid Claim that claims the
composition of matter or use of the Collaboration Compound contained in such
Licensed Product or of a pharmaceutical preparation containing such
Collaboration Compound; or (b) ten (10) years from the date of First Commercial
Sale in such country; provided, however, that if there is a competing product
sold in such country, the royalty obligation on Net Sales of Licensed Product
under Section 6.2 will be [***] percent ([***]%) during any full quarter that
such competing product is sold. For purposes of this Section 6.4, "competing
product" will mean any product that contains a compound identical to the
Collaboration Compound comprising or contained in such Licensed Product.
6.5 TIMING OF PAYMENT; REPORTING OBLIGATIONS. Running royalties will be
payable on a quarterly basis, within sixty (60) days after the end of each
calendar quarter, based upon the Net Sales during each calendar quarter,
commencing with the calendar quarter in which the First Commercial Sale of a
Licensed Product is made. All other payments to Signal hereunder (excluding
payments pursuant to Section 6.1) will be payable on a quarterly basis, within
sixty (60) days after the end of each calendar quarter, with respect to amounts
received by Axys during such calendar quarter that trigger payment obligations
hereunder. Each payment hereunder will be accompanied by a report of Net Sales
of Licensed Products, royalty and non-royalty payments to Axys or its designated
Affiliates for Licensed Products and premiums on equity in Axys or its
designated Affiliates in sufficient detail to permit confirmation of the
accuracy of the payment made to Signal, including, without limitation, the
quantities of Licensed Products sold, the gross sales and Net Sales of Licensed
Products, royalty and non-royalty payments payable, the method used to calculate
royalty payments and the exchange rates used. Royalties and other payments
hereunder will be calculated in accordance with U.S. generally accepted
accounting principles consistently applied and with the terms of this Article 6.
6.6 THIRD PARTY LICENSES.
(a) In the event Signal does not exercise the Option, if an
unexpired Third Party patent(s) claiming a Collaboration Compound, or its
manufacture or its use in the Field, exist(s) in a country where a Licensed
Product containing such Collaboration Compound is being manufactured, used or
sold, and if it should prove in Axys' bona fide, good faith judgment impractical
or impossible for it or its Affiliates to continue the manufacture, use or sale
of such Licensed Product in such country without obtaining a royalty-bearing
patent license from such Third Party under such patent, then Axys may elect in
its discretion to either:
(i) terminate its license rights hereunder with respect
to such Licensed Product in such country upon sixty (60) days written notice to
Signal, whereupon Axys and its Affiliates will have no further license rights in
such country regarding such Licensed Product; or
(ii) obtain a license from such Third Party under such
patent (a "Third Party License"), in which case [***] percent ([***]%) of the
royalties paid by Axys or its Affiliates under such Third Party License with
respect to the sale of the Licensed Product in such country will be credited
against the royalty payments to be paid by Axys to Signal with respect
***CONFIDENTIAL TREATMENT REQUESTED
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to the sale of the Licensed Product in such country under Section 6.2; provided,
however, that the effective royalty rate under Section 6.2 during any calendar
quarter will not be reduced below [***] percent ([***]%) of Net Sales of
Licensed Products.
6.7 MODE OF PAYMENT. All payments to Signal hereunder will be made by
deposit of United States Dollars in the requisite amount to such bank account as
Signal may from time to time designate by notice to Axys. Payments will be free
and clear of any taxes (other than withholding and other taxes imposed on
Signal), fees or charges, to the extent applicable. With respect to sales
outside the United States, payments will be calculated based on currency
exchange rates for the last calendar quarter for which remittance is made for
royalties. For each quarter and each currency, such exchange rate will equal the
arithmetic average of the daily exchange rates (obtained as described below)
during the calendar quarter; each daily exchange rate will be obtained from the
Reuters Daily Rate Report or The Wall Street Journal, Eastern U.S. Edition, or,
if not so available, as otherwise agreed by the Parties.
6.8 OBLIGATION TO PAY ROYALTIES. Axys' obligation to pay royalties to
Signal under this Article 6 is imposed only once with respect to the same unit
of Licensed Product regardless of the number of Axys Patents, Signal Patents, or
Joint Patents pertaining thereto.
6.9 RECORDS RETENTION. For three (3) years after each sale of each
Licensed Product, Axys will keep (and will ensure that its Affiliates and
Sublicensees will keep) records of such sale in sufficient detail to confirm the
accuracy of the royalty and other payment calculations hereunder.
6.10 AUDITS.
(a) Upon the written request of Signal, and not more than once
in each calendar year, Axys will permit an independent certified public
accounting firm of nationally recognized standing selected by Signal, and
reasonably acceptable to Axys, at Signal's expense, to have access during normal
business hours, and upon reasonable prior written notice, to such of the records
of Axys as may be reasonably necessary to verify the accuracy of the reports
under Section 6.5 for the prior calendar year only. The accounting firm will
disclose to Signal and Axys only whether the reports are correct or incorrect
and the specific details concerning any discrepancies. No other information will
be provided to Signal.
(b) If such accounting firm concludes that additional royalties
or other payments were owed during such period, Axys will pay the additional
royalties or other payments, with interest from the date originally due at the
prime rate, as published in The Wall Street Journal (Eastern U.S. Edition) on
the last business day preceding such date, within thirty (30) days after the
date Signal delivers to Axys such accounting firm's written report, subject to
the provisions of Section 6.10(e). If the amount of the underpayment is greater
than [***] of the total amount owed, then Axys will in addition reimburse Signal
for its reasonable costs related to such audit.
(c) Axys will include in each sublicense granted by it pursuant
to this Agreement a provision requiring the Sublicensee to make reports to Axys,
to keep and maintain
***CONFIDENTIAL TREATMENT REQUESTED
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records of sales made, pursuant to such sublicense and to grant access to such
records by Signal's independent accountant to the same extent required by Axys
under this Agreement.
(d) Signal will treat all information subject to review under
this Section 6.10 or under any sublicense agreement in accordance with the
confidentiality provisions of Article 8 of this Agreement, and will cause its
accounting firm to enter into an acceptable confidentiality agreement with Axys
and each Sublicensee, if any, obligating such firm to retain all such financial
information in confidence pursuant to such confidentiality agreement.
(e) If Axys in good faith disputes the conclusion of the
accounting firm under subsection (b) above that Axys owes additional royalties
or other payments, or any specific aspect of the conclusion, then Axys will
inform Signal by written notice within sixty (60) days of receiving a copy of
the audit containing such conclusion, specifying in detail the reasons for Axys'
disputing such conclusion. The Parties will promptly thereafter meet and
negotiate in good faith a resolution to such dispute. In the event that the
Parties are unable to resolve such dispute within sixty (60) days after such
Axys notice, the matter will be resolved in a manner consistent with the
procedures set forth in Section 11.12, and interest will be payable on any
additional royalties or other payments determined to be due in the same manner
as provided for in Section 6.10(b).
6.11 TAXES. The Party receiving royalties and other payments under this
Agreement will pay any and all taxes levied on account of such payment. If any
taxes are required to be withheld by the paying Party, it will (a) deduct such
taxes from the remitting payment, (b) timely pay the taxes to the proper taxing
authority, and (c) send proof of payment to the other Party and certify its
receipt by the taxing authority within sixty (60) days following such payment.
ARTICLE 7
INVENTIONS AND PATENTS
7.1 TITLE TO INVENTIONS. Each Party will own and retain all right, title
and interest in and to all Research Technology made solely by such Party's
and/or, to the extent permitted hereunder, any of its Affiliates' employee(s) or
agent(s) and all intellectual property rights in such Research Technology. The
Parties will jointly own any Research Technology made jointly by the Parties'
employees or agents. Inventorship by Axys or Signal employee(s) or agent(s) and
inventorship in cases of Joint Patents will be determined by the applicable laws
of the country or jurisdiction in which the particular Patent Right is sought.
In the event that there is a dispute between the Parties as to which Party will
own any Research Technology, the JRC, or JDC as applicable, will establish a
procedure to resolve such dispute, which may include engaging a Third Party
patent attorney completely unaffiliated and independent of the Parties and
jointly selected by the Parties, as an expert to resolve such dispute.
7.2 RIGHTS TO OTHER COMPOUNDS. The Parties expect that each of them will
make compounds from its library available for testing for purposes of this
Agreement and that additional compounds may be invented and/or synthesized in
the course of the Research. With respect to such compounds, the Parties agree as
follows:
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(a) Pre-existing compounds which are tested in the Research and
are determined, under the provisions of Section 1.1, not to be Active Compounds
will not be subject to this Agreement;
(b) Except as provided otherwise in this Agreement, compounds
that are owned by a Party, either solely or jointly with the other Party, as
determined under the provisions of Section 7.1, will remain the solely or
jointly owned property of such Party. All such compounds that are determined
under the provisions of Section 1.1 not to be Active Compounds will not be
subject to this Agreement; and
(c) No implied license under any Patent Rights is granted under
this Section 7.2.
7.3 PATENT PROSECUTION. The Parties expect that patent applications will
be filed and maintained as required to secure suitable Patent Rights covering
inventions within the Research Technology or covering any Active Compound(s)
Controlled by Signal as of the Effective Date or otherwise applicable to the
Field. The Parties agree as follows with respect to the filing and prosecution
of such applications.
(a) AXYS PATENTS. Axys will be responsible for obtaining,
prosecuting and/or maintaining throughout the world Patent Rights covering
Research Technology solely owned by Axys. Axys will bear all costs for filing,
prosecuting and/or maintaining Axys Patents throughout the world.
(b) SIGNAL PATENTS. Signal will be responsible, with the input
of Axys, for obtaining, prosecuting and/or maintaining throughout the world
Patent Rights covering Research Technology solely owned by Signal or covering
any Active Compound(s) Controlled by Signal as of the Effective Date; provided
however, Signal will pursue such Patent Rights covering Collaboration Compounds
as a priority in its prosecution and maintenance strategy. Signal will bear all
costs for filing, prosecuting and/or maintaining Signal Patents throughout the
world. Signal will provide Axys with all material correspondence related
thereto, and Signal will use reasonable efforts to solicit Axys' advice and
review of the nature and content of such Patent Rights and important prosecution
matters in reasonably sufficient time prior to filing thereof, and Signal will
take into account and implement Axys' reasonable comments related thereto.
(c) JOINT PATENTS. The JRC will determine which Party will be
responsible for obtaining, prosecuting and/or maintaining throughout the world
Patent Rights covering Research Technology jointly owned by Axys and Signal.
Axys and Signal will share equally the costs for filing, prosecuting and/or
maintaining Joint Patents throughout the world. Notwithstanding the above,
either Party may decline to file, prosecute and/or maintain any Joint Patent(s)
or may decline to pay its share of the costs for filing, prosecuting and/or
maintaining any Joint Patent(s), in which case the other Party may undertake the
responsibility for filing, prosecuting and/or maintaining such Joint Patents at
its own expense and the declining party will assign to the other party all its
right, title and interest to any such Joint Patent(s) and upon such assignment
such Joint Patent(s) will become Signal Patent(s) or Axys Patent(s), as the case
may be.
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(d) PATENT APPLICATIONS. The Party responsible for obtaining
Patent Rights covering any Research Technology or Signal in the case of Patent
Rights covering any Active Compound(s) Controlled by Signal as of the Effective
Date will file a United States provisional application covering such Research
Technology or Active Compounds under 37 CFR Section 1.53(c) and will thereafter
within one (1) year file a corresponding non-provisional application for a
United States patent under 37 CFR Section 1.53(b) and a corresponding PCT
International Application designating all countries, including without
limitation, the United States, and, at the discretion of the Party responsible
for obtaining the Patent Rights or at the request of the other Party,
corresponding foreign applications in countries which are not PCT members and
which are designated in Exhibit C (as modified from time-to-time by the written
agreement of the Parties), each claiming priority to the initial United States
provisional application. PCT International Applications will enter the national
phase in each designated country at the discretion of the Party responsible for
obtaining the Patent Rights or at the request of the other Party. The
specification of each provisional patent application filed under this Section
7.3(d) will contain, in addition to all other requirements under 37 CFR Section
1.53, a description pursuant to 37 CFR Section 1.71 and at least one (1) claim
pursuant to 37 CFR Section 1.75. Notwithstanding the foregoing, the Parties
(acting through their JRC or JDC representatives), may agree to an alternative
means of protecting such Research Technology.
(e) EXISTING SIGNAL PATENT APPLICATION. Within thirty (30) days
of the Effective Date, Signal will (i) [***], and (ii) prior to [***], file a
corresponding nonprovisional application for a United States patent under 37 CFR
Section 1.53(b) and a corresponding PCT International Application designating
all countries, including without limitation, the United States, and, at the
discretion of Signal or at the request of Axys, corresponding foreign
applications in countries which are not PCT members and which are designated in
Exhibit C (as modified from time-to-time by the written agreement of the
Parties, each claiming priority to such provisional application. Thereafter, the
PCT International Application will enter the national phase each designated
country at the discretion of the Party responsible for obtaining the Patent
Rights or at the request of the other Party.
(f) PATENT TERM EXTENSIONS. The Party who is the owner of record
of a United States patent covering a Licensed Product which is eligible for the
extension of the patent term under 35 USC Sections 6 and/or 156 will file, or
cause to be filed, an application under Chapter 1, Subpart F, of Title 37 of the
CFR for the extension of the term of such patent.
(g) COOPERATION. Each Party will regularly provide the other
Party with copies of all patent applications filed hereunder and other material
submissions and correspondence with the patent offices, in sufficient time to
allow for review and comment by the other Party. In addition, such filing Party
will provide the other Party and its patent counsel with an opportunity to
consult with the Party and its patent counsel regarding the filing and contents
of any such application, amendment, submission or response, and the advice and
suggestions of the other Party and its patent counsel will be taken into
reasonable consideration by such Party and its legal counsel in connection with
such filing. Each Party will also provide the other Party with copies of any
patentability search reports made by patent counsel with respect to inventions
in the Research Technology, including patents located, a copy of each patent
application, and each patent that issues thereon.
***CONFIDENTIAL TREATMENT REQUESTED
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(h) ELECTION NOT TO PROSECUTE. If the Party responsible for
obtaining, prosecution and/or maintaining Patent Rights under this Section 7.3
elects not to file for or continue to prosecute and/or maintain such Patent
Rights covering Research Technology or any Active Compound(s) Controlled by
Signal as of the Effective Date in any country (such Party being referred to
herein as the "Non-Filing Party"), then, to the extent such Axys Patent, Signal
Patent or Joint Patent claims an invention made in connection with the Research,
it will notify the other Party promptly in writing and in good time to enable
the other Party to meet any applicable deadlines. With respect to Axys Patents,
Signal Patents or Joint Patents scheduled for international filing with respect
to such country, the Non-Filing Party will notify the other Party in writing at
least sixty (60) days before the date required for the convention year filing of
such Axys Patent, Signal Patent or Joint Patent application or any other
deadline date by which an action must be taken to establish or preserve an Axys
Patent, Signal Patent or Joint Patent right in such country. The other Party
will then have the right, but not the obligation, to pursue the filing or
support the continued prosecution or maintenance of such Axys Patent, Signal
Patent or Joint Patent, at its expense in such country. If the other Party does
so elect to pursue such filing or continue such support, then it will notify the
Non-Filing Party of such election, and the Non-Filing Party will (i) reasonably
cooperate with the other Party in this regard, and (ii) promptly release or
assign, as the case may be, to the other Party, without consideration, all
right, title and interest in such Axys Patent, Signal Patent or Joint Patent in
such country. For the avoidance of doubt, in the event that the other Party
supports a patent application that the Non-Filing Party declines to support,
then such patent applications and patents that may result therefrom will be
considered an Axys Patent (in the case Signal is the Non-Filing Party) or an
Signal Patent (in the case Axys is the Non-Filing Party), as applicable, for
purposes of this Agreement.
7.4 ENFORCEMENT OF PATENTS.
(a) If either Party considers that any Axys Patent, Signal
Patent or Joint Patent claiming an Active Compound or Licensed Product, or the
manufacture or use thereof, is being infringed by a Third Party's activities in
the Field (a "Field Infringement"), it will notify the other Party and provide
it with any evidence of such infringement which is reasonably available. Subject
to any limitations in the license agreements between Axys and Third Party
licensors covering Axys Patents that are licensed to Axys, Axys will have the
first opportunity at its own expense to attempt to remove such infringement by
commercially appropriate steps, including filing an infringement suit or taking
other similar action. If required by law for Signal to prosecute such suit, Axys
will join such suit as a party, at Axys' own expense. In the event Axys fails to
take commercially appropriate steps with respect to an infringement that is
likely to have a material adverse effect on the sale of Licensed Products within
six (6) months following notice of such infringement, Signal will have the right
to do so at its expense; provided that if Axys has commenced negotiations with
an alleged infringer of the patent for discontinuance of such infringement
within such six-month period, Axys will have an additional six (6) months to
conclude its negotiations before Signal may bring suit for such infringement.
(b) The Party not enforcing the applicable Patent Rights will
provide reasonable assistance to the other Party, including providing access to
relevant documents and other evidence and making its employees available,
subject to the enforcing Party's reimbursement of any out-of-pocket expenses
incurred by the non-enforcing Party.
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(c) Any amounts recovered by Axys pursuant to Section 7.4(a),
whether by settlement or judgment, will be allocated in the following order: (i)
to reimburse Signal and Axys for their reasonable out-of-pocket expenses in
making such recovery (which amounts will be allocated pro rata if insufficient
to cover the totality of such expenses); and (ii) the remainder will be retained
by Axys, with such remainder being deemed "Net Sales" of Licensed Product to be
shared as provided in Exhibit A or for which Axys will pay Signal a royalty
under Section 6.2, as the case may be; provided that if the Field Infringement
activity on which such recovery is based included actions outside the Field,
then the Parties will reasonably agree on an appropriate allocation of such
recovery between activities in the Field (which allocation will be deemed Net
Sales to be shared as provided in Exhibit A or for which Axys will pay Signal a
royalty, as applicable) and activities outside the Field (which allocation will
be deemed net sales for which Signal will pay Axys a royalty under Section
3.2(b) or 3.3(b), as applicable, if applicable). Any amounts recovered by Signal
pursuant to actions under Section 7.4(a) will be allocated in the following
order: (i) to reimburse Axys and Signal for their reasonable out-of-pocket
expenses in making such recovery (which amounts will be allocated pro rata if
insufficient to cover the totality of such expenses); and (ii) the remainder
will be divided [***] percent ([***]%) to Axys and [***] percent ([***]%) to
Signal; provided that if the Field Infringement activity on which such recovery
is based included actions outside the Field, then the Parties will reasonably
agree on an appropriate allocation of such recovery between activities in the
Field (which will be divided [***] percent ([***]%) to Axys and [***] percent
([***]%) to Signal) and activities outside the Field (which allocation will be
deemed net sales for which Signal will pay Axys a royalty under Section 3.2(b)
or 3.3(b), as applicable, if applicable).
(d) Except for Third Party infringement activities within the
Field covered by the provisions of Section 7.4(a), each Party will retain the
sole and exclusive right to enforce its Patent Rights against all infringers at
its sole cost and expense.
7.5 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice of
infringement is received by a Party, or action, suit or proceeding is brought
against a Party alleging infringement of a Patent Right of any Third Party in
the manufacture, use or sale of a Licensed Product or in conducting the
Research, the Parties will promptly discuss the best way to respond.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term of
this Agreement and for five (5) years thereafter, such Party will keep, and will
ensure that its officers, directors, employees and agents keep, completely
confidential and will not publish or otherwise disclose and will not use for any
purpose except as permitted hereunder any Confidential Information furnished to
it by the other Party pursuant to this Agreement (including, without limitation,
Know-How of the disclosing Party). The foregoing obligations will not apply to
any information to the extent that it can be established by such receiving Party
that such information:
(a) was already known to the receiving Party as evidenced by its
written records, other than under an obligation of confidentiality, at the time
of disclosure;
***CONFIDENTIAL TREATMENT REQUESTED
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(b) was generally available to the public or was otherwise part
of the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise
becomes part of the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this Agreement;
(d) was subsequently lawfully disclosed to the receiving Party
by a Third Party other than in contravention of a confidentiality obligation of
such Third Party to the disclosing Party; or
(e) was developed or discovered by employees of the receiving
Party or its Affiliates who had no access to the Confidential Information of the
disclosing Party.
Each Party will obtain written agreements from each of its
employees and consultants who perform substantial work on the Research, which
agreements will obligate such persons to similar obligations of confidentiality
and to assign to such Party all inventions made by such persons during the
course of performing the Research. Each Party may disclose the other's
Confidential Information to the extent such disclosure is reasonably necessary
in filing or prosecuting patent applications, prosecuting or defending
litigation, advising investors and the investment community of the results of
the Research and/or development activities hereunder (subject to reasonable
prior written notice of, and good faith consultation about, such disclosure to
the other Party), complying with applicable governmental regulations, making a
permitted sublicense of its rights hereunder or conducting clinical trials or
otherwise in performing its obligations or exercising its rights hereunder,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, it will give reasonable advance notice to that
other Party of such disclosure requirement, will cooperate with the other Party
in its efforts to secure confidential treatment of such Information prior to its
disclosure, and, save to the extent inappropriate in the case of patent
applications, will use all reasonable efforts to secure confidential treatment
of such information prior to its disclosure (whether through protective orders
or confidentiality agreements or otherwise).
8.2 PUBLICATIONS.
(a) Neither Party or its Affiliates will publish or present the
results of the Research or of development studies carried out on any Licensed
Product, Collaboration Compound until after completion of Phase I clinical
development with respect thereto. Subject to the foregoing and the restrictions
provided below, either Party may publish or present the results of the Research
or of development studies carried out on such Licensed Product or Collaboration
Compound, subject to the prior review by the other Party for patentability and
protection of such other Party's Confidential Information. Each Party will
provide to the other Party the opportunity to review any proposed abstracts,
manuscripts or summaries of presentations which cover the results of the
Research or of pre-Phase III clinical development of such Licensed Product or
Collaboration Compound. Each Party will designate a person who will be
responsible for reviewing such publications. Such designated person will respond
in writing promptly and in no event later than thirty (30) days, or such shorter
period as circumstances may reasonably require, after receipt of the proposed
material with any specific statements of concern
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based upon the need to seek patent protection or concern regarding competitive
disadvantage arising from the proposal. Excepts in cases involving clinical
papers, in the event of concern, the submitting Party agrees not to submit such
publication or to make such presentation that contains such information until
the other Party is given a reasonable period of time (not to exceed ninety (90)
days) to seek patent protection for any material in such publication or
presentation which it believes is patentable or to resolve any other issues.
This Section 8.2 will cease to apply with respect to any Collaboration Compound
upon the commercial launch of a Licensed Product containing such Collaboration
Compound as an active ingredient. Furthermore, with respect to any proposed
abstracts, manuscripts or summaries of presentations by investigators or other
Third Parties, such materials will be subject to review under this Section
8.2(a) to the extent that Signal or Axys (as the case may be) has the right to
do so.
(b) Each Party also agrees to delete from any such proposed
publication any Confidential Information of the other Party upon its reasonable
request.
(c) To the extent appropriate and within the Party's control, in
any publication permitted under this Section 8.2, each Party will acknowledge
its collaboration with the other Party under this Agreement.
8.3 PRESS RELEASES. Except to the extent required by law or as otherwise
permitted in accordance with this Section 8.3, neither Party will make any
public announcements concerning this Agreement or the terms hereof without the
prior written consent of the other, which will not be unreasonably withheld or
delayed. Notwithstanding the foregoing, the Parties intend to issue a joint
press release announcing the execution of this Agreement and agree that each
Party may desire or be required to issue subsequent press releases relating to
the Agreement or activities thereunder, and the Parties agree to consult with
each other reasonably and in good faith with respect to the text and timing of
such press releases prior to the issuance thereof, provided that a Party may not
unreasonably withhold consent to such releases, and that either Party may issue
such press releases as it determines, based on advice of counsel, are reasonably
necessary to comply with laws or regulations or for appropriate market
disclosure.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY AXYS. Axys will indemnify, defend and hold Signal
and its agents, employees, officers and directors (the "Signal Indemnitees")
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorneys' fees) arising out of Third Party claims or
suits related to (a) Axys' performance of its obligations under this Agreement;
or (b) breach by Axys of its representations and warranties set forth in Section
11.3; provided, however, that Axys' obligations pursuant to this Section 9.1
will not apply to the extent such claims or suits result from the negligence or
willful misconduct of any of the Signal Indemnitees. Notwithstanding the
foregoing, Axys will have no obligation to indemnify the Signal Indemnitees with
respect to claims arising out of breach by Signal of its representations and
warranties set forth in Sections 11.3 or 11.4.
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9.2 INDEMNIFICATION BY SIGNAL. Signal will indemnify, defend and hold
Axys and its Affiliates and each of their respective agents, employees, officers
and directors (the "Signal Indemnitees") harmless from and against any and all
liability, damage, loss, cost or expense (including reasonable attorney's fees)
arising out of Third Party claims or suits related to (a) Signal's performance
of its obligations under this Agreement; or (b) breach by Axys of its
representations and warranties set forth in Sections 11.3 or 11.4; provided,
however, that Signal's obligations pursuant to this Section 9.2 will not apply
to the extent that such claims or suits result from the negligence or willful
misconduct of any of the Axys Indemnitees. Notwithstanding the foregoing, Axys
will have no obligation to indemnify the Axys Indemnitees with respect to claims
arising out of a breach by Axys of its representations and warranties set forth
in Section 11.3.
9.3 NOTIFICATION OF CLAIMS; CONDITIONS TO INDEMNIFICATION OBLIGATIONS.
As a condition to a Party's right to receive indemnification under this Article
9, it will (i) promptly notify the other Party as soon as it becomes aware of a
claim or action for which indemnification may be sought pursuant hereto, (ii)
cooperate with the indemnifying Party in the defense of such claim or suit, and
(iii) permit the indemnifying Party to control the defense of such claim or
suit, including without limitation the right to select defense counsel. In no
event, however, may the indemnifying Party compromise or settle any claim or
suit in a manner which admits fault or negligence on the part of the indemnified
Party without the prior written consent of the indemnified Party. The
indemnifying Party will have no liability under this Article 9 with respect to
claims or suits settled or compromised without its prior written consent.
ARTICLE 10
TERMINATION AND EXPIRATION
10.1 TERM AND TERMINATION. This Agreement will commence upon the
Effective Date and, unless earlier terminated as provided herein, will expire on
the expiration of all royalty and other payment obligations herein.
(a) Upon the expiration, pursuant to Section 6.4, of Axys'
royalty obligations with respect to a particular Licensed Product, the licenses
granted to Axys and its Affiliates under Article 3 with respect to such Licensed
Product will expire, and Axys and its Affiliates will automatically thereafter
be granted a non-exclusive, fully paid-up license under the Signal Know-How and
Signal Patents to make, have made, use, import, sell and offer for sale such
Licensed Product for use in the Field worldwide.
(b) If Signal exercises the Option pursuant to Section 5.4 and
Axys is selling Licensed Products directly or through an Affiliate in the
Territory, the Parties will share the Profits and Losses provided for in Exhibit
A for such time as the sale of Licensed Products on a country-by-country basis
in the Territory continues; provided, however, that if Signal exercises the
Option and Axys subsequently determines to cease selling a Licensed Product in
any country in the Territory in which either it or its Affiliate previously sold
Licensed Products, then Signal will have the first right of negotiation to
obtain the exclusive right to commercialize such Licensed Product in such
country on commercially reasonable terms to be agreed upon in good faith by the
Parties. In the event that the Parties are unable to agree on such terms, or
Signal
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does not wish to obtain such right, then Axys will be free to sublicense such
right to a Third Party in the Territory, and the Parties will share equally all
royalty payments, non-royalty payments and equity premiums received by Axys in
connection with such sublicense.
10.2 TERMINATION OF THE AGREEMENT UPON MATERIAL BREACH.
Failure by a Party to comply with any of its material obligations
contained herein will entitle the Party not in default to give to the Party in
default notice specifying the nature of the default, requiring it to make good
or otherwise cure such default, and stating its intention to terminate if such
default is not cured. If such default is not cured within ninety (90) days after
the receipt of such notice (or, if such default cannot be cured within such
ninety (90) day period, if the Party in default does not commence and diligently
continue actions to cure such default), the Party not in default will be
entitled, without prejudice to any of its other rights conferred on it by this
Agreement, and in addition to any other remedies available to it by law or in
equity, to terminate this Agreement; provided, however, that such right to
terminate will be stayed in the event that, during such ninety (90) day period,
the Party alleged to have been in default will have initiated dispute resolution
in accordance with Section 11.12 with respect to the alleged default, which stay
will last so long as the initiating Party diligently and in good faith
cooperates in the prompt resolution of such dispute resolution proceedings.
10.3 CONSEQUENCES OF TERMINATION.
(a) Upon termination of this Agreement (but not upon expiration
of its term under Section 10.1), (i) each Party will promptly return all
relevant records and materials in its possession or control containing or
comprising the other Party's Know-How or other Confidential Information and to
which the former Party does not retain rights hereunder (except one copy of
which may be retained in a Party's confidential files in its legal department
for archival purposes); (ii) all licenses granted by each Party to the other
under Article 3 will terminate except as provided in Section 10.3(b) or 10.3(c);
(iii) all rights in any Active Compounds (including any Collaboration Compounds)
owned by a Party will revert to such Party except as provided in Section 10.3(b)
or 10.3(c); and (iv) any and all claims and payment obligations that accrued
prior to the date of such termination will survive such termination.
(b) In the event Axys terminates this Agreement pursuant to
Section 10.2, Signal covenants that Signal will not develop or sell any Active
Compound for any use in the Field, and will not license any Third Party or any
Affiliate to do so, and all licenses from Signal to Axys that are in effect
immediately prior to such termination under Section 3.1 will remain in full
force and effect following such termination for so long as Axys complies with
its obligations hereunder.
(c) In the event Signal terminates this Agreement pursuant to
Section 10.2, all licenses from Axys to Signal that are in effect immediately
prior to such termination under Section 3.2 and the license from Axys to Signal
under Section 3.3 will remain in full force and effect following such
termination for so long as Signal complies with its obligations hereunder.
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<PAGE> 40
(d) The right of a Party to terminate this Agreement, as herein
above provided, will not be affected in any way by its waiver or failure to take
action with respect to any prior default.
10.4 ACCRUED RIGHTS; SURVIVING OBLIGATIONS.
(a) Termination, relinquishment or expiration of this Agreement
for any reason will be without prejudice to any rights which will have accrued
to the benefit of a Party prior to such termination, or expiration. Such
termination, relinquishment or expiration will not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.
(b) Without limiting the foregoing, Sections 2.8 (last sentence
only), 2.9, 6.5, 6.7, 6.9, 6.10, 6.11, 7.1, 7.3(c), 8.1, 10.3, 10.4 and 10.5 and
Articles 9 and 11 of this Agreement will survive the expiration or termination
of this Agreement for any reason (except as expressly provided in Section 10.3).
(c) Upon any termination of this Agreement as regards any
particular Licensed Product, Axys and its Affiliates and Sublicensees will be
entitled, during the next [***], to sell any inventory of the Licensed Product
which remains on hand as of the date of the termination, so long as Axys pays to
Signal the royalties or other amounts payable with respect to said subsequent
sales in accordance with the terms and conditions set forth in this Agreement.
10.5 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by Signal or Axys are, and will otherwise be deemed
to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of
right to "intellectual property" as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights
under this Agreement, will retain and may fully exercise all of their rights and
elections under the U.S. Bankruptcy Code. The Parties further agree that, in the
event of the commencement of a bankruptcy proceeding by or against either Party
under the U.S. Bankruptcy Code, the Party hereto which is not a party to such
proceeding will be entitled to a complete duplicate of (or complete access to,
as appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in their possession, will be
promptly delivered to them (i) upon any such commencement of a bankruptcy
proceeding upon their written request therefor, unless the Party subject to such
proceeding elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, following the rejection of
this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by the non-subject Party.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended
or will be deemed to constitute a partnership, agency or employer-employee
relationship between the Parties. Neither Party will incur any debts or make any
commitments for the other.
***CONFIDENTIAL TREATMENT REQUESTED
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11.2 ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder will be assignable, nor any other
obligation delegable, by a Party without the prior written consent of the other;
provided, however, that a Party may assign this Agreement without consent to any
Affiliate or to any successor in interest by way of merger or sale of all or
substantially all of its assets in a manner such that the assignor will remain
liable and responsible for the performance and observance of all such Party's
duties and obligations hereunder, except that no intellectual property of any
Third Party acquiror of such Party will be included in the licenses granted
hereunder. This Agreement will be binding upon the successors and permitted
assigns of the Parties. Any assignment not in accordance with this Section 11.2
will be void.
11.3 REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants
to the other Party that, as of the date of this Agreement:
(a) Such Party is duly organized and validly existing under the
laws of the state of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;
(b) Such Party has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance its
obligations under this Agreement;
(c) This Agreement is a legal and valid obligation of such
Party, binding upon such Party and enforceable against such Party in accordance
with the terms of this Agreement. The execution, delivery and performance of
this Agreement by such Party does not conflict with any agreement, instrument or
understanding, oral or written, to which such Party is a party or by which such
Party may be bound, and does not violate any law or regulation of any court,
governmental body or administrative or other agency having authority over such
Party. All consents, approvals and authorizations from all governmental
authorities or other Third Parties required to be obtained by such Party in
connection with this Agreement have been obtained;
(d) It has the full and exclusive right, power and authority to
enter into this Agreement, to perform the Research and to grant the licenses
granted under Article 3 hereof;
(e) There are no agreements between such Party and any Third
Parties which would preclude or otherwise limit such Party's ability to conduct
its tasks and obligations under the Research Plan or otherwise fulfill its
obligations under this Agreement;
(f) All individuals who will perform any activities on its
behalf in connection with the Research have assigned to it or its Affiliates the
whole of their rights in any intellectual property conceived or reduced to
practice by them as a result of the Research, and no Third Party will have any
rights to any such intellectual property; and
(g) With respect to any Material provided by it to the other
Party, it has the full right to provide such Material and [***]
***CONFIDENTIAL TREATMENT REQUESTED
37
<PAGE> 42
11.4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SIGNAL. Signal
represents, warrants and covenants (as the case may be) to Axys that:
(a) To Signal's knowledge without any duty of investigation, the
Signal Patents existing as of the Effective Date are patentable and/or not
invalid or unenforceable, in whole or in part;
(b) To Signal's knowledge as of the Effective Date without any
duty of investigation, Axys' and its Affiliate's practice of the Signal Patents
and Signal Know-How as permitted herein will not infringe any intellectual
property rights of any Third Party; and
(c) To Signal's knowledge without any duty of investigation, the
inception, development and reduction to practice of the Signal Patents existing
as of the Effective Date, and the Signal Know-How existing as of the Effective
Date, has not constituted or involved the misappropriation of trade secrets of
any Third Party.
11.5 DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
11.6 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
11.7 FORCE MAJEURE. Neither Party will be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, strike, flood, governmental acts or
restrictions or any other reason which is beyond the control of the respective
Party. The Party affected by force majeure will provide the other Party with
full particulars thereof as soon as it becomes aware of the same (including its
best estimate of the likely extent and duration of the interference with its
activities), and will use commercially reasonable efforts to overcome the
difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months, the Parties hereto will consult with respect to an equitable
solution, including the possibility of the mutual termination of this Agreement.
11.8 NO TRADEMARK RIGHTS. No right, express or implied, is granted by
this Agreement to a Party to use in any manner the name or any other trade name
or trademark of a Party in connection with the performance of this Agreement.
11.9 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement and the
exhibits hereto constitute and contain the entire understanding and agreement of
the Parties respecting the subject matter hereof and cancel and supersede any
and all prior negotiations, correspondence, understandings and agreements
between the Parties, whether oral or written, regarding such subject matter. No
waiver, modification or amendment of any provision of this
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<PAGE> 43
Agreement will be valid or effective unless made in writing and signed by a duly
authorized officer of each Party.
11.10 CAPTIONS. The captions to this Agreement are for convenience only,
and are to be of no force or effect in construing or interpreting any of the
provisions of this Agreement
11.11 APPLICABLE LAW. This Agreement will be governed by and interpreted
in accordance with the laws of the State of California, USA, applicable to
contracts entered into and to be performed wholly within the State of
California, excluding conflict of laws principles.
11.12 DISPUTES. In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this Agreement, including
without limitation then calculations specified in Exhibit A hereto, or the
rights or obligations of the Parties hereunder, the Parties will try to settle
their differences amicably between themselves as contemplated herein. To the
extent not provided for herein, either Party may initiate such informal dispute
resolution by sending written notice of the dispute to the other Party, and
within ten (10) days after such notice.
(a) The Chief Executive Officer of Axys and the Signal Designee,
will meet for discussion and resolution. If such personnel are unable to resolve
such dispute within thirty (30) days of initiating such negotiations, the
Parties agree to settle any unresolved controversy or claim arising out of,
relating to or in connection with this Agreement (except as to any issue
relating to the ownership of intellectual property of either Party) in San
Francisco, California by binding arbitration under the American Arbitration
Association in accordance with its Commercial Arbitration Rules as modified by
this Section, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Within fifteen (15) days after
the commencement of arbitration, each Party will select one (1) person to act as
arbitrator, and the two (2) selected by the Parties will select a third
arbitrator within ten (10) days of their appointment. The Parties agree that in
cases in which this Agreement explicitly provides that their disagreement will
be settled by this Section, the arbitration method to be employed will be
"baseball-style arbitration." This means that each Party will submit in writing
to the Panel and the other Party at an appropriate time its final, detailed
proposed resolution of the dispute. The panel will have the right to ask for and
receive (at the same time as the other Party) clarification of a Party's
proposed resolution. In its arbitration award, the panel will be limited to
choosing, without material modification, one of the two proposed resolutions,
together with an award of reasonable attorneys' fees to the prevailing Party.
The arbitrators will have no authority to award punitive damages or any other
damages not measured by the prevailing Party's actual damages, and may not, in
any event, make any ruling, finding or award that does not conform to the terms
and conditions of this Agreement. Neither Party nor the arbitrators may disclose
the existence, content, or results of any arbitration hereunder without the
prior written consent of both Parties.
11.13 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or
consent required or permitted to be given under this Agreement will be in
writing and will be deemed to have been sufficiently given if delivered in
person, transmitted by telecopier (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address
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<PAGE> 44
or facsimile number shown below or such other address or facsimile number as
such Party will have last given by notice to the other Parties.
If to Signal, addressed to:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attn.: Chief Executive Officer
Telecopier: (858) 558-7513
and to
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn.: L. Kay Chandler, Esq.
Telecopier: (858) 453-3555
If to Axys, addressed to:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA U.S. 94080
Attn.: CEO
Telecopier: (650) 829-1067
and to:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA 94080
Attn: General Counsel
Telecopier: (650) 829-1067
11.14 NO CONSEQUENTIAL DAMAGES. IN NO EVENT WILL EITHER PARTY OR ANY OF
ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT,
WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not
limited to, loss of profits or revenue, or claims of customers of any of them or
other Third Parties for such or other damages.
11.15 NON-SOLICITATION. During the Research Term, and for a period of
[***] thereafter, neither Party will solicit, induce, encourage or attempt to
induce or encourage any employee of the other Party to terminate his or her
employment with such other Party or to breach any other obligation to such other
Party.
***CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 45
11.16 WAIVER. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance will not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement will be cumulative and none of them will be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.
11.17 COMPLIANCE WITH LAW. Nothing in this Agreement will be deemed to
permit a Party to export, re-export or otherwise transfer any Licensed Product
sold under this Agreement without compliance with applicable laws.
11.18 SEVERABILITY. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement. The Parties will make a good faith effort to replace the invalid or
unenforceable provision with a valid one which in its economic effect is most
consistent with the invalid or unenforceable provision.
11.19 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together will constitute one and
the same agreement.
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<PAGE> 46
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which will for all purposes be deemed to be an
original.
AXYS PHARMACEUTICALS, INC. SIGNAL PHARMACEUTICALS, INC.
By: /s/ WILLIAM J. NEWELL By: /s/ ALAN LEWIS
-------------------------------- --------------------------------
Name: William J. Newell Name: Alan Lewis
------------------------------ ------------------------------
Title: Senior Vice President and Title: President & CEO
General Counsel -----------------------------
-----------------------------
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<PAGE> 47
EXHIBIT A
SHARING OF PROFIT OR LOSS
FOR THE AXYS/SIGNAL COLLABORATIVE AGREEMENT
This Exhibit A to the Collaborative Research and License Agreement (the
"Agreement") dated as of October 15, 1999, between Axys Pharmaceuticals, Inc.
("Axys"), and Signal Pharmaceuticals, Inc. ("Signal"), addresses the accounting
policies and procedures to be followed in determining Profits or Losses. Terms
not defined in this Exhibit will have the meanings set forth in the Agreement.
For purposes of this Exhibit only, the accounting for Axys' sales of
each Licensed Product in the Territory, together with certain related costs and
expenses, and the receipt of any applicable royalties and non-royalty payments
for such Licensed Product, will be referred to as AxSignal. AxSignal is not
intended to be and is not a legal entity and has been defined for identification
purposes only.
1. CALCULATION OF PROFIT OR LOSS
The Profit or Loss for each Licensed Product will be determined on a
product-by-product basis and will be equal to: (i) Sublicense Revenues outside
the Territory plus Net Sales (as defined below) in the Territory, less (ii)
Allowable Costs and Expenses (each as defined below), plus or minus (iii) Net
Interest Income of a Party in connection with the development, manufacturing,
marketing or selling of such Licensed Product, plus or minus (iv) Other
Non-Operating and Extraordinary Gains (Losses) incurred by a Party in connection
with the development, manufacturing, marketing or selling of Licensed Products,
all as more fully described below. All calculations hereunder will be made
using, and all defined and undefined terms will be construed in accordance with,
U.S. generally accepted accounting principles, consistently applied, and
consistent with generally accepted methods for activity-based project costing
for similar products in similar industries. Without limiting the foregoing, no
cost item subject to sharing by the Parties hereunder will be included more than
once in calculating Profit or Loss. The Parties anticipate that Signal will not
incur expenses which are included in the Profit or Loss calculation unless Axys
and Signal have agreed that Signal will incur such expenses.
2. FREQUENCY OF REPORTING
The fiscal year of AxSignal will be a twelve (12) month period ending on
December 31 or such portion thereof as will be applicable. AxSignal's first,
second, third and fourth quarters will end on March 31, June 30, September 30
and December 31, respectively.
Reporting by Axys for AxSignal revenues and expenses will be performed
as follows:
<TABLE>
<CAPTION>
Reporting Event Frequency Timing of Submission
--------------- --------- --------------------
<S> <C> <C>
Actuals Quarterly 45 days following the end
of each quarter
</TABLE>
1.
<PAGE> 48
<TABLE>
<S> <C> <C>
Adjustment Annual 60 days following Axys'
fiscal year end
</TABLE>
In addition, Axys will provide Signal with Axys' internal, unaudited
financial statements for AxSignal for each of the first two (2) months of each
quarter promptly after each such financial statement is distributed internally
at Axys.
Axys will be responsible for the preparation of reports, calculation of
the Profit or Loss to be shared and determination of the cash settlement between
the Parties. Axys will provide to Signal, by the submission dates shown above, a
statement showing the AxSignal results for the preceding calendar quarter and
year-to-date in the format set forth in Schedule A-1 hereto, comparing quarterly
and year to date results to revenue forecasts and expense budgets, calculating
the Profit or Loss as provided in subsection A.1 above and Schedule A-1 hereto,
and determining the cash settlement required. To the extent any year-end
adjustments to AxSignal are determined in good faith by Axys to be appropriate,
an appropriate adjustment to Profit or Loss for the applicable year will be made
and an appropriate payment will be made by the applicable Party within thirty
(30) days following receipt of the report describing such adjustment; provided,
however, that in the event of a dispute between the Parties with respect to
whether any such adjustment or any other adjustment requested by Signal is
appropriate, such dispute will be referred to the Chief Executive Officer of
Axys and the Signal Designee for resolution pursuant to Section 11.12 of the
Agreement. Any such adjustment payment will be without interest if such amount
is less than the lesser of (a) [***] percent ([***]%) of Profits or Losses for
such year or (b) $[***] and will bear interest at the rate set forth in Section
6.10(b) of the Agreement if such amount is greater than or equal to the lesser
of (x) [***] percent ([***]%) of Profits or Losses for such year or (y) $[***].
3. DEFINITIONS.
As a supplement to the definitions provided in Article 1 of the
Agreement, the following accounting terms will be further specified as follows.
As used herein, the term "operating unit" will mean the standard operating unit
in which a profit and loss statement is prepared for management accounting
purposes in the Party's normal accounting procedures, consistently applied
within and across its operating units.
(a) "ALLOCABLE OVERHEAD" means (for any particular cost item) a Party's internal
allocation, based on direct project headcount or other generally accepted
activity-based accounting methods, of indirect overhead costs incurred by a
Party or any of its operating units to support and carry out the activities of
the specific business function, such as development, manufacturing, and sales
and marketing, with respect to a Licensed Product for the Territory, which
indirect costs may include but are not limited to: indirect labor costs;
occupancy costs; repair and maintenance costs; office supplies and service
costs; equipment costs; insurance costs; and outside professional and other
service costs. Such overhead will exclude any indirect costs associated with any
excess or unused capacity not directly related to a Licensed Product for the
Territory. Furthermore, overhead costs of a Party or operating units that are
not engaged in the development, manufacturing, marketing or selling of a
Licensed Product in the Territory will not be recoverable as Allocable Overhead
or otherwise, except as provided herein.
(b) "ALLOWABLE COSTS AND EXPENSES" means those costs and expenses incurred by
the Parties or for their account that are specifically attributable or related
to the research (to the
***CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 49
extent consistent with the terms of the Agreement), development, manufacturing,
marketing or selling of a Licensed Product in the Territory, and consisting of:
(i) Cost of Goods Sold, (ii) Development Expenses, (iii) Sales and Marketing
Expenses and (iv) General and Administrative Expenses.
(c) "COST OF GOODS SOLD" means the manufactured cost of a Licensed Product
shipped in final therapeutic form, calculated on a fully burdened basis (i.e.,
including Allocable Overhead specifically attributable thereto). The "cost of a
Licensed Product shipped in final therapeutic form" will mean the cost of
Licensed Product shipped in bulk form plus the cost of final manufacturing. The
"cost of a Licensed Product shipped in bulk form" means the standard unit cost
of Licensed Product in bulk form calculated in accordance with the customary
cost accounting methods, consistently applied, of the Party performing the work.
Standard unit cost generally consists of direct material, direct labor and
Allocable Overhead specifically attributable to the Licensed Product at
standard. The cost of final manufacturing will be calculated in accordance with
customary cost accounting methods, consistently applied, of the Party performing
the work. Final manufacturing costs generally consist of direct material, direct
labor and Allocable Overhead directly attributable to the Licensed Product at
standard.
Direct material costs will include, but not be limited to, the costs
incurred in purchasing raw materials and finished goods, including (without
limitation) freight, sales and excise taxes imposed thereon and customs duty and
charges levied by government authorities, and all costs of packaging components.
Direct labor will include, but not be limited to, the cost of employees
engaged in direct manufacturing activities who are directly employed in Licensed
Product manufacturing and packaging for the Territory.
Allocable Overhead included in Cost of Goods Sold will include, but not
be limited to, other indirect costs associated with the operating unit(s)
manufacturing a Licensed Product for the Territory. Such Allocable Overhead will
include, but not be limited to, expenses associated with: warehousing of a
Licensed Product in the Territory; quality assurance, manufacturing and
engineering associated with the operating unit(s) manufacturing a Licensed
Product for the Territory; and depreciation, repairs and maintenance, insurance
and property taxes associated with the plant(s) manufacturing Licensed Products
for the Territory. Allocable Overhead will not include costs associated with
capacity not incorporated into standard unit costs. Standard unit costs will
exclude costs associated with excess or unused capacity not directly related to
Licensed Products for the Territory.
Costs of Goods Sold will also include, but not be limited to, (i)
manufacturing variances and other attributable costs not in standard (but
excluding capacity not incorporated into standard manufacturing unit costs) such
as, but not limited to, material price variances, labor hour variances, material
usage variances, excess and obsolescence, inventory reserves and batches that do
not conform to specification, and (ii) actual Third Party royalty expenses.
Third Party royalty expenses will include, but not be limited to,
royalties or other compensation payable to a Third Party possessing or having a
license under patents and/or other technology rights relating to the
manufacture, sale, use, offer for sale or import of a Licensed Product for the
Territory, subject to the provisions of Section 6.6 of the Agreement.
3.
<PAGE> 50
(d) "DEVELOPMENT EXPENSES" means the expenses incurred by a Party or for its
account that are attributable to the development of a Licensed Product for the
Territory, calculated on a fully burdened basis (i.e., including Allocable
Overhead specifically attributable thereto). Without limiting the generality of
the foregoing, "Development Expenses" will mean amounts paid by a Party to third
parties involved in the development of a Licensed Product for the Territory, and
all internal costs (calculated on a full-time equivalent basis) incurred by a
Party in connection with development of a Licensed Product for the Territory.
Development Expenses will include, but are not limited to, the following costs
incurred for the development of a Licensed Product for the Territory: the costs
of modifying and optimizing a prospective Licensed Product, including its
chemical structure and formulation, to achieve product development goals
regarding efficacy, safety, dosing and route of administration; the cost of
studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of
a prospective Licensed Product conducted internally or by individual
investigators or consultants necessary or desirable for the purpose of obtaining
and/or maintaining Regulatory Approval of a Licensed Product in a country of the
Territory; costs (and related fees) for preparing, submitting, reviewing or
developing data or information for the purpose of submission to a governmental
authority to obtain and/or maintain Regulatory Approval of a Licensed Product in
a country of the Territory; and manufacturing process development and scale-up
for a Licensed Product in bulk and finished form for the Territory for purposes
of conducting preclinical and clinical studies necessary to obtain and/or
maintain Regulatory Approval of Licensed Products in a country of the Territory.
In addition, Development Expenses include, but are not limited to, the following
development costs incurred by the Parties in support of or for extension of the
applicable Licensed Product in the Territory after the First Commercial Sale:
Phase IV clinical trials; ongoing product development (e.g., new formulations
and routes of administration); ongoing product support; ongoing medical affairs;
and fees and expenses of outside consultants and counsel in respect of
regulatory affairs.
(e) "SALES AND MARKETING EXPENSES" means the costs which are incurred by a Party
or for its account attributable to the distribution, sale, promotion and
marketing of a Licensed Product in the Territory, calculated on a fully burdened
basis (i.e., including Allocable Overhead specifically attributable thereto).
Sales and Marketing Expenses will mean the sum of Selling Expenses, Marketing
Management, Market and Consumer Research, Advertising, Trade Promotion, Consumer
Promotion, Education Expenses and Freight and Transportation-Out, each of which
is specified below. The costs of activities which promote a Party's business as
a whole without being product specific (such as corporate image advertising) are
specifically excluded from Sales and Marketing Expenses. To the extent multiple
products are involved and some of such products are not a Licensed Product, then
such allowances will be allocated on a pro rata basis based upon net sales of
each respective product by such operating unit during the most recent quarter.
(i) "ADVERTISING" will include, but not be limited to, all media costs
associated with Licensed Product advertising in the Territory as follows:
production expense/artwork including set up; design and art work for an
advertisement; the cost of securing print space, air time, etc. in newspapers,
magazines, trade journals, television, radio, billboards, etc.
(ii) "CONSUMER PROMOTION" will include, but not be limited to, the
expenses associated with programs to promote a Licensed Product in the Territory
directly to the prescriber or end user. This category will include, but not be
limited to, expenses associated with promoting products directly to the
professional community such as professional samples, professional literature,
promotional material costs, patient aids and detailing aids. To the extent
multiple products are involved and some of such products are not the applicable
Licensed Product, then such allowances will be allocated on a pro rata basis
based upon net sales of each respective product by such operating unit during
the most recent quarter.
4.
<PAGE> 51
(iii) "EDUCATION" will include, but not be limited to, expenses
associated with professional education with respect to a Licensed Product in the
Territory through any means not covered above, including, but not limited to,
articles appearing in journals, newspapers, magazines or other media; seminars,
scientific exhibits, and conventions; and symposia, advisory boards and opinion
leader development activities.
(iv) "FREIGHT AND TRANSPORTATION-OUT" will include (to the extent not
already recovered in the calculation of Net Sales), but not limited to, the
portion of distribution costs relating to moving Licensed Product goods in the
Territory from a warehouse to the customer as follows: outbound transportation
costs; costs of moving goods from a manufacturing point to a warehouse at
another location from which it is ultimately to be distributed to a customer;
the costs of the traffic department where there is a separate department that
has responsibility for administration of freight costs.
(v) "MARKET AND CONSUMER RESEARCH" will include, but not be limited to,
compensation and departmental expenses for market and consumer research
personnel and payments to Third Parties related to conducting and monitoring
professional and consumer appraisals of existing, new or proposed Licensed
Products in the Territory, such as market share services (e.g., IMS data),
special research testing and focus groups.
(vi) "MARKETING MANAGEMENT" will include, but not be limited to, product
management and sales promotion management compensation and departmental
expenses. This will include, but not be limited to, costs associated with
developing overall sales and marketing strategies (e.g., product line or
customer segment), as well as planning and programs for Licensed Products in the
Territory. In addition, payments to Third Parties in connection with trademark
selection, filing, prosecution and enforcement in the Territory will be included
in this category.
(vii) "SELLING EXPENSES" will include, but not be limited to, the
following costs directly associated with the efforts of field sales
representatives with respect to Licensed Products in the Territory: field sales
force; field sales offices; home offices; staffs directly involved in the
management of and the performance of the selling functions; and payments to
Third Parties under contract sales and marketing agreements. The costs of
detailing sales calls will be allocated on a weighted average basis based on the
proportionate time and effort given to the detailing of Licensed Products versus
product other than a Licensed Product at an accounting charge rate consistently
applied within and across a Party's or a Third Party's operating units and which
is no less favorable than the internal charge rate used by such Party or such
Third Party for its own internal cost accounting purposes for products other
than the Licensed Product (excluding internal profit margins and markups).
(viii) "TRADE PROMOTION" will include, but not be limited to, the
allowances given to retailers, brokers, distributors, hospital buying groups,
etc. for purchasing, promoting, and distribution of Licensed Products in the
Territory. This will include, but not be limited to, purchasing, advertising,
new distribution, and display allowances as well as free goods, wholesale
allowances and reasonable field sales samples.
(f) "GENERAL AND ADMINISTRATIVE EXPENSES" means a Party's customary allocation,
based on direct project headcount or other generally accepted activity-based
accounting methods, of the costs of the following corporate general and
administrative functions of such Party or any of its operating units incurred to
support or facilitate the development, manufacturing, marketing or selling of
Licensed Products in the Territory: finance and accounting; purchasing and
receiving; management information systems; facilities; human resources;
executive management; and legal, patent and trademark. Such costs include, but
not limited to, the costs of employees performing such functions, the direct
costs of supporting such individuals in the performance of their jobs
5.
<PAGE> 52
(e.g., travel, floor space, computers and other supplies and telephones) and the
actual cost of outside services (e.g., consulting and audit services). General
and administrative expenses of a Party or operating unit that are incurred in
the development, manufacturing, marketing or selling of a Licensed Product
outside the Territory will be excluded from General and Administrative Expenses.
In view of the manner in which General and Administrative Expenses are
calculated, administration expenses will be excluded from the definition of each
of the other cost items that make up Allowable Costs and Expenses.
Notwithstanding any other provision of this Agreement, commencing as of
[***] total General and Administrative Expenses will not exceed [***] percent
([***]%) of Net Sales of such Licensed Product in the Territory in any quarter,
except as otherwise agreed in writing by the Parties.
(g) "NET INTEREST INCOME" means interest income less interest expense and
adjusted for realized gains and losses from the sale of investments.
(h) For purposes of calculating Profit or Loss only, "NET SALES" will have the
meaning ascribed to it in Section 1.29 of the Agreement.
(i) "OTHER NON-OPERATING AND EXTRAORDINARY GAINS (LOSSES)" means gains or losses
incurred either from secondary or auxiliary activities of AxSignal, outside the
ordinary and primary course of business, or unusual and infrequent gains and
losses of material amounts.
(j) "PROFIT OR LOSS" will have the meaning ascribed to it in subsection A.1
above.
(k) "SUBLICENSE REVENUES" means the amounts received by Axys or its Affiliates
described in Section 5.4(e)(i) of the Agreement.
(l) "TERRITORY" shall have the meaning ascribed to it in Section 1.53 of the
Agreement.
4. FOREIGN EXCHANGE
The functional currency for accounting for Profit or Loss will be U.S.
Dollars.
The statement of Profit or Loss will be translated into U.S. Dollars
using, for each currency, the arithmetic average of the daily exchange rates
(obtained as described below) during the reporting period; each daily exchange
rate will be obtained from the Reuters Daily Rate Report or The Wall Street
Journal, Eastern U.S. Edition, or, if not so available, as otherwise agreed to
by the Parties.
5. REPORTING OF SIGNAL COSTS
To the extent that, at Axys' written request, Signal or a Third Party
with whom Signal has contracted incurs Allowable Costs and Expenses, Signal will
promptly provide Axys with a reasonably detailed written invoice for such
Allowable Costs and Expenses, and such Allowable Costs and Expenses will be
accounted for in the fiscal quarter in which such invoice is received by Axys.
***CONFIDENTIAL TREATMENT REQUESTED
6.
<PAGE> 53
6. AUDITS
(a) Signal will have the right to request that an independent public accounting
firm perform an audit of Axys' books of accounts for the sole purpose of
verifying compliance with this Exhibit A. Such audits will be conducted at the
expense of Signal; provided, however, that if the audit results in an adjustment
exceeding the lesser of (i) [***] of Losses or Profits or (ii) [***] in any
quarter, the reasonable cost of the audit will be borne by Axys. Any disputes
with regard to the foregoing will be resolved in accordance with Section 11.12
of the Agreement. Audit results will be shared with both Parties. Audits are
limited to the same time periods as provided in Section 6.10(a).
(b) Axys will have the right to request that an independent public accounting
firm perform an audit of Signal's books of accounts for the sole purpose of
verifying invoices for Signal's Allowable Costs and Expenses submitted to Axys
hereunder. Such audits will be conducted at the expense of Axys; provided,
however, that if the audit results in an adjustment of greater than [***] of
Signal's Allowable Costs and Expenses in any period, the reasonable cost of the
audit will be borne by Signal. Audit results will be shared with both Parties.
Audits are limited to the same time periods as provided in Section 6.10(a).
7. PAYMENTS BETWEEN THE PARTIES
Balancing payments between the Parties will be made as necessary based
on Profit or Loss, adjusted for non-cash items other than those provided for in
Section A.11 below, including reasonable working capital allocations that
reflect differences between recognized cash flows and recognized revenues with
respect to a Licensed Product. Payments will be made quarterly, within
forty-five (45) days following the end of each quarter (or, with respect to
Signal, if later, thirty (30) days following receipt of the applicable report
from Axys), based on actual results within the time periods set forth in A.2
above subject to adjustment as provided for herein.
8. SHARING OF PROFITS AND LOSSES
As provided in the Agreement, the Parties share equally (50%/50%) the
Profit or Loss for each quarterly period.
9. START OF OPERATIONS
Operation of AxSignal will be deemed to have commenced on the date
Signal gives timely written notice to Axys that it has exercised the Option
pursuant to Section 5.3.
10. EXPENSES PERTAINING TO SALES OF A LICENSED PRODUCT IN THE TERRITORY AND
OUTSIDE THE TERRITORY
(a) In the event an expense is of sole benefit or utility to the research (to
the extent chargeable to Profit or Loss for a Licensed Product under the
Agreement), development or commercialization of a Licensed Product in the
Territory, then 100% of such expense will be charged to AxSignal.
(b) In the event an expense is of sole benefit or utility to the research (to
the extent chargeable to Profit or Loss for a Licensed Profit under the
Agreement), development or commercialization of a Licensed Product outside of
the Territory, then Signal's equal share of the Profit or Loss for such Licensed
Product will be reduced by [***] percent ([***]%) of such expense.
***CONFIDENTIAL TREATMENT REQUESTED
7.
<PAGE> 54
(c) In the event an expense is of benefit or utility to the research (to the
extent chargeable to Profit or Loss for a Licensed Product under the Agreement),
development or commercialization of a Licensed Product both in and outside of
the Territory, then such expense will be allocated in good faith to AxSignal,
Axys and Signal consistent with Section A.10(a) and (b) based on Axys' standard
accounting convention (consistently applied) for the allocation of such
expenses.
11. CAPITAL INVESTMENTS BY AXYS
Notwithstanding anything to the contrary in the Agreement or herein, all
capital investments required to be made in connection with a Licensed Product
(such as a capital investment in a manufacturing facility) are to be borne by
Axys initially and recouped through an appropriate depreciation charge to
AxSignal.
8.
<PAGE> 55
SCHEDULE A-1
PROFIT AND LOSS FINANCIAL STATEMENT FORMAT
<TABLE>
<CAPTION>
Axys Signal Total
---- ------ -----
<S> <C> <C> <C>
REVENUES
Sublicense Revenues:
Royalty Payments
Non-Royalty Payments
Total Sublicense Revenues
Gross Product Sales
Less:
Trade, Cash & Quantity Credits/Discounts
Allowance for Returns/Rejections
Handling Fees/Restocking Expenses
Freight & Transportation-In
Taxes & Duties
Governmental Chargebacks/Rebates
Total Net Product Sales
Total Revenues
Cost of Goods Sold:
Standard Direct Material Cost
Standard Direct Labor Costs
Manufacturing Variances
Third Party Royalty Expenses
Allocable Overhead
Total Cost of Goods Sold
Gross Profit
OPERATING EXPENSES
Development Expenses:
Product Development
Pre-Clinical Pharmacology & Toxicology
Clinical Trials
Regulatory Affairs
Other Contract R&D
Allocable Overhead
Total Development Expenses
Sales and Marketing Expenses:
Selling Expenses
Marketing Management
Market & Consumer Research
Advertising
Trade Promotion
Consumer Promotion
Education
Freight & Transportation-Out
Allocable Overhead
Total Sales and Marketing Expenses
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
Axys Signal Total
---- ------ -----
<S> <C> <C> <C>
General and Administrative Expenses:
Finance & Accounting
Purchasing & Receiving
Management Information Systems
Occupancy
Human Resources
Executive Management
Legal & Patent
Total General and Administrative Expenses
Operating Profit (Loss)
Interest Income (Expense)-Net
Other Non-Operating and Extraordinary Gains
(Losses) Net (with attendant schedule)
Profit (Loss)
Adjustments for Non-Cash Items
(with attendant schedule)
Adjustments per Section A.10(b) and (c)
Balancing Receipt (Payment) Pursuant to A.7
</TABLE>
2.
<PAGE> 57
EXHIBIT B
RESEARCH PLAN
[***]
***CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 58
EXHIBIT C
NON-PCT MEMBER COUNTRIES
Exhibit C will be mutually agreed to by the Parties within ten (10)
business days of the Effective Date and attached hereto as a substitute for this
Exhibit C.
<PAGE> 59
EXHIBIT C
The PCT countries in which foreign patent applications may be filed
pursuant to Section 7.3 are set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C>
Australia Australia Australia
Canada Canada Canada
China China China
Europe Europe Europe
Japan Japan Japan
New Zealand New Zealand New Zealand
Norway Norway Norway
Czech Republic Czech Republic
Finland Finland
Hong Kong Hong Kong
Mexico Mexico
Poland Poland
Russia Russia
South Korea South Korea
Ukraine Ukraine
Belarus
Estonia
Singapore
Slovenia
Turkey
</TABLE>
The non-PCT countries in which foreign patent applications may be filed
pursuant to Section 7.3 are set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C>
Argentina Argentina Argentina
Taiwan Taiwan Taiwan
Chile Chile
Columbia Columbia
Ecuador Ecuador
Pakistan
Venezuela
</TABLE>
The JRC will decide from time to time which of Class A, Class B or Class
C is the most appropriate with respect to a particular patent, which decision
will be memorialized in the minutes of the applicable JRC meeting.
1.
<PAGE> 60
SCHEDULE 1.1(a)
ER BETA POTENCY AND SELECTIVITY CRITERIA
For purposes of this Agreement, a compound will be considered ER
Beta-potent and selective if such compound has:
(a) [***]; and
(b) [***].
***CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 1
EXHIBIT 10.48
SORRENTO VALLEY BUSINESS PARK
LEASE
SUITES 116 AND 120
FROM
HUB PROPERTIES TRUST
A MARYLAND REAL ESTATE INVESTMENT TRUST
TO
SIGNAL PHARMACEUTICALS, INC.
A CALIFORNIA CORPORATION
5627 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 REFERENCE DATA................................................................1
1.1 Introduction and Subjects Referred To.........................................1
ARTICLE 2 PREMISES AND TERM.............................................................2
2.1 Premises......................................................................2
ARTICLE 3 COMMENCEMENT AND CONDITION....................................................3
3.1 Commencement Date.............................................................3
3.2 Condition of Premises.........................................................3
ARTICLE 4 RENT AND OTHER CHARGES........................................................3
4.1 The Annual Fixed Rent.........................................................3
4.2 Additional Rent...............................................................3
4.3 Real Estate Taxes.............................................................4
4.4 Personal Property Taxes.......................................................5
4.5 Operating Costs...............................................................5
4.6 Insurance.....................................................................8
4.7 Utilities.....................................................................9
4.8 Late Payment of Rent.........................................................10
4.9 Security Deposit.............................................................10
ARTICLE 5 LANDLORD'S COVENANTS.........................................................11
5.1 Heat and Air-Conditioning....................................................11
5.2 Water........................................................................11
5.3 Cleaning.....................................................................12
5.4 Lighting.....................................................................12
5.5 Repairs......................................................................12
5.6 Repair Cost Waiver...........................................................13
5.7 Interruption.................................................................13
5.8 Outside Services.............................................................13
5.9 Access to Building...........................................................14
5.10 Insurance....................................................................14
ARTICLE 6 TENANT'S ADDITIONAL COVENANTS................................................14
6.1 Perform Obligations..........................................................14
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.2 Use..........................................................................14
6.3 Repair and Maintenance.......................................................15
6.4 Compliance with Law..........................................................15
6.5 Indemnification..............................................................15
6.6 Landlord's Right to Enter....................................................16
6.7 Personal Property at Tenant's Risk...........................................16
6.8 Payment of Landlord's Cost of Enforcement....................................16
6.9 Yield Up.....................................................................16
6.10 Rules and Regulations........................................................17
6.11 Estoppel Certificate.........................................................17
6.12 Landlord's Expenses Re Consents..............................................17
6.13 Financial Information........................................................17
6.14 Assignment and Subletting....................................................17
6.15 Nuisance.....................................................................20
6.16 Equipment; Floor Load........................................................21
6.17 Electricity..................................................................21
6.18 Installations, Alterations or Additions......................................21
6.19 Signs........................................................................22
6.20 Hazardous Materials..........................................................23
ARTICLE 7 CASUALTY OR TAKING...........................................................24
7.1 Termination..................................................................24
7.2 Restoration..................................................................25
7.3 Award........................................................................25
7.4 Termination Waiver...........................................................25
ARTICLE 8 DEFAULTS.....................................................................25
8.1 Default of Tenant............................................................25
8.2 Remedies.....................................................................27
8.3 Remedies Cumulative..........................................................28
8.4 Landlord's Right to Cure Defaults............................................28
8.5 Holding Over.................................................................29
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.6 Effect of Waivers of Default.................................................29
8.7 No Waiver, etc...............................................................29
8.8 No Accord and Satisfaction...................................................29
ARTICLE 9 RIGHTS OF HOLDERS............................................................29
9.1 Rights of Mortgagees or Ground Lessors.......................................29
9.2 Modifications................................................................30
ARTICLE 10 MISCELLANEOUS PROVISIONS.....................................................31
10.1 Notices......................................................................31
10.2 Quiet Enjoyment; Landlord's Right to Make Alterations, Etc...................31
10.3 Lease Not to be Recorded.....................................................32
10.4 Assignment of Rents and Transfer of Title; Liquidation of Landlord's
Liability....................................................................32
10.5 Landlord's Default...........................................................33
10.6 Notice to Mortgagee and Ground Lessor........................................33
10.7 Building or Complex Name Change..............................................33
10.8 Parking......................................................................33
10.9 Brokerage....................................................................33
10.10 Applicable Law and Construction..............................................34
</TABLE>
<PAGE> 5
ARTICLE 1
REFERENCE DATA
1.1 INTRODUCTION AND SUBJECTS REFERRED TO
This is a lease (this "LEASE") entered into by and between HUB
PROPERTIES TRUST, a Maryland real estate investment trust ("LANDLORD") and
SIGNAL PHARMACEUTICALS, INC., a California corporation ("TENANT").
Each reference in this Lease to any of the following terms or phrases
shall be construed to incorporate the corresponding definition stated in this
Section 1.1.
Date of this Lease: December 28, 1999
Complex: The four (4) buildings (the "BUILDINGS") of the
Sorrento Valley Business Park and the parking
facilities and all other appurtenances, and the
land parcels on which they are located and the
sidewalks adjacent thereto, hereinafter referred to
collectively as the "COMPLEX".
Building: That certain building in the Complex, known as 5627
Oberlin Drive, San Diego, California 92121 (the
"BUILDING").
Premises: Two portions of the first (1st) floor of the
Building substantially as shown on Exhibit A hereto
and known as Suites 116 and 120.
Commencement Date: January 1, 2000.
Original Term: Four (4) years, commencing as of the Commencement
Date and expiring December 31, 2003.
<TABLE>
<CAPTION>
Annual Fixed Rent: LEASE YEAR ANNUAL FIXED RENT MONTHLY PAYMENT
---------- ----------------- ---------------
<S> <C> <C>
1 $142,695.00 $11,891.25
2 $146,975.85 $12,248.00
3 $151,385.12 $12,615.43
4 $155,926.67 $12,993.89
</TABLE>
Lease Year: The twelve (12) month period commencing on
the Commencement Date and ending on the day
immediately preceding the first anniversary of the
Commencement Date and each succeeding twelve (12)
month period thereafter during the term of this
Lease.
Tenant's Percentage: Nine and 12/100 percent (9.12%).
Other Leases: That certain lease between Sorrento Valley Business
Park, a California limited partnership and Tenant
dated as of April 30, 1993, as amended by First
Amendment to Lease dated November 4, 1994,
1.
<PAGE> 6
Second Amendment to Lease dated May 31, 1996 and
letter agreement dated January ___, 1998, and that
certain lease between Landlord and Tenant dated as
of January ___, 1998.
Permitted Uses: Offices and laboratories for biotechnology research
and development, subject to the provisions of
Section 6.2.
Commercial General
Liability Insurance
Limits: $4,000,000 per occurrence (combined single limit)
for property damage, bodily and personal injury and
death.
Original Address of
Landlord: c/o M&P Partners Limited Partnership
400 Centre Street
Newton, MA 02158
Attn: Jennifer B. Clark
Telephone #: (617) 796-8183
Original Address of Tenant: 5555 Oberlin Drive
San Diego, CA 92121
Security Deposit: None.
ARTICLE 2
PREMISES AND TERM
2.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises, excluding exterior faces
of exterior walls, the common lobbies, hallways, stairways, stairwells, elevator
shafts and other common areas, and the escalators, elevators, pipes, ducts,
conduits, wires and appurtenant fixtures and other common facilities serving the
common areas, the Premises and the premises of other tenants in the Building.
Tenant shall have, as appurtenant to the Premises, rights to use, in
common with others, subject to reasonable rules of general applicability to
tenants of the Building from time to time made by Landlord of which Tenant is
given notice: (a) the common lobbies, hallways and stairways of the Building,
(b) the common escalators, elevators, pipes, ducts, conduits, wires and
appurtenant fixtures and other common facilities serving the Premises, (c)
common walkways and driveways (if any) necessary for access to the Building, and
(d) if the Premises include less than all of the rentable area of any floor of
the Building, the common toilets and other common facilities located on such
floor.
2.2 The term of this Lease shall be for a period beginning on the
Commencement Date (as hereinafter defined) and continuing for the Original Term
and any extension thereof in accordance with the provision of this Lease, unless
sooner terminated as hereinafter provided.
2.
<PAGE> 7
The Original Term and any extension thereof in accordance with the provisions of
this Lease is hereinafter referred to as the "TERM."
ARTICLE 3
COMMENCEMENT AND CONDITION
3.1 COMMENCEMENT DATE. The Commencement Date shall be January 1, 2000.
3.2 CONDITION OF PREMISES. The Premises are leased in "as is" condition,
Tenant acknowledging that it has fully investigated and become fully familiar
with the condition of the Premises and that Landlord has made no warranties or
representations as to the condition of the Premises. Landlord shall, however,
comply with its obligations under Section 5.6 hereof.
ARTICLE 4
RENT AND OTHER CHARGES
4.1 THE ANNUAL FIXED RENT. Tenant agrees to pay to Landlord's Agent, or
as otherwise directed by Landlord, commencing on the Commencement Date, without
offset, abatement (except as provided in Article 7), deduction or demand, the
Annual Fixed Rent. Such Annual Fixed Rent shall be payable in equal monthly
installments, in advance, on the first day of each and every calendar month
during the term of this Lease, at the Original Address of Landlord, or at such
other place as Landlord shall from time to time designate by notice, by check
drawn on a domestic bank.
Annual Fixed Rent for any partial month shall be prorated on a daily
basis, and if Annual Fixed Rent commences on a day other than the first day of a
calendar month, the first payment which Tenant shall make to Landlord shall be
payable on the date Annual Fixed Rent commences and shall be equal to a
proportionate part of the monthly installment of Annual Fixed Rent for the
partial month in which Annual Fixed Rent commences plus the installment of
Annual Fixed Rent for the succeeding calendar month.
"INDEX" shall mean the Consumer Price Index for Urban Wage Earners and
Clerical Workers, Los Angeles-Anaheim-Riverside, All Items, 1982-1984= 100, (or
the Consumer Price Index for the smallest geographic area for which includes Los
Angeles-Anaheim-Riverside. The Index is presently published by the Bureau of
Labor Statistics of the United States Department of Labor. In the event
publication of the Index ceases, the computation of the Annual Fixed Rent due
from Tenant during each year of the term with respect to which the Index is to
be applied shall be computed upon the basis of whatever index published by the
United States Department of Labor at that time is most nearly comparable as a
measure of general changes in price levels for the area in which the Property is
located. In the event that the Index ceases to use 1982-84= 100 as the basis of
calculation, then the index shall be converted to the amount(s) that would have
resulted had the manner of calculating the Index in effect at the Date of this
Lease not been altered. Any decrease in the Index shall not cause Annual Fixed
Rent to be reduced.
4.2 ADDITIONAL RENT. Tenant covenants and agrees to pay Tenant's
Percentage of Taxes and Operating Costs as provided below, and all other charges
and amounts payable by or
3.
<PAGE> 8
due from Tenant to Landlord (all such amounts referred to in this sentence being
"ADDITIONAL RENT").
4.3 REAL ESTATE TAXES. Tenant shall pay to Landlord, as Additional Rent,
an amount ("TENANT'S TAX SHARE") equal to Tenant's Percentage of the Taxes (as
hereinafter defined) due (or estimated to be due by governmental authority) for
any fiscal tax period (a "TAX YEAR") during the term hereof. Except as otherwise
provided in the immediately following paragraph, Tenant shall pay Tenant's Tax
Share to Landlord at least ten (10) days prior to the date or dates within any
year during the term hereof that the same, or any fractional share thereof,
shall be due and payable to any governmental authority responsible for
collection of same (as stated in a written notice to Tenant given at least
twenty (20) days prior to the date or dates any such payment shall be due, which
notice shall set forth the manner of computation of any Tenant's Tax Share due
from Tenant), except that such payment shall be made to Landlord not later than
ten (10) days after such notice to Tenant, if such notice is given subsequent to
the date twenty days prior to the date the same is due and payable as aforesaid.
At Landlord's election, Tenant shall pay to Landlord, as Additional Rent
on the first day of each calendar month during the term but otherwise in the
manner provided for the payment of Annual Fixed Rent, estimated payments on
account of Tenant's Tax Share, such monthly amounts to be sufficient to provide
Landlord by the time Tax payments are due or are to be made by Landlord a sum
equal to Tenant's Tax Share, as reasonably estimated by Landlord from time to
time on account of Taxes for the then current Tax Year. If the total of such
monthly remittances for any Tax Year is greater than Tenant's Tax Share for such
Tax Year, Landlord shall credit such overpayment against Tenant's subsequent
obligations on account of Taxes (or promptly refund such overpayment if the term
of this Lease has ended and Tenant has no further obligations to Landlord); if
the total of such remittances is less than Tenant's Tax Share for such Tax Year,
Tenant shall pay the difference to Landlord within ten (10) days after being so
notified in writing by Landlord.
If, after Tenant shall have made all payments due to Landlord pursuant
to this Section 4.3, Landlord shall receive a refund of any portion of Taxes as
a result of an abatement of such Taxes by legal proceedings, settlement or
otherwise (without either party having any obligation to undertake any such
proceedings), Landlord shall pay or credit to Tenant Tenant's Percentage of that
percentage of the refund (after first deducting any reasonably incurred
expenses, including attorneys', consultants' and appraisers' fees, incurred in
connection with obtaining any such refund) which equals the percentage of the
applicable Tax Year included in the term hereof, provided however, in no event
shall Tenant be entitled to receive more than the sum of payments actually made
by Tenant on account of Taxes with respect to such Tax Year or to receive any
payment if Taxes for any Tax Year are less than Base Taxes.
In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Tax Year, or should the Tax Year
or period of assessment of real estate taxes be changed or be more or less than
one (1) year, or should Tenant's Percentage be modified during any Tax Year due
to a change in the rentable area of the Building and/or the Premises or
otherwise, as the case may be, then the amount of Tenant's Tax Share which may
be otherwise payable by Tenant as provided in this Section 4.3 shall be
appropriately apportioned and adjusted.
4.
<PAGE> 9
The term "TAXES" shall mean all taxes, assessments, excises and other
charges and impositions which are general or special, ordinary or extraordinary,
foreseen or unforeseen, of any kind or nature which are levied, assessed or
imposed at any time during the term by any governmental authority upon or
against the Complex, or taxes in lieu thereof, and additional types of taxes to
supplement real estate taxes due to legal limits imposed thereon. If, at any
time during the term of this Lease, any tax or excise on rents or other taxes,
however described, are levied or assessed against Landlord with respect to the
rent reserved hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes then assessed or levied on the Complex, such tax
or excise on rents shall be included in Taxes; however, Taxes shall not include
franchise, estate, inheritance, succession, capital levy, income or excess
profits taxes assessed on Landlord. Taxes also shall include all court costs,
attorneys', consultants' and accountants' fees, and other reasonably incurred
expenses incurred by Landlord contesting Taxes through and including all
appeals. Taxes shall include any estimated payment made by Landlord on account
of a fiscal tax period for which the actual and final amount of taxes for such
period has not been determined by the governmental authority as of the date of
any such estimated payment.
4.4 PERSONAL PROPERTY TAXES. Tenant shall pay all taxes charged,
assessed or imposed upon the personal property of Tenant in or upon the
Premises.
4.5 OPERATING COSTS. Tenant shall pay to Landlord, as Additional Rent,
an amount ("TENANT'S OPERATING COST SHARE") equal to Tenant's Percentage of
Operating Costs (as hereinafter defined) paid or incurred by Landlord in any
twelve-month period established by Landlord (an "OPERATING YEAR"). Except as
otherwise provided in the immediately following paragraph Tenant shall pay
Tenant's Operating Cost Share to Landlord within twenty (20) days from the date
Landlord shall furnish to Tenant an itemized statement thereof, prepared,
allocated and computed in accordance with then prevailing customs and practices
of the real estate industry in the San Diego area, consistently applied.
At the election of Landlord, Tenant shall pay to Landlord, as Additional
Rent on the first day of each calendar month during the term but otherwise in
the manner provided for the payment of Annual Fixed Rent, estimated payments on
account of Tenant's Operating Cost Share, such monthly amounts to be sufficient
to provide to Landlord, by the end of each Operating Year, a sum equal to
Tenant's Operating Cost Share for such Operating Year, as reasonably estimated
by Landlord from time to time during such Operating Year. If, at the expiration
of each Operating Year in respect of which monthly installments of Tenant's
Operating Cost Share shall have been made as aforesaid, the total of such
monthly remittances is greater than the actual Tenant's Operating Cost Share for
such Operating Year, Landlord shall credit such overpayment against Tenant's
subsequent obligations on account of Operating Costs (or promptly refund such
overpayment if the term of this Lease has ended and Tenant has no further
obligation to Landlord); if the total of such remittances is less than Tenant's
Operating Cost Share for such Operating Year, Tenant shall pay the difference to
Landlord within ten (10) days after being so notified by Landlord.
In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Operating Year or Tenant's
Percentage shall be modified during any Operating Year due to a change in the
rentable area of the Building and/or the
5.
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Premises or otherwise, as the case may be, then the amount of Tenant's Operating
Cost Share which may be payable by Tenant as provided in this Section 4.5 shall
be appropriately apportioned and adjusted.
The term "OPERATING COSTS" shall include, without limitation, all
reasonable costs and expenses as may be paid or incurred by Landlord in
maintaining, operating and repairing the common areas and facilities of the
Complex during the Term, including, without limitation, CC&R assessments and
dues, and the cost of labor, materials, supplies and services used or consumed
in maintaining operating and repairing the common areas and facilities,
including without limitation, the following:
(a) maintaining and repairing landscaping and sprinkler systems,
together with all charges for water and sewer service used in the common areas
of the Complex;
(b) maintaining and repairing concrete walkways and paved parking
areas;
(c) maintaining and repairing signs and site lighting in the
Complex;
(d) pest control, exterior janitorial, exterior window washing,
sweeping services, and buildings and Complex security;
(e) all electricity and other utilities supplied to the common
areas of the Complex;
(f) all costs of insurance maintained by Landlord;
(g) legal fees except as excluded below; and
(h) a management fee equal to five percent (5%) of the total
Operating Costs and Taxes.
Tenant may, at its sole expense, contract for or provide its own
interior janitorial service. If Tenant does not contract for or otherwise
provide for its own interior janitorial services, then Landlord may provide such
services and the costs thereof may be included within Operating Costs.
The following shall not constitute Operating Costs:
(a) Brokerage commissions, advertising costs and other related
expenses incurred in connection with the leasing by Landlord of the Complex;
(b) Structural repairs of a capital nature;
(c) Damage, the cost to repair which is reimbursed to Landlord
under any insurance policy carried by Landlord under this Lease in connection
with the Complex;
(d) Damage and repairs necessitated by the negligence or willful
misconduct of Landlord or Landlord's employees, agents or contractors;
6.
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(e) Executive salaries of Landlord;
(f) Salaries of service personnel to the extent such service
personnel performs services not attributable to management, operation, repair or
maintenance of the Complex;
(g) Landlord's general overhead expenses not related to the
Complex;
(h) Payments of principal or interest on any mortgage or other
encumbrance including ground lease payments and points, commissions and legal
fees associated with financing;
(i) Depreciation;
(j) Legal fees, accountants' fees and expenses incurred in
connection with disputes with Tenant or other tenants or occupants of the
Complex or associated with the enforcement of any leases;
(k) Costs, including permits, license and inspection fees
incurred in renovating or otherwise improving, decorating, painting or altering
space for other tenants in the Complex;
(l) The cost of any service provided to Tenant or other tenants
of the Complex for which Landlord is reimbursed;
(m) Charitable or political contributions;
(n) Interest, penalties or other costs arising out of Landlord's
failure to make timely payments of its obligations;
(o) Costs incurred in advertising and promotional activities for
the Complex;
(p) Costs charged Landlord by any of its affiliates for goods and
services provided to the Complex to the extent in excess of the prevailing costs
thereof that would be charged to Landlord by non-affiliated parties;
(q) Except as otherwise provided in Section 6.2, repairs,
alterations, additions, improvements or replacements to the Complex made to
comply with requirements of applicable governmental law in effect as of the Date
of this Lease, except for those repairs, alterations, additions, improvements or
replacements for which Tenant is otherwise responsible under this Lease, and
except for those arising out of or necessitated by Tenant's use (excluding
reasonable wear and tear), or any alterations or tenant improvements made by or
for Tenant;
(r) Damage and repairs attributable to condemnation, fire and
other casualty for which Landlord is reimbursed by condemnation or insurance
proceeds; and
(s) The cost or expense of testing for, removal, transportation
or storage of Hazardous Materials, except to the extent arising out of the
storage, use, generation,
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transportation, disposal, or release of Hazardous Materials by Tenant, or its
contractors, employees or invitees.
4.6 INSURANCE. Tenant shall, at its expense, take out and maintain, from
the date upon which Tenant first enters the Premises for any reason, and
throughout the term and thereafter so long as Tenant is in occupancy of any part
of the Premises, the following insurance:
(a) Commercial general liability insurance, including bodily
injury and property damage (on an occurrence basis and on a 1988 ISO CGL form or
its equivalent or otherwise in the broadest form available, including without
limitation, broad form contractual liability, fire, legal liability, independent
contractor's hazard and, upon commencement of commercial product production,
completed operations coverage) under which Tenant is named as an insured and
Landlord and Landlord's Agent (and the holder of any mortgage on the Building or
the Complex, as set out in a notice from time to time) are named as additional
insureds as their interests may appear, in an amount which shall, at the
beginning of the term, be at least equal to the Commercial General Liability
Insurance Limit, and, which, from time to time during the term, shall be for
such higher limits, if any, as are customarily carried in the area in which the
Premises are located at property comparable to the Premises and used for similar
purposes;
(b) Worker's compensation insurance with statutory limits
covering all of Tenant's employees working on the Premises; and
(c) So-called "all-risk" property insurance on a "replacement
cost" basis with an agreed value endorsement covering all Tenant's furniture,
furnishings, fixtures and equipment and other personal property and all
improvements and betterments to the Premises performed at Tenant's expense.
All such policies shall contain a clause confirming that such policy and
the coverage evidenced thereby shall be primary with respect to any insurance
policies carried by Landlord and shall be obtained from responsible companies
qualified to do business and in good standing in the State of California, which
companies shall have a general policy holder's rating in Best's of at least
A-VIII. A copy of each paid-up policy evidencing such insurance (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this Section and
containing provisions specified herein, shall be delivered to Landlord prior to
the commencement of the term of this Lease and, upon renewals, not less than
thirty (30) days prior to the expiration of such coverage. Tenant agrees to
furnish Landlord with certificates evidencing all such insurance prior to the
beginning of the term hereof. Tenant shall procure and pay for renewals of such
insurance from time to time before the expiration thereof, and Tenant shall
deliver to Landlord and any additional insured such renewal policy or a
certificate thereof at least thirty (30) days prior to expiration of any
existing policy. Each such policy shall be non-cancellable and not materially
changed with respect to the interest of Landlord and such mortgagees of the
Building or the Complex (and others that are in privity of estate with Landlord
of which Landlord provides notice to Tenant from time to time) without at least
ten (10) days' prior written notice thereto. Any insurance required of Tenant
under this Lease may be furnished by Tenant under a blanket policy carried by it
provided that such blanket policy shall reference the Premises, and shall
guarantee a
8.
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minimum limit available for the Premises equal to the insurance amounts required
in this Lease. Landlord may, at any time, and from time to time, inspect and/or
copy any and all insurance policies required to be procured by Tenant hereunder.
Landlord and Tenant shall each endeavor to secure an appropriate clause
in, or an endorsement upon, each property damage insurance policy obtained by it
and covering the Building, the Premises or the personal property, fixtures and
equipment located therein or thereon, pursuant to which the respective insurance
companies waive subrogation or permit the insured, prior to any loss, to agree
with a third party to waive any claim it might have against said third party.
The waiver of subrogation or permission for waiver of any claim hereinbefore
referred to shall extend to the agents of each party and its employees and, in
the case of Tenant, shall also extend to all other persons and entities
occupying or using the Premises by, through or under Tenant. If and to the
extent that such waiver or permission can be obtained only upon payment of an
additional charge then the party benefiting from the waiver or permission shall
pay such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission
from such insurance companies.
Subject to the foregoing provisions of this Section 4.6, and insofar as
may be permitted by the terms of the insurance policies carried by it, each
party hereby releases the other with respect to any claim which it might
otherwise have against the other party for loss, damage or destruction of or to
its property to the extent such damage is or would be covered by policies of
insurance required by this Lease to be carried by the respective parties
hereunder. In addition, Tenant agrees to exhaust any and all claims against its
insurer(s) prior to commencing an action against Landlord for any property loss,
except for any loss or damage to property due to the gross negligence or willful
misconduct of Landlord or its agents or employees.
4.7 UTILITIES. Tenant shall pay for the cost of all charges for
electricity, telephone and other utilities or services not supplied by Landlord
pursuant to Article 5, whether designated as a charge, tax, assessment, fee or
otherwise, all such charges to be paid as the same from time to time become due.
Except as otherwise provided in this Section 4.7 or Article 5, it is understood
and agreed that Tenant shall make its own arrangements for the installation or
provision of all utilities and services and that Landlord shall be under no
obligation to furnish any utilities to the Premises. Tenant acknowledges that
Annual Fixed Rent does not include the cost of providing such utilities and
services to the Premises.
If the utility company serving the Premises shall agree to separate
metering of Tenant's electricity consumption in the Premises, such electricity
usage may (at Landlord's option) be separately metered.
If Tenant's electricity consumption shall be separately metered for all
or any portion of the Premises at any time during the term hereof, then, for
those portions of the Premises that are separately metered, Tenant shall pay all
bills for such electricity promptly to the utility company furnishing the same.
If Tenant's electricity consumption is not separately metered in all or any
portion of the Premises during all or any portion of the term, Tenant shall
reimburse Landlord for the costs incurred by Landlord (including any associated
fees and expenses reasonably incurred
9.
<PAGE> 14
by Landlord) in supplying electricity to those portions of the Premises which
are not separately metered, within ten (10) days of Landlord's invoice therefor.
4.8 LATE PAYMENT OF RENT. If any installment of Annual Fixed Rent or
Additional Rent is paid after the date the same was due, it shall bear interest
(as Additional Rent) from the date due at the Default Rate (as defined in
Section 8.4). Absent specific provision to the contrary, all Additional Rent
shall be due and payable in full ten (10) days after demand by Landlord.
4.9 SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit
with Landlord the Security Deposit. The Security Deposit shall be held by
Landlord as security for the faithful performance of all the terms of this Lease
to be observed and performed by Tenant. The Security Deposit shall not be
mortgaged, assigned, transferred or encumbered by Tenant and any such act on the
part of Tenant shall be without force and effect and shall not be binding upon
Landlord.
If the Annual Fixed Rent or Additional Rent payable hereunder shall be
overdue and unpaid or should Landlord make any payment on behalf of the Tenant,
or Tenant shall fail to perform any of the terms of this Lease, then Landlord
may, at its option, upon not less than three (3) days' prior notice to Tenant,
but without prejudice to any other remedy which Landlord may have on account
thereof, appropriate and apply the entire Security Deposit or so much thereof as
may be necessary to compensate Landlord toward the payment of Annual Fixed Rent,
Additional Rent or other sums or loss or damage sustained by Landlord due to
such breach by Tenant; and Tenant shall forthwith upon demand restore the
Security Deposit to the original sum deposited. So long as Tenant shall not be
in default of its obligations under this Lease, Landlord shall return the
Security Deposit or so much thereof as shall have not theretofore been applied
in accordance with the terms of this Section 4.9, to Tenant promptly following
the expiration or earlier termination of the term of this Lease and the
surrender of possession of the Premises by Tenant to Landlord in accordance with
the terms of this Lease. While Landlord holds the Security Deposit, Landlord
shall have no obligation to pay interest on the same and shall have the right to
commingle the same with Landlord's other funds. If Landlord conveys Landlord's
interest under this Lease, the Security Deposit, or any part thereof not
previously applied, shall be turned over by Landlord to Landlord's grantee, and
Tenant shall look solely to such grantee for proper application of the Security
Deposit in accordance with the terms of this Section 4.9 and the return thereof
in accordance herewith. The holder of a mortgage on the Property shall not be
responsible to Tenant for the return or application of the Security Deposit,
whether or not it succeeds to the position of Landlord hereunder, unless such
holder actually receives the Security Deposit.
In addition, at the expiration of the term of the Other Lease, Tenant
shall deliver to Landlord a letter of credit (the "LETTER OF CREDIT", which
shall (a) be unconditional and irrevocable and otherwise in form and substance
satisfactory to Landlord; (b) be at all times in the amount of $150,000, and
shall permit multiple draws without a corresponding reduction in the amount of
the Letter of Credit; (c) be issued by a commercial bank reasonably acceptable
to Landlord from time to time; (d) be made payable to, and expressly
transferable and assignable at no charge by, the owner from time to time of the
Property (which transfer/assignment shall be conditioned only upon the execution
by such owner of a written document in connection with such transfer/assignment;
(e) be payable at sight upon presentment to a local branch of the issuer
10.
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of a simple sight draft accompanied by a certificate of Landlord stating that
Tenant is in default under this Lease, and the amount that Landlord is owed (or
is permitted to draw) in connection therewith; and (f) shall either expire sixty
(60) days following the expiration of the term of this Lease, or be replaced not
less than thirty (30) days prior to the expiration of the then current Letter of
Credit so that the original Letter of Credit or a replacement thereof shall be
in full force and effect throughout the Term of this Lease and for a period of
sixty (60) days thereafter. Tenant shall deliver to Landlord any replacement
Letter of Credit not less than thirty (30) days prior to the expiration of the
then current Letter of Credit. Notwithstanding anything in this Lease to the
contrary, any grace period or cure periods which are otherwise applicable under
Section 8.1, hereof, shall not apply to any of the foregoing, and, specifically,
if Tenant fails to comply with the requirements of subsection (f) above,
Landlord shall have the immediate right to draw upon the Letter of Credit in
full and hold the proceeds thereof as a cash security deposit until such breach
or default shall be cured by Tenant. Each Letter of Credit shall be issued by a
commercial bank that has a credit rating with respect to certificates of
deposit, short term deposits or commercial paper of at least P-2 (or equivalent)
by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard &
Poor's Corporation. If the issuer's credit rating is reduced below P-2 (or
equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent)
by Standard & Poor's Corporation, or if the financial condition of the issuer
changes in any other materially adverse way, then Landlord shall have the right
to require that Tenant obtain from a different issuer a substitute Letter of
Credit that complies in all respects with the requirements of this Section, and
Tenant's failure to obtain such substitute Letter of Credit within ten (10) days
after Landlord's written demand therefor (with no other notice, or grace or cure
period being applicable thereto) shall entitle Landlord to immediately draw upon
the existing Letter of Credit in full, without any further notice to Tenant
until such substitute Letter of Credit is provided.
ARTICLE 5
LANDLORD'S COVENANTS
5.1 HEAT AND AIR-CONDITIONING. Landlord shall furnish heat and
air-conditioning ("HVAC") to the Premises (reserving the right, at any time, to
change energy sources) sufficient to maintain the Premises at comfortable
temperatures for the Permitted Uses and shall furnish ventilation to the
Premises in accordance with all legal requirements and in a fashion consistent
with similar space used for purposes similar to the Premises, subject to all
federal, state and municipal regulations. In the event Tenant makes any
alterations, locates an excessive number of persons or heat-generating equipment
in, or makes any other use of the Premises which overloads the capacity of the
Building HVAC systems or in any other way interferes with such system's ability
to perform adequately its proper functions, supplementary systems or alterations
may, if and as needed, at Landlord's option, upon reasonable prior notice to
Tenant be provided by Landlord, at Tenant's expense.
5.2 WATER. Landlord shall furnish water for ordinary drinking, lavatory
and toilet facilities. If Tenant uses a disproportionate amount of water as
compared to other tenants of the Building, Landlord may assess a reasonable
charge for the additional water so used, or install a water meter and thereby
measure Tenant's water consumption for all purposes. In the latter event, Tenant
shall pay the cost of the meter and the reasonable cost of installation thereof
and
11.
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shall keep such meter and installation equipment in good working order and
repair. Tenant agrees to pay for water consumed, as shown on such meter,
together with the sewer charge based on such meter charges, as and when bills
are rendered, and if Tenant shall fail to make such payment, Landlord may pay
such charges and collect the same from Tenant as Additional Rent.
5.3 CLEANING. Landlord shall provide cleaning to the Premises and the
common areas of the Building in accordance with standards generally prevailing
throughout the term hereof in comparable buildings in the San Diego area used
for similar purposes. Tenant shall pay to Landlord on demand the actual costs
incurred by Landlord for (a) extra cleaning work in the Premises required
because of carelessness, indifference, misuse or neglect on the part of Tenant
or its subtenants or its or their employees or visitors, and (b) removal from
the Premises and the Building of any refuse and rubbish of Tenant in excess of
that ordinarily accumulated in medical research and development office and
laboratory occupancy, including, without limitation, kitchen refuse, or at times
other than Landlord's standard cleaning times. Notwithstanding the foregoing,
Landlord shall not be required to clean any portions of the Premises used for
preparation, serving or consumption of food or beverages or other special
purposes if same require greater or more difficult cleaning work than office
areas, and Tenant agrees, at Tenant's expense, to retain Landlord's cleaning
contractor to perform such extra cleaning, provided that the charges of such
cleaning contractor shall be commercially reasonable.
Landlord, its cleaning contractor and their respective employees shall
have access to the Premises after 6:00 p.m. and before 8:00 a.m. and shall have
the right to use, without charge therefor, all light, power and water in the
Premises reasonably required to clean the Premises as required hereunder.
Notwithstanding anything contained herein to the contrary, Landlord
shall have no obligation to collect or dispose of any (a) Hazardous Materials
(as hereinafter defined) or any radioactive, volatile, highly flammable,
explosive or toxic or hazardous materials, (b) needles, syringes, lancets,
similar sharp objects or contaminated glassware, (c) blood products, (d) body
fluids, (e) human or animal tissue and (f) any materials identified in
California Administrative Code Sections 66680-66685 et. seq., any item
identified in clauses (a) through (f), above, hereinafter referred to as
"EXCEPTED WASTE". Tenant agrees that title to and liability for any Excepted
Waste shall remain with Tenant, even if Landlord collects and/or disposes of any
such Excepted Waste.
5.4 LIGHTING. Landlord shall purchase and install, at Tenant's expense,
all lamps, tubes, bulbs, starters and ballasts for lighting fixtures in the
Premises; and shall provide lighting to public and common areas of the Building.
5.5 REPAIRS. Except as otherwise expressly provided herein, Landlord
shall make such repairs and replacements to the roof, exterior walls, floor
slabs and other structural components of the Building, and to the common areas
and facilities of the Building (including any plumbing, electrical, HVAC
equipment, elevators and any other common equipment or systems in the Building)
as may be necessary to keep them in good repair and condition (exclusive of
equipment installed by Tenant and except for those repairs required to be made
by Tenant pursuant to Section 6.3 and repairs or replacements occasioned by any
act or negligence of Tenant, its servants, agents, customers, contractors,
employees, invitees, or licensees). In no
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<PAGE> 17
event shall Landlord ever be liable or accountable to Tenant for loss of light
or view occasioned by alteration or construction of buildings or structures
adjacent to the Building or the Complex. Landlord shall provide maintenance and
landscaping to the exterior common areas of the Building in accordance with
standards generally prevailing throughout the term hereof in comparable office
buildings in the San Diego area.
5.6 REPAIR COST WAIVER. Tenant hereby waives all rights it would
otherwise have under California Civil Code Sections 1932(l) and 1942(a), or any
successor statutes, to deduct repair costs from rent or terminate this Lease as
a result of any failure by Landlord to perform its maintenance or repair
obligations.
5.7 INTERRUPTION. Landlord shall be under no responsibility or liability
for failure, interruption or unavailability of any services, facilities,
utilities, repairs or replacements or inability to provide access or inability
to perform any other obligation under this Lease caused by breakage, accident,
fire, flood or other casualty, strikes or other labor trouble, order or
regulation of or by any governmental authority, inclement weather, repairs,
inability to obtain or shortages of supplies, labor or materials, war, civil
commotion or other emergency, transportation difficulties or due to any act or
neglect of Tenant or Tenant's servants, agents, employees or licensees or for
any other cause beyond the reasonable control of Landlord, and in no event for
any indirect or consequential damages to Tenant; and failure or omission on the
part of Landlord to furnish any of same for any of the reasons set forth in this
paragraph shall not be construed as an eviction of Tenant, actual or
constructive, nor entitle Tenant to an abatement of rent, nor render the
Landlord liable in damages, nor release Tenant from prompt fulfillment of any of
its covenants under this Lease. Landlord shall, however, with due regard given
to the effect on Tenant's business, use all commercially reasonable efforts to
minimize, to the extent practical, the duration and extent of any such failure,
interruption, unavailability or inability to provide such services, facilities
and utilities.
Landlord reserves the right temporarily to stop the services of the
HVAC, plumbing, electrical or other utilities, systems or facilities in the
Building when necessary from time to time by reason of accident or emergency, or
for repairs, alterations, replacements or improvements which in the reasonable
judgment of Landlord are desirable or necessary, until such repairs,
alterations, replacements or improvements shall have been completed. Landlord
shall use reasonable efforts to give to Tenant at least ten (10) days' notice if
service is to be stopped and to schedule such interruption at nights or on
weekends, except in cases of emergency.
5.8 OUTSIDE SERVICES. In the event Tenant wishes to provide outside
services for the Premises over and above those services to be provided by
Landlord as set forth herein, Tenant shall first obtain the prior approval of
Landlord (which approval shall not be unreasonably withheld or delayed provided
that Tenant agrees that it shall not be unreasonable for Landlord to designate a
sole provider of a given service for all tenants of the Building or Complex) for
the installation and/or utilization of such services. ("OUTSIDE SERVICES" shall
include, but shall not be limited to, cleaning services, television, so-called
"CANNED MUSIC" services, security services, catering services and the like). In
the event Landlord approves the installation and/or utilization of such
services, such installation and utilization shall be at Tenant's sole cost, risk
and expense.
13.
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5.9 ACCESS TO BUILDING. Tenant acknowledges that Tenant is responsible
for providing security to the Premises following Tenant's entry onto the
Premises for any reason and for its own personnel whenever located therein.
Subject to the foregoing, Landlord shall, at all times, retain the right to
control and prevent such access by all persons whose presence, in the reasonable
discretion of Landlord, may jeopardize the safety, protection, character,
reputation and interests of the Building and its tenants or occupants. Landlord
shall in no case be liable for damages resulting from any error with regard to
the admission or exclusion of any person from the Building.
5.10 INSURANCE. Landlord shall carry (i) full replacement cost property
insurance (exclusive of footings and foundations, any betterments or
improvements performed by Tenant and subject to reasonable deductibles on the
Building) in at least the amount of coverage sufficient to prevent the
application of co-insurance provisions, and (ii) general liability insurance in
an amount consistent with that carried by other landlords of similar properties
in the San Diego metropolitan area.
ARTICLE 6
TENANT'S ADDITIONAL COVENANTS
6.1 PERFORM OBLIGATIONS. Tenant shall, at all times during the term and
such further time as Tenant (or any entity claiming, whether in accordance with
this Lease or otherwise, by, through or under Tenant) occupies the Premises or
any part thereof, comply with all of the terms, provisions, covenants and
conditions on the part of Tenant to be performed under this Lease. Without
limiting the generality of the foregoing, Tenant shall perform promptly all of
the obligations of Tenant set forth in this Lease, including, without
limitation, the obligation to pay when due the Annual Fixed Rent and Additional
Rent and all other amounts which by the terms of this Lease are to be paid by
Tenant.
6.2 USE. Tenant shall use the Premises only for the Permitted Uses and
only to the extent permitted by zoning and other land use ordinances and
regulations, and for no other purpose and from time to time to procure and
maintain all licenses and permits necessary therefor and for any other use or
activity conducted at the Premises, at Tenant's sole expense.
Tenant acknowledges that the Premises are subject and subordinate to
those certain covenants, conditions and restrictions recorded at
Series/Instrument #80-317016, of the Official Records of San Diego County,
California, on September 29, 1980, a copy of which Tenant acknowledges has been
delivered to it (the "CC&R'S"). Tenant acknowledges that it has read the CC&R's
and knows the contents thereof. Throughout the term, Tenant shall faithfully and
timely perform and comply with the CC&R's and any modification or amendments
thereto provided to Tenant, including the payment by Tenant of any periodic or
special dues or assessments against the Premises.
Tenant shall, at Tenant's sole cost and expense, take all action,
including any alterations necessary to comply with the requirements of the
Americans With Disabilities Act of 1990 (the "ADA"), which shall arise from
Tenant's use of the Premises, or any installations in the Premises, or required
by a breach of any of Tenant's covenants or agreements under this Lease,
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whether or not such requirements shall now be in effect or hereafter enacted.
Landlord shall perform any work necessary for the common areas of the Complex to
comply with Title III of the ADA, to the extent such work is not Tenant's
obligation pursuant to the preceding sentence. The cost of any such work for
which Landlord is obligated shall be included as an Operating Cost.
6.3 REPAIR AND MAINTENANCE. Subject to Landlord's obligations under
Section 5.5, Tenant shall maintain the Premises in neat and clean order and
condition and shall perform all repairs to the Premises and all fixtures,
systems and equipment therein (including Tenant's equipment and other personal
property) as are necessary to keep them in good and clean working order,
appearance and condition, reasonable use and wear thereof and damage by fire or
by unavoidable casualty only excepted and shall replace any damaged or broken
glass in windows and doors of the Premises (except glass in the exterior walls
of the Building) with glass of the same quality as that damaged or broken.
6.4 COMPLIANCE WITH LAW. Tenant shall (a) make all repairs alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority, but only to the extent either
arising out of Tenant's particular use of the Premises and not applicable
generally to properties used for office and laboratory purposes or arising out
of any work performed by Tenant (b) keep the Premises equipped with all safety
appliances so required, but only to the extent either arising out of Tenant's
particular use of the Premises and not applicable generally to properties used
for office and laboratory purposes or arising out of any work performed by
Tenant; and (c) shall comply with the orders and regulations of all governmental
authorities with respect to zoning, building, fire, health and other codes,
regulations, ordinances or laws applicable to the Premises and any use being
conducted therein and any work being performed by Tenant. Notwithstanding the
foregoing, Tenant may defer compliance with any of the foregoing if (i) the
validity of any such law, ordinance, order or regulation shall be contested by
Tenant in good faith and by appropriate legal proceedings, (ii) Landlord shall
not be subject to any fine or charge or other cost, expense or liability, (iii)
neither the Complex nor any portion thereof shall be subject to being condemned
or vacated, (iv) neither the Complex nor any portion thereof shall be subject to
any lien or encumbrance and (v) Tenant first gives Landlord appropriate
assurance or security against any loss, cost or expense on account thereof.
6.5 INDEMNIFICATION. Tenant shall save Landlord harmless, and shall
exonerate and indemnify Landlord from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority on account of nuisance or injury, death, damage
or loss to person or property in or upon the Premises and/or the Complex arising
out of the use or occupancy of the Premises by Tenant or by any person claiming
by, through or under Tenant (including, without limitation, all patrons,
employees, contractors, vendors, suppliers and customers of Tenant), or arising
out of labor disputes with Tenant's employees or strikes, picketing or other
similar actions, or on account of or based upon anything whatsoever done on or
occurring in the Premises except (and then only to the extent not subject to the
provisions of the last paragraph of Section 4.6) if the same were caused by the
gross negligence or willful misconduct of Landlord, its agents, servants or
employees. In respect of all of the foregoing, Tenant shall, except to the
extent due to the gross negligence or willful misconduct of Landlord, its
agents, servants or employees, indemnify Landlord (and such others as are in
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privity of estate with Landlord) from and against all costs, expenses
(including, without limitation, reasonable attorneys' fees), and liabilities
reasonably incurred in or in connection with any such claim, action or
proceeding brought thereon; and, in case of any action or proceeding brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord
and at Tenant's expense, shall resist or defend such action or proceeding and
employ counsel therefor reasonably satisfactory to Landlord.
6.6 LANDLORD'S RIGHT TO ENTER. Tenant hereby grants to Landlord and its
agents and invitees the right to enter into and examine the Premises at
reasonable times and to show the Premises to prospective lessees, lenders,
partners and purchasers and others having a bonafide interest in the Premises,
and to make such repairs, alterations and improvements and to perform such
testing and investigation as Landlord shall reasonably determine to make or
perform, and, during the last six (6) months prior to the expiration of this
Lease, to keep affixed in suitable places notices of availability of the
Premises. Except in instances posing an imminent threat to life or property and
except for any entry pursuant to the performance of Landlord's obligations under
Article 5, Landlord shall give Tenant reasonable notice prior to making any
entry onto the Premises provided however notwithstanding Section 10.1 to the
contrary, such notice may be made orally.
6.7 PERSONAL PROPERTY AT TENANT'S RISK. Tenant hereby assumes all risk
of loss, damage or destruction to all furnishings, fixtures, equipment, effects
and property of every kind, nature and description brought to the Premises or
installed in the Premises by or on behalf of Tenant or any person claiming by,
through or under Tenant. If the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, Tenant
shall hold harmless and indemnify Landlord from and against any and all injury,
loss, damage or liability to Tenant and all other persons or entities arising
out of said loss or damage, except that Landlord shall in no event be
indemnified or held harmless or exonerated from any liability to Tenant or to
any other person or entity, for any injury, loss, damage or liability to the
extent prohibited by law or arising from the gross negligence or willful
misconduct of Landlord or its agents, servants or invitees, subject however (to
the extent not prohibited by law) to the provisions of Section 4.6.
6.8 PAYMENT OF LANDLORD'S COST OF ENFORCEMENT. Tenant shall pay on
demand such expenses, including, without limitation, reasonable attorneys' fees,
reasonably incurred by Landlord in enforcing any obligation of Tenant under this
Lease or in curing any default by Tenant under this Lease as provided in Section
8.4,
6.9 YIELD UP. At the expiration or earlier termination of the term of
this Lease Tenant shall (a) surrender all keys to the Premises; (b) remove all
of its trade fixtures and personal property in the Premises; (c) remove such
installations made by it as Landlord may request and any such installations or
improvements made by Tenant at its expense during the term of this Lease which
Tenant shall desire to remove and all Tenant's signs wherever located; (d)
repair all damage caused by such removal and (e) yield up the Premises
(including all installations and improvements made by Tenant except for such
installations or improvements as Tenant shall remove or as Landlord shall
request Tenant to remove), broom clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the provisions of
this Lease. Any property not so removed shall be deemed abandoned and may be
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removed and disposed of by Landlord in such manner as Landlord shall determine
and Tenant shall pay Landlord the entire cost and expense reasonably incurred by
it in effecting such removal and disposition and in making any incidental
repairs and replacements to the Premises and for use and occupancy during the
period after the expiration or earlier termination of the term of this Lease and
prior to the performance by Tenant of its obligations under this Section 6.9.
Tenant shall further indemnify Landlord against all loss, cost and damage
resulting from Tenant's failure or delay in surrendering the Premises as above
provided.
6.10 RULES AND REGULATIONS. Tenant shall observe and abide by the Rules
and Regulations of the Building set forth as Exhibit B, as the same may from
time to time be amended, revised or supplemented (the "RULES AND REGULATIONS").
Tenant shall further be responsible for compliance with the Rules and
Regulations by the employees, servants, agents and visitors of Tenant. The
failure of Landlord to enforce any of the Rules and Regulations against Tenant,
or against any other tenant or occupant of the Building, shall not be deemed to
be a waiver of such Rules and Regulations. Tenant shall be liable for all
injuries or damages sustained by Landlord or by other tenants, occupants or
invitees of the Building to the extent arising by reason of any breach of the
Rules or Regulations by Tenant or by Tenant's agents or employees, and not due
to the negligence or other wrongful conduct of Landlord or its agents, servants
or employees.
6.11 ESTOPPEL CERTIFICATE. Upon not less than ten (10) days' prior
written request by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect and that Tenant has no defenses, offsets or counterclaims
against its obligations to pay the Annual Fixed Rent and Additional Rent and any
other charges and to perform its other covenants under this Lease (or, if there
have been any modifications, that this Lease is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets
or counterclaims, setting them forth in reasonable detail), the dates to which
the Annual Fixed Rent and Additional Rent and other charges have been paid, and
any other matter pertaining to this Lease. Any such statement delivered pursuant
to this Section 6.11 may be relied upon by any prospective purchaser or
mortgagee of the Building or the Complex, or any prospective assignee of such
mortgage.
6.12 LANDLORD'S EXPENSES RE CONSENTS. Tenant shall reimburse Landlord,
as Additional Rent, promptly on demand for all reasonable legal, engineering and
other professional services expenses incurred by Landlord in connection with all
requests by Tenant for consent or approval hereunder. Upon request by Tenant,
Landlord shall give to Tenant an estimate of such expenses.
6.13 FINANCIAL INFORMATION. Tenant shall provide Landlord with such
information as to Tenant's financial condition and/or organizational structure
as Landlord or the holder of any mortgage of the Building or the Complex
requires, within fifteen days of request. Landlord agrees (i) not to disclose
such information except as is required by law or necessary or appropriate for
the enforcement of this Lease or the present or future financing of the Building
or Complex and (ii) to use all reasonable efforts to respect the confidentiality
of such information.
6.14 ASSIGNMENT AND SUBLETTING. Tenant shall not assign or transfer this
Lease, or any interests herein, or sublet the Premises or any part thereof, or
any right or privilege
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appurtenant thereto, or suffer any other person (the agents and servants of
Tenant excepted) to occupy or use the Premises, or any portion thereof, without
first obtaining the written consent of Landlord. Tenant acknowledges that the
use restrictions set forth in Section 6.2, among other provisions, are material
to Landlord in considering any assignment or sublet.
Notwithstanding the foregoing, Tenant may, without the need for
Landlord's consent, assign its interest in this Lease (a "PERMITTED ASSIGNMENT")
to (i) any corporation or entity which is a successor to Tenant either by merger
or consolidation, (ii) a purchaser of all or substantially all of Tenant's
assets or (iii) a corporation or other entity which shall (A) control, (B) be
under the control of, or (C) be under common control with, Tenant (the term
"CONTROL" meaning ownership, directly or indirectly, of at least fifty-one
percent (51%) of the outstanding voting stock of a corporation, or other
equivalent equity and control interest if Tenant or such other entity is not a
corporation) (an entity described in clause (iii) above being referred to herein
as an "AFFILIATE"), so long as (I) the principal purpose of such assignment is
not the acquisition of Tenant's interest in this Lease (except if such
assignment is made for a valid intracorporate business purpose to an Affiliate)
and is not made to circumvent the provisions of this Section 6.14, (II) except
if pursuant to clause (i) above, Tenant shall promptly furnish Landlord with
fully executed counterparts of any such assignment after consummation thereof
which assignment shall include an agreement by the assignee, in form reasonably
satisfactory to Landlord, to be bound by all of the terms of this Lease, and
(III) there shall not be a Default of Tenant at the effective date of such
assignment. Tenant shall also be permitted, without the need for Landlord's
consent, to enter into any sublease with any Affiliate provided that such
sublease shall expire upon any event pursuant to which the sublessee thereunder
shall cease to be an Affiliate. Any assignment to an Affiliate may, at
Landlord's election, be deemed void if during the term of this Lease Tenant
shall cease to control such assignee. In the event Tenant shall have entered
into a sublease with an Affiliate and thereafter such sublessee shall cease to
be an Affiliate, then the provisions of the following two paragraphs of this
Section 6.14 shall apply as if the term of such sublease were to commence as of
the date of the change of status as an Affiliate.
In the event that Tenant shall intend to enter into any sublease or
assignment which requires Landlord's consent, then Tenant shall, not sooner than
one hundred twenty (120) days, and not later than sixty (60) days, prior to the
proposed effective date of such sublease or assignment, give Landlord notice of
such intent, identifying the proposed subtenant or assignee, all of the terms
and conditions of the proposed sublease or assignment and such other information
as the Landlord may reasonably request. Landlord may elect (a) to terminate this
Lease if Tenant intends to assign this Lease, or to sublease more than fifty
percent (50%) of the Premises or (b) to exclude from the Premises the portion
thereof to be sublet if such portion is fifty percent (50%) or less of the
Premises, by giving notice to Tenant of such election not later than thirty (30)
days after receiving notice of such intent from Tenant. If Landlord shall give
such notice within such thirty (30) day period, upon the later to occur of (A)
the proposed date of commencement of such proposed sublease or assignment, or
(B) the date which is thirty (30) days after Landlord's notice, this Lease shall
terminate or the Premises shall be reduced to exclude the portion of the
Premises intended for subletting, in which case Annual Fixed Rent and Tenant's
Percentage shall be correspondingly reduced. If Landlord shall give its consent,
Tenant may enter into such sublease or assignment on the terms and conditions
set forth in such notice from Tenant within the following one hundred and twenty
(120) days. If Tenant shall not enter
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into such sublease or assignment within such following one hundred and twenty
(120) day period and shall still desire to enter into any sublease or
assignment, or if Tenant shall change the terms and conditions thereof following
the date of Tenant's notice to Landlord, the first sentence of this paragraph
shall again become applicable,
If Landlord shall not elect to terminate this Lease pursuant to the
preceding paragraph, then Landlord shall not unreasonably withhold its consent
to an assignment or subletting, provided that the proposed assignee or subtenant
(i) is reasonably satisfactory to Landlord with respect to credit
considerations, (ii) will use the Premises for the Permitted Uses set forth in
Section 1.1 hereof, and (iii) will not use the Premises for a purpose or in a
manner which is inconsistent with Landlord's commitments to other tenants in the
Complex, (iv) shall assume all obligations of Tenant under this Lease and shall
be and remain jointly and severally liable with Tenant for the performance of
all of the terms, covenants, conditions, and agreements to be performed by
Tenant under the terms of this Lease.
Any sublease of all or any portion of the Premises shall provide that it
is subject and subordinate to this Lease and to the matters to which this Lease
is or shall be subject or subordinate, and that in the event of termination of
this Lease or reentry or dispossession of Tenant by Landlord under this Lease,
Landlord may, at its option, elect to continue such sublease in effect as a
direct lease between Landlord and Tenant and such subtenant shall thereupon
attorn to Landlord pursuant to the then executory provisions of such sublease,
except that neither Landlord nor any mortgagee of the Property, as holder of a
mortgage or as Landlord under this Lease if such mortgagee succeeds to that
position, shall (a) be liable for any act or omission of Tenant under such
sublease, (b) be subject to any credit, counterclaim, offset or defense which
theretofore accrued to such subtenant against Tenant, or (c) be bound by any
previous modification of such sublease or by any previous prepayment of more
than one (1) month's rent, (d) be bound by any covenant of Tenant to undertake
or complete any construction of the Premises or any portion thereof, (e) be
required to account for any security deposit of the subtenant other than any
security deposit actually received by Landlord, (f) be bound by any obligation
to make any payment to such subtenant or grant any credits, (g) be responsible
for any monies owing by Landlord to the credit of Tenant or (h) be required to
remove any person occupying the Premises or any part thereof; and such sublease
shall provide that the subtenant thereunder shall, at the request of Landlord,
execute a suitable instrument in confirmation of such agreement to attorn. The
provisions of this paragraph shall not be deemed a waiver of the provisions set
forth in the first paragraph of this Section 6.14.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver of the
obligation to obtain the Landlord's written approval in the case of any other
subletting or assignment. The joint and several liability of Tenant named herein
and any immediate and remote successor in interest of Tenant (by assignment or
otherwise), and the due performance of the obligations of this Lease on Tenant's
part to be performed or observed, shall not in any way be discharged, released
or impaired by any (a) agreement which modifies any of the rights or obligations
of the parties under this Lease, (b) stipulation which extends the time within
which an obligation under this Lease is to be performed, (c) waiver of the
performance of an obligation required under this Lease, or (d) failure to
enforce any of the obligations set forth in this Lease. No assignment,
subletting or occupancy shall affect the
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Permitted Uses. Any subletting, assignment or other transfer of Tenant's
interest in this Lease in contravention of this Section 6.14 shall be voidable
at Landlord's option. Tenant shall not occupy any space in the Building (by
assignment, sublease or otherwise) other than the Premises.
If the rent and other sums (including, without limitation, all monetary
payments plus the reasonable value of any services performed or any other thing
of value given by any assignee or subtenant in consideration of such assignment
or sublease), either initially or over the term of any assignment or sublease,
payable by such assignee or subtenant on account of an assignment or sublease of
all or any portion of the Premises exceed the sum of Annual Fixed Rent plus
Additional Rent called for hereunder with respect to the space assigned or
sublet, Tenant shall pay to Landlord as Additional Rent fifty percent (50%) of
such excess payable monthly at the time for payment of Annual Fixed Rent.
Nothing in this paragraph shall be deemed to abrogate the provisions of this
Section 6.14 and Landlord's acceptance of any sums pursuant to this paragraph
shall not be deemed a granting of consent to any assignment of this Lease or
sublease of all or any portion of the Premises.
Following Landlord's consent, or refusal to consent, to any assignment
or sublease, Tenant shall pay Landlord, upon demand, a reasonable charge to
cover Landlord's administrative costs in connection therewith, plus the amount
of Landlord's out-of-pocket costs reasonably incurred including Landlord's
reasonable attorneys fees.
Landlord may accept rent from any person other than Tenant pending
approval or disapproval of any assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this Section 6.14. A consent to one
assignment, transfer, subletting, occupation or use by any other person shall
not be deemed to be a consent to any subsequent assignment, transfer,
subletting, occupation or use by another person. Any such subsequent assignment,
transfer, subletting, occupation or use without such consent hereunder shall be
void, and shall, at the option of Landlord, terminate this Lease. Landlord's
acceptance of any name for listing on the Building directory or any Building
signs will not be deemed, nor will it substitute for, Landlord's consent, as
required by this Lease, to any sublease, assignment, or other occupancy of the
Premises.
Tenant shall not assign, mortgage, pledge, hypothecate or encumber its
interests hereunder as security for any obligation or otherwise, and any such
assignment, mortgage, pledge, hypothecation or encumbrance in violation of this
provision shall, at Landlord's option (exercised in Landlord's sole and absolute
discretion), be void.
6.15 NUISANCE. Tenant shall not injure, deface or otherwise harm the
Premises; nor commit any nuisance; nor permit in the Premises any vending
machine (except such as is used for the sale of merchandise to employees of
Tenant) or inflammable fluids or chemicals (except such as are customarily used
in connection with standard office and biotechnology research equipment); nor
permit any cooking to such extent as requires special exhaust venting; nor
permit the emission of any objectionable noise or odor; nor make, allow or
suffer any waste of the Premises; nor make any use of the Premises which is
improper, offensive or contrary to any law or ordinance or which will invalidate
or increase the premiums for any of Landlord's insurance or which is liable to
render necessary any alteration or addition to the Building which
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Landlord shall not have approved in accordance with Section 6.1.8; nor conduct
any auction, fire, "going out of business" or bankruptcy sales.
6.16 EQUIPMENT; FLOOR LOAD. Tenant shall not place a load upon any floor
of the Premises exceeding the lesser of the floor load capacity which such floor
was designed to carry or that which is allowed by law. Business machines and
equipment which emit vibration, noise or other emissions shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient to absorb and
prevent vibration, noise and all other emissions. If any safe, machinery, heavy
equipment, freight, or fixtures requires special handling, Tenant agrees to
employ only persons suitably trained and experienced to do said work, and that
all work in connection therewith shall comply with applicable laws and
regulations. Any such moving shall be at the sole risk and hazard of Tenant and
Tenant hereby agrees to exonerate, indemnify and save Landlord harmless against
and from any liability, loss, injury, claim or suit resulting directly or
indirectly from such moving. To the extent such moving shall involve loading
docks or other common areas or facilities of the Building, Tenant shall schedule
such moving at such times as Landlord shall reasonably designate.
6.17 ELECTRICITY. Tenant shall not connect to the electrical
distribution system serving the Premises a total load exceeding the lesser of
the capacity of such system or the maximum load permitted from time to time
under applicable governmental regulations. The capacity of the electrical
distribution system serving the Premises shall be the lesser of (i) the capacity
of the branch of the system serving the Premises exclusively or (ii) the
allocation to the Premises of the capacity of the system serving the entire
Building, Landlord and Tenant agreeing that such capacity shall be allocated
equally over the entire rentable area of the Building.
6.18 INSTALLATIONS, ALTERATIONS OR ADDITIONS. Tenant shall make no
installations, alterations or additions in, to or on the Premises and shall not
permit the making of any holes in the walls, partitions, ceilings or floors
without on each occasion obtaining the prior consent of Landlord, and then only
pursuant to plans and specifications approved by Landlord in advance in each
instance. Notwithstanding the foregoing, Landlord's consent shall not be
required for the performance by Tenant of any alteration, addition or
improvement to the Premises that shall not be visible from the exterior of the
Premises, shall not affect the mechanical, electrical, plumbing, heating,
ventilation, life safety or air-conditioning systems of the Building or any
structural or other common areas or elements of the Building (such alterations,
additions and improvements being "NONSTRUCTURAL ALTERATIONS") and shall not
exceed $50,000 in cost, provided however Tenant shall not perform any
Nonstructural Alterations without giving Landlord reasonable prior notice
thereof, together with all plans and specifications (if any). All work to be
performed to the Premises by Tenant (a) shall be performed in a good and
workmanlike manner by contractors approved in advance by Landlord and in
compliance with the provisions of Exhibit C and all applicable zoning, building,
fire, health and other codes, regulations, ordinances and laws, (b) shall be
made at Tenant's sole cost and expense (except as hereinafter provided) and at
such times and in such a manner as Landlord may from time to time designate, and
(c) shall become part of the Premises and the property of Landlord without being
deemed Additional Rent for tax purposes, Landlord and Tenant agreeing that
Tenant shall be treated as the owner for tax purposes until the expiration or
earlier termination of the term hereof, subject to Landlord's rights pursuant to
Section 6.9 to require Tenant to remove the same at or prior to the expiration
or earlier termination of the term hereof. Tenant shall pay promptly when due
the entire cost of
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any work to the Premises so that the Premises, Building and Complex shall at all
times be free of liens for labor and materials, and, at Landlord's request,
Tenant shall furnish to Landlord a bond or other security acceptable to Landlord
assuring that any such work will be completed in accordance with the plans and
specifications theretofore approved by Landlord and assuring that the Premises
will remain free of any mechanics' lien or other encumbrances that may arise out
of such work. Prior to the commencement of any such work, and throughout and
until completion thereof, Tenant shall maintain, or cause to be maintained, the
insurance required by Exhibit D, all with coverage limits as stated therein or
such higher limits as shall be reasonably required by Landlord. In addition,
Tenant shall save Landlord harmless and indemnified from all injury, loss,
claims or damage to any person or property occasioned by or arising out of such
work. Whenever and as often as any mechanic's or materialmen's lien shall have
been filed against the Building or the Complex based upon any act of Tenant or
of anyone claiming through Tenant, Tenant shall within three (3) days of notice
from Landlord to Tenant take such action by bonding, deposit or payment as will
remove or satisfy the lien.
Landlord or its representatives shall have the right to post, and keep
posted upon the Premises, notices of non-responsibility or such other notices
which Landlord may deem to be proper for the protection of Landlord's interest
in the Premises and the Building. Tenant, before the commencement of any work
from which a mechanic's or materialmen's lien may arise, shall give to Landlord
written notice of Tenant's intention to commence such work in sufficient time to
enable Landlord to post such notices.
If Tenant shall, having first received Landlord's prior approval, make
any leasehold improvement to the Premised during the term, then provided this
Lease is in effect and Tenant shall not have exercised its right to elect to
terminate the term of this Lease pursuant to Section 2.3, Landlord shall, within
thirty (30) days after request by Tenant following completion of such work and
delivery to Landlord of a certificate of occupancy for the entire Premises and
lien waivers from all of Tenant's contractors and subcontractors, make a
one-time payment to Tenant in the amount equal to the lesser of the cost of such
work as shown by such contractor invoices or $544,400.
Tenant shall not, at any time, directly or indirectly, employ or permit
the employment of any contractor, mechanic or laborer in the Premises, if such
employment will interfere or cause any conflict with other contractors,
mechanics or laborers engaged in the construction, maintenance or operation of
the Building by Landlord, Tenant or others. In the event of any such
interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
6.19 SIGNS. Tenant shall not paint or place any signs or place any
curtains, blinds, shades, awnings, aerials, or the like, visible from outside
the Premises. Landlord will not unreasonably withhold consent for signs or
lettering on or adjacent to the entry doors to the Premises provided such signs
conform to building standards adopted by Landlord and Tenant has submitted to
Landlord a plan or sketch of the sign to be placed on such entry doors. Landlord
agrees, however, to maintain a tenant directory in the lobby of the Building in
which will be placed Tenant's name and the location of the Premises in the
Building. Tenant shall not install any signs on the exterior of the Building.
However, if a monument sign now or hereafter located at the entrance of the
parking area serving the Building includes the names of the tenants of the
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Building, Tenant's name or the name under which it operates as of the Date of
this Lease shall be placed on such sign.
6.20 HAZARDOUS MATERIALS. Tenant shall not (a) introduce on or transfer
to or store on the Premises, the Building or the Complex or use on the Premises,
any Hazardous Materials (as hereinafter defined), except such Hazardous
Materials in such amounts as are reasonably necessary for the conduct of the
Permitted Uses, and then only in compliance with all Environmental and Health
Laws (as hereinafter defined) and the terms and conditions of recommendations,
policies or requirements of any insurer of the Building of Complex ("INSURANCE
CONDITIONS"); (b) dump, flush or otherwise dispose of any Hazardous Materials
into the drainage, sewage or waste disposal systems serving the Premises, the
Building or the Complex, except in compliance with Environmental and Health Laws
and Insurance Conditions; (c) release, spill or dispose of any Hazardous
Materials in or on the Premises, the Building or the Complex, or (d) transfer
any Hazardous Materials from the Premises to any other location (except the
transfer of such Hazardous Materials expressly permitted to be used on the
Premises from the Premises for disposal and then only in compliance with all
Environmental and Health Laws and Insurance Conditions).
Tenant agrees that if it or anyone claiming under it shall transfer to
the Premises, store, use or dispose (except to the extent expressly permitted
above), generate, release, threaten release or spill, any Hazardous Materials,
it shall forthwith remove the same, at its sole cost and expense, in the manner
provided by all applicable Environmental and Health Laws, regardless of when
such Hazardous Materials shall be discovered. Furthermore, Tenant shall pay any
fines, penalties or other assessments imposed by any governmental agency with
respect to any such Hazardous Materials and shall forthwith repair and restore
any portion of the Premises, the Building or the Complex which it shall disturb
in so removing any such Hazardous Materials to the condition which existed prior
to Tenant's disturbance thereof.
Tenant agrees to deliver promptly to Landlord any notices, orders or
similar documents received from any governmental agency or official concerning
any violation of any Environmental and Health Laws or with respect to any
Hazardous Materials affecting the Premises, the Building or the Complex. In
addition, Tenant shall, within ten (10) days of receipt, accurately complete any
questionnaires from Landlord or other informational requests relating to
Tenant's use of the Premises and, in particular, to Tenant's use, generation,
storage and/or disposal of Hazardous Materials at, to, or from the Premises.
For purposes of this Lease, the term "HAZARDOUS MATERIALS" shall mean
and include any Excepted Waste (as defined in Section 5.3 of this Lease),
asbestos and asbestos-containing materials, air pollutants or contaminants,
crude and refined oil and the products and by-products of oil and petroleum,
radioactive, biological, medical or infectious wastes or materials, and any
other toxic or hazardous wastes, materials and substances which are defined,
determined or identified as a hazardous substance or hazardous waste, extremely
hazardous waste, infectious waste, non-RCRA waste, retrograde material,
restricted hazardous waste, volatile organic compound, waste or similarly
defined, determined or identified in any Environmental and Health Laws, or in
any judicial or administrative interpretation of Environmental and Health Laws.
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"ENVIRONMENTAL AND HEALTH LAWS" shall mean any and all present and
future federal, state, county and municipal or other local statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions applicable to the Complex relating to Hazardous
Materials or the environment or to emissions, discharges or releases or
threatened releases of Hazardous Materials into the environment, including,
without limitation, into the ambient air, surface water, ground water or in, on
or under any land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, release or threatened release, disposal,
transport or handling of Hazardous Materials or the cleanup or other remediation
thereof. Environmental and Health Laws include, without limitation, the
following: the Comprehensive Environmental Response, Compensation and Liability
At of 1980, as amended (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et
seq.) the California Safe Drinking Water and Toxic Enforcement Act of 1986
(Health and Safety Code Section 25249.5 et seq.), the California Hazardous Waste
Control Act (Health and Safety Code Section 25 100 et seq.)
The obligations of Tenant contained in this Section 6.21 shall survive
the expiration or termination of this Lease.
ARTICLE 7
CASUALTY OR TAKING
7.1 TERMINATION. If: (i) the Building is substantially damaged by fire
or casualty (the term "SUBSTANTIALLY DAMAGED" meaning for the purposes of this
paragraph only at least thirty (30) percent of the rentable area of the
Building, or any portion of a common area or facility necessary for the
efficient operation of the Building is damaged to such an extent that the repair
of the same in the ordinary course could not be expected to be completed within
one year of the fire or other casualty; or (ii) any material part of the
Building is permanently taken by any exercise of eminent domain or is condemned
(the term "MATERIAL PART" meaning (A) at least thirty (30) percent of the
rentable area of the Building or (B) convenient access or (C) any portion of a
common area or facility necessary for the efficient operation of the Building is
so taken or condemned) for a period of at least all or substantially all of the
remainder of the term of this Lease (the "REMAINDER") then Landlord shall have
the right to terminate this Lease by giving notice to Tenant of its election so
to do within ninety (90) days after either the occurrence of such casualty or
the effective date of such taking or condemnation (as applicable), whereupon
this Lease shall terminate thirty (30) days after the date of such notice with
the same force and effect as if such date were the date on which this Lease were
to expire by effluxion of time.
In the event that (i) the Premises or any common areas of the Complex
necessary for Tenant's use and enjoyment of the Premises are substantially
damaged by fire or casualty (the term "SUBSTANTIALLY DAMAGED" meaning for
purposes of this paragraph only damage to at least thirty (30) percent of the
Premises to such an extent that repair of the same in the ordinary course could
not be expected to be completed within one year of the fire or other casualty)
or (ii) at least thirty (30) percent of the Premises is taken for the Remainder
by any exercise of eminent domain, then in either case Tenant shall have the
right to terminate this Lease by giving notice of
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its desire to do so to Landlord within thirty (30) days after such damage or
taking, and on the date thirty (30) days after the giving of such notice, this
Lease shall terminate with the same force and effect as if such day were the
date on which this Lease were to expire by effluxion of time. Notwithstanding
the foregoing to the contrary, Tenant shall have no right to terminate this
Lease pursuant to this Section 7.1 due to a fire or other casualty if the cause
thereof was due to the negligence or other wrongful conduct of Tenant or any
agent, employee or invitee of Tenant or any sublessee or other occupant
permitted on the Premises by Tenant.
7.2 RESTORATION. If this Lease shall not be terminated pursuant to
Section 7.1, this Lease shall continue in force and a just proportion of the
Annual Fixed Rent and Additional Rent on account of Operating Costs and Taxes
shall be suspended or abated until the Premises (excluding any improvements to
the Premises made at Tenant's expense), or what may remain thereof, shall be put
by Landlord in proper condition for use. Landlord covenants to perform such
repairs with reasonable diligence and to the extent permitted by the net
proceeds of insurance recovered or damages awarded for such taking, destruction
or damage and subject to zoning and building laws or ordinances then in
existence. "NET PROCEEDS OF INSURANCE RECOVERED OR DAMAGES AWARDED" refers to
the gross amount of such insurance or damages actually made available to
Landlord (and not retained by any Superior Lessor or Superior Mortgagee) less
the reasonable expenses of Landlord incurred in connection with the collection
of the same, including without limitation, fees and expenses for legal and
appraisal services.
7.3 AWARD. Irrespective of the form in which recovery may be had by law,
all rights to damages or compensation shall belong to Landlord in all cases.
Tenant hereby grants to Landlord all of Tenant's rights to such damages and
covenants to deliver such further assignments thereof as Landlord may from time
to time request. Nothing contained herein shall be construed to prevent Tenant
from prosecuting in any condemnation proceedings a claim for the value of any of
Tenant's removable personal property and business machines and equipment
installed in the Premises by Tenant at Tenant's expense and which are subject to
a Taking (if such an award is available to Tenant) and for relocation expenses,
if such a claim shall not affect the amount of compensation otherwise
recoverable by Landlord from the Taking authority.
7.4 TERMINATION WAIVER. Tenant waives the provisions of California Civil
Code Sections 1932(2) and 1933(4) (and all similar or successor statutes) which
relate to the termination of leases when the thing leased is destroyed, and
agrees that such event shall be governed by the terms of this Lease.
ARTICLE 8
DEFAULTS
8.1 DEFAULT OF TENANT. The occurrence of any one or more of the
following shall constitute a "DEFAULT OF TENANT" under this Lease:
(a) The failure by Tenant to make any payment of Annual Fixed
Rent, Additional Rent or any other payment required to be made by Tenant
hereunder (collectively, "RENT"), as and when due, where such failure shall
continue for seven (7) days after notice
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thereof from Landlord to Tenant; provided, 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.
(b) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed and
performed by Tenant, other than as specified in subsection (a) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, 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; 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 such thirty (30) day period and thereafter diligently
prosecute such cure to completion within sixty (60) days from the date of such
notice from Landlord.
(c) An assignment by Tenant or any guarantor of Tenant for the
benefit of creditors.
(d) The taking by execution or levy of Tenant's leasehold
interest.
(e) The filing of a lien or other involuntary encumbrance against
Tenant's leasehold interest or Tenant's other property, including said leasehold
interest, or against the property of any guarantor of Tenant, which filing shall
not be discharged within thirty (30) days after Tenant receives notice thereof.
(f) The filing of a petition by Tenant or any guarantor of Tenant
for liquidation, or for reorganization or an arrangement under any provision of
any bankruptcy law or code as then in force and effect.
(g) The filing of an involuntary petition under any of the
provisions of any bankruptcy law or code against Tenant or any guarantor of
Tenant and such involuntary petition shall not be dismissed within sixty (60)
days thereafter.
(h) The appointment of a custodian, receiver or similar agent
shall be authorized or appointed to take charge of all or substantially all of
the assets of Tenant or any guarantor of Tenant.
(i) The dissolution or liquidation (except in connection with a
transaction permitted pursuant to the second paragraph of Section 6.14) of
Tenant or any guarantor of Tenant or the adoption of any plan or the
commencement of any proceeding, the result of which is or is intended to include
the dissolution or liquidation of Tenant or any guarantor of Tenant.
(j) The entry of an order in any proceeding by or against Tenant
or any guarantor of Tenant decreeing or permitting the dissolution of Tenant or
any guarantor of Tenant or the winding up of its affairs.
(k) The occurrence of a default by Tenant under the Other Leases,
Tenant hereby also agreeing that a Default of Tenant under this Lease shall be
deemed a default of
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Tenant under the Other Leases, affording Landlord all of the remedies available
under Sections 15 B and 8.2 (respectively) of the Other Leases.
8.2 REMEDIES. In the event of a Default of Tenant, in addition to all
other rights or remedies Landlord may have, Landlord, acting through its
employees, agents or servants, may terminate this Lease by notice to Tenant in
the manner provided in Section 10. 1. In addition to all other rights or
remedies Landlord may have, in the event of a Default of Tenant, Landlord shall
have the immediate right to re-enter and repossess the Premises. Should Landlord
elect to re-enter as herein provided, or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided by law, and
should Landlord elect to terminate this Lease, Landlord may recover from Tenant:
(a) The worth at the time of the award of the unpaid Rent which
is due, owing and unpaid by Tenant to Landlord at the time of termination; and
(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 the
award exceeds the amount of the rent loss Tenant proves could have been
reasonably avoided; and
(c) The worth at the time of the award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of rental loss which Tenant proves could be reasonably avoided; and
(d) All other amounts 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 events are likely to result
therefrom including all costs (including attorneys' fees) of recovering
possession of the Premises, removing persons or property from the Premises,
repairs, brokers' fees, advertising and alterations to the Premises in
connection with reletting the Premises; and
(e) At Landlord's election, other amounts in addition to or in
lieu of the above as may be permitted from time to time by applicable law.
All computations of the worth at the time of amounts recoverable by
Landlord under clauses (1), (2) and (4) above shall be computed by allowing
interest at the Default Rate (as defined in Section 8.4). The worth at the time
of award recoverable by Landlord under clause (3) above shall be computed by
discounting the amount otherwise recoverable by Landlord at the discount rate of
the Federal Reserve Bank of San Francisco plus one percent (1%).
If Landlord takes possession of the Premises pursuant to legal
proceedings or pursuant to any notice provided by applicable law, and if
Landlord does not elect to terminate this Lease, Landlord may from time to time,
without terminating this Lease, recover all Rent as it becomes due and, at
Landlord's election, relet the Premises or any part of the Premises upon such
terms, at such rent, upon such conditions and for such a period of time as
Landlord in its sole discretion may deem advisable. Landlord shall also have the
right to make such alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable and necessary for the purpose
of reletting the Premises; and the making of such alterations, repairs and
decorations shall not operate or be construed to release Tenant from liability
hereunder as
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aforesaid. Landlord shall apply to any unpaid amounts due Landlord hereunder the
net proceeds, if any, of any reletting of the Premises, after deducting all
expenses in connection therewith, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys' fees,
advertising, expenses of employees, alteration costs and expenses of preparing
the Premises for such reletting. Tenant hereby waives all right to receive all
or any portion of the net proceeds of any such reletting. Landlord shall in no
event be liable for failure to relet the Premises, or, in the event that the
Premises are relet, for failure to collect the rent under such reletting.
In the event that Tenant should breach this Lease, Landlord may, at it
option, enforce all of its rights and remedies under this Lease, including the
right to recover the Rent as it becomes due hereunder. Additionally, Landlord
shall be entitled to recover from Tenant all costs of maintenance and
preservation of the Premises, and all costs, including attorneys' fees, to
protect the Premises and Landlord's interest under this Lease.
At any time after a Default of Tenant occurs, Landlord may re-enter the
Premises and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant. No re-entry into the Premises by Landlord pursuant to
this paragraph shall be construed as an election to terminate this Lease unless
a written notice of such intention is given to Tenant.
To the fullest extent permitted by law, Tenant hereby waives all rights
of redemption or relief from forfeiture under California Civil Procedure
Sections 1174 and 1179, or under any other present or future law, in the event
Tenant is evicted or Landlord takes possession of the Premises by reason of any
Default of Tenant.
8.3 REMEDIES CUMULATIVE. Any and all rights and remedies which Landlord
may have under this Lease, and at law and equity (including without limitation
actions at law for direct, indirect, special and consequential (foreseeable and
unforeseeable) damages, for Tenant's failure to comply with its obligations
under this Lease shall be cumulative and shall not be deemed inconsistent with
each other, and any two or more of all such rights and remedies may be exercised
at the same time insofar as permitted by law.
8.4 LANDLORD'S RIGHT TO CURE DEFAULTS. At any time with or without
notice, Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of monies which may be
necessary or appropriate by reason of the failure or neglect of Tenant to comply
with any of its obligations under this Lease (irrespective of whether the same
shall have ripened into a Default of Tenant), and in the event of the exercise
of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon
demand, as Additional Rent, all such sums including reasonable attorneys fees,
together with interest thereon at a rate (the "DEFAULT RATE") equal to the
greater of 6% over the Prime Rate or twelve percent (12%) per annum, but in no
event in excess of the maximum rate of interest then permitted to be agreed to
by the parties under applicable law. "PRIME RATE" shall mean the annual floating
rate of interest, determined daily and expressed as a percentage from time to
time announced by the largest national or state-chartered banking institution in
the state or district in which the Complex is located as its "PRIME" or "BASE"
rate. If, at any time, both the largest national and state-chartered banking
institutions having their principal offices in the City of San Diego, shall
cease
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to announce such a floating rate, Prime Rate shall mean a rate of interest,
determined daily, which is two (2) percentage points above the 14-day moving
average closing trading price of 90-day Treasury Bills.
8.5 HOLDING OVER. Any holding over by Tenant after the expiration or
early termination of the term of this Lease shall be treated as a daily tenancy
at sufferance at a rate equal to 1.75 times the greater of the fair market
rental value for the Premises on a month-to-month basis or the Annual Fixed Rent
in effect immediately prior to the expiration or earlier termination of the term
plus Additional Rent and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or
consequential (foreseeable and unforeseeable), sustained by reason of any such
holding over. Otherwise, such holding over shall be on the terms and conditions
set forth in this Lease as far as applicable.
8.6 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord
to any act or omission by Tenant shall not be deemed to be consent or permission
by Landlord to any other similar or dissimilar act or omission and any such
consent or permission in one instance shall not be deemed to be consent or
permission in any other instance.
8.7 NO WAIVER, ETC. The failure of Landlord or Tenant to seek redress
for violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to have been a waiver of such breach by Landlord, or by
Tenant, unless such waiver be in writing signed by the party to be charged. No
consent or waiver, express or implied, by Landlord or Tenant to or of any breach
of any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
8.8 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser
sum than the Annual Fixed Rent, Additional Rent or any other charge then due
shall be deemed to be other than on account of the earliest installment of such
rent or charge due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent or other charge 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 installment or
pursue any other remedy in this Lease provided.
ARTICLE 9
RIGHTS OF HOLDERS
9.1 RIGHTS OF MORTGAGEES OR GROUND LESSORS. This Lease, and all rights
of Tenant hereunder, are and shall be subject and subordinate to any ground or
master lease, and all renewals, extensions, modifications and replacements
thereof, and to all mortgages, which may now or hereafter affect the Building or
the Complex and/or any such lease, whether or not such mortgages shall also
cover other lands and/or buildings and/or leases, to each and every advance made
or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages and
all consolidations of such
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mortgages. This Section shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly execute, acknowledge and deliver any instrument that Landlord,
the lessor under any such lease or the holder of any such mortgage or any of
their respective successors in interest may reasonably request to evidence such
subordination. Any lease to which this Lease is subject and subordinate is
herein called "SUPERIOR LEASE" and the lessor of a Superior Lease or its
successor in interest, at the time referred to, is herein called "SUPERIOR
LESSEE"; and any mortgage to which this Lease is subject and subordinate, is
herein called "SUPERIOR MORTGAGE" and the holder of a Superior Mortgage is
herein called "SUPERIOR MORTGAGEE".
If any Superior Lessor or Superior Mortgagee or the nominee or designee
of any Superior Lessor or Superior Mortgagee shall succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease or deed, or otherwise, then at the request of such party
so succeeding to Landlord's rights (herein called "SUCCESSOR LANDLORD") and upon
such Successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect as a
direct lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease, except that the
Successor Landlord (unless formerly the landlord under this Lease) shall not be
(a) liable in any way to Tenant for any act or omission, neglect or default on
the part of Landlord under this Lease, (b) responsible for any monies owing by
or on deposit with Landlord to the credit of Tenant, (c) subject to any
counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d)
bound by any modification of this Lease subsequent to such Superior Lease or
Superior Mortgage, or by any previous prepayment of Annual Fixed Rent or
Additional Rent for more than one (1) month, which was not approved in writing
by the Successor Landlord, (e) liable to the Tenant beyond the Successor
Landlord's interest in the Complex and the rents, income, receipts, revenues,
issues and profits issuing from the Complex, (f) responsible for the performance
of any work to be done by Landlord under this Lease to render the Premises ready
for occupancy by the Tenant, or (g) required to remove any person occupying the
Premises or any part thereof, except if such person claims by, through or under
the Successor Landlord. Tenant agrees at any time and from time to time to
execute a suitable instrument in confirmation of Tenant's agreement to attorn,
as aforesaid.
9.2 MODIFICATIONS. If any Superior Lessor or Superior Mortgagee shall
require any modification(s) of this Lease, Tenant shall, at Landlord's request,
promptly execute and deliver to Landlord such instruments effecting such
modification(s) as Landlord shall require, provided that such modification(s) do
not adversely affect in any material respect any of Tenant's rights or increase
any of Tenant's obligations under this Lease. In addition, and notwithstanding
Section 9.1 to the contrary, any Superior Lessor or Superior Mortgagee may, at
its option, subordinate the Superior Lease or Superior Mortgage of which it is
the lessor or holder to this Lease by giving Tenant ten (10) days prior written
notice of such election, whereupon this Lease shall, irrespective of dates of
execution, delivery and recording, be superior to such Superior Lease or
Superior Mortgage and no other documentation shall be necessary to effect such
change.
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ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 NOTICES. All notices, requests, demands, consents, approvals or
other communications to or upon the respective parties hereto shall be in
writing and delivered by hand or mailed by certified or registered mail, return
receipt requested, or a nationally recognized courier service that provides a
receipt for delivery such as Federal Express, United Parcel Service or U.S.
Postal Service Express Mail and shall be effective on the date delivered (or the
first date such delivery is attempted and refused) in writing to the party to
which such notice, request, demand, consent, approval or other communication is
required or permitted to be given or made under this Lease, addressed if
intended for Landlord, to the Original Address of Landlord set forth in Section
1.1 of this Lease with a copy by regular mail to Warren M. Heilbronner, Esq.,
Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109
(or to such other address or addresses as may from time to time hereafter be
designed by Landlord by like notice); and if intended for Tenant, addressed to
Tenant at the Original Address of Tenant set forth in Section 1.1 of this Lease
until the Commencement Date and thereafter to the Premises and in either case
with a copy to Frederick Muto, Esq., Cooley, Godward, 4365 Executive Drive,
Suite 1100, San Diego, CA 92121 (or to such other address or addresses as may
from time to time hereafter be designated by Tenant by like notice). Notices
from Landlord may be given by Landlord's Agent, if any, or Landlord's attorney.
10.2 QUIET ENJOYMENT; LANDLORD'S RIGHT TO MAKE ALTERATIONS, ETC.
Landlord agrees that, upon Tenant's paying the rent and performing and observing
the agreements, conditions and other provisions on its part to be performed and
observed, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises during the term hereof without any manner of hindrance or molestation
from Landlord or anyone claiming under Landlord, subject, however, to the terms
of this Lease; provided, however, Landlord reserves the right at any time and
from time to time, without the same constituting breach of Landlord's covenant
of quiet enjoyment or an actual or constructive eviction, and without Landlord
incurring any liability to Tenant or otherwise affecting Tenant's obligations
under this Lease, to make such changes, alterations, improvements, repairs or
replacements in or to the interior and exterior of the Building (including the
Premises) and the fixtures and equipment thereof, and in or to the Building or
the Complex, or properties adjacent thereto, as Landlord may deem necessary or
desirable, and to change (provided that there be no unreasonable obstruction of
the right of access to the Premises by Tenant and that Landlord use commercially
reasonable efforts to minimize, to the extent practical, any interference with
the conduct of business at the Premises) the arrangement and/or location of
entrances or passageways, doors and doorways, corridors, elevators, or other
common areas of the Building and the Complex. Landlord shall give Tenant
reasonable prior notice of any alterations which shall adversely affect Tenant
in any material respect.
Without incurring any liability to Tenant, Landlord may permit access to
the Premises and open the same, whether or not Tenant shall be present, upon any
demand of any receiver, trustee, assignee for the benefit of creditors, sheriff,
marshal or court officer Landlord reasonably believes is entitled to such access
for the purpose of taking possession of, or removing, Tenant's property or for
any other lawful purpose (but this provision and any action by Landlord
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hereunder shall not be deemed a recognition by Landlord that the person or
official making such demand has any right or interest in or to this Lease, or in
or to the Premises), or upon demand of any representative of the fire, police,
building, sanitation or other department of the city, state or federal
governments.
10.3 LEASE NOT TO BE RECORDED. Tenant agrees that it will not record
this Lease. Both parties shall, upon the request of either, execute and deliver
a notice or short form of this Lease in such form, if any, as may be acceptable
for recording with the land records of the governmental entity responsible for
keeping such records. In no event shall such document set forth the rent or
other charges payable by Tenant pursuant to this Lease; and any such document
shall expressly state that it is executed pursuant to the provisions contained
in this Lease and is not intended to vary the terms and conditions of this
Lease.
10.4 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE; LIQUIDATION OF
LANDLORD'S Liability. With reference to any assignment by Landlord of Landlord's
interest in this Lease, or the rents payable hereunder, whether absolute or
conditional in nature or otherwise, which assignment is made to the holder of a
mortgage on property which includes the Premises, Tenant agrees that the
execution thereof by Landlord, and the acceptance thereof by the holder of such
mortgage shall never be treated as an assumption by such holder of any of the
obligations of Landlord hereunder unless such holder shall, by notice sent to
Tenant, specifically otherwise elect and that, except as aforesaid, such holder
shall be treated as having assumed Landlord's obligations hereunder (subject to
the limitations set forth in Section 9.1) only upon foreclosure of such holder's
mortgage and the taking of possession of the Premises.
The term "LANDLORD" as used in this Lease, so far as covenants or
obligations to be performed by Landlord are concerned, shall be limited to mean
and include only the owner or owners at the time in question of Landlord's
interest in the Complex, and in the event of any transfer or transfers of such
title to said property, Landlord (and in case of any subsequent transfers or
conveyances, the then grantor) shall be concurrently freed and relieved from and
after the date of such transfer or conveyance, without any further instrument or
agreement, of all liability with respect to the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, it being intended hereby that the covenants and obligations contained
in this Lease on the part of Landlord, shall, subject as aforesaid, be binding
on Landlord, its successors and assigns, only during and in respect of their
respective period of ownership of such interest in the Complex. Notwithstanding
the foregoing, in no event shall the acquisition of Landlord's interest in the
Building or the Complex by a purchaser which, simultaneously therewith, leases
Landlord's entire interest in the Building or the Complex back to Landlord or
the seller thereof be treated as an assumption by operation of law or otherwise,
of Landlord's obligations hereunder. Tenant shall look solely to such
seller-lessee, and its successors from time to time in title, for performance of
Landlord's obligations hereunder. The seller-lessee, and its successors in
title, shall be the Landlord hereunder unless and until such purchaser expressly
assumes in writing the Landlord's obligations hereunder.
Tenant, its successors and assigns, shall not assert nor seek to enforce
any claim for breach of this Lease against any of Landlord's assets other than
Landlord's interest in the Complex, and Tenant agrees to look solely to such
interest for the satisfaction of any liability or claim against Landlord under
this Lease, it being specifically agreed that in no event whatsoever
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shall Landlord (which term shall include, without limitation, any general or
limited partner, trustees, beneficiaries, officers, directors, or stockholders
of Landlord) ever be personally liable for any such liability.
10.5 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of thirty
(30) days or such additional time as is reasonably required to correct any such
default after written notice has been given by Tenant to Landlord specifying the
nature of Landlord's alleged default. Tenant shall have no right to terminate
this Lease for any default by Landlord hereunder and no right, for any such
default, to offset or counterclaim against any rent due hereunder. In no event
shall Landlord ever be liable to Tenant for any punitive damages or for any loss
of business or any other indirect, special or consequential damages suffered by
Tenant from whatever cause.
Where provision is made in this Lease for Landlord's consent and Tenant
shall request such consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding by
Landlord of its consent, it being intended that Tenant's sole remedy shall be an
action for specific performance or injunction (and reimbursement of Tenant's
reasonable legal fees and other out-of-pocket expenses incurred in successfully
obtaining a final, unappealable injunction against Landlord), and that such
remedy shall be available only in those cases where Landlord is expressly
required not to withhold its consent unreasonably.
10.6 NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice from
any person, firm or other entity that it holds a mortgage which includes the
Premises as part of the mortgaged premises, or that it is the ground lessor
under a lease with Landlord, as ground lessee, which includes the Premises as
part of the demised premises, no notice from Tenant to Landlord shall be
effective unless and until a copy of the same is given to such holder or ground
lessor, and the curing of any of Landlord's defaults by such holder or ground
lessor shall be treated as performance by Landlord.
10.7 BUILDING OR COMPLEX NAME CHANGE. Landlord shall have the right to
change the name of the Building or the Complex at any time and Tenant expressly
waives any and all claims for damages against Landlord resulting therefrom.
10.8 PARKING. So long as this Lease is in force and effect, Tenant shall
be entitled to use, in common with Landlord and other occupants of the Property,
and subject to Tenant's compliance with Landlord's rules and regulations
therefor, up to 37 parking spaces in the Property. All parking shall be provided
without charge on an unreserved unassigned basis.
10.9 BROKERAGE. Tenant warrants and represents that it has dealt with no
broker in connection with the consummation of this Lease, and in the event of
any brokerage claims or liens against Landlord or the Property predicated upon
or arising out of prior dealings with Tenant, Tenant agrees to defend the same
and indemnify and hold Landlord harmless against any such claim, and to
discharge any such lien.
33.
<PAGE> 38
10.10 APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed by
and construed in accordance with the laws of the state or district in which the
Complex is located and if any provisions of this Lease shall to any extent be
invalid, the remainder of this Lease shall not be affected thereby. Tenant
expressly acknowledges and agrees that Landlord has not made and is not making,
and Tenant, in executing and delivering this Lease, is not relying upon, any
warranties, representations, promises or statements, except to the extent that
the same are expressly set forth in this Lease or in any other written agreement
which may be made between the parties concurrently with the execution and
delivery of this Lease and which shall expressly refer to this Lease. All
understandings and agreements heretofore made between the parties are merged in
this Lease and any other such written agreement(s) made concurrently herewith,
which alone fully and completely express the agreement of the parties and which
are entered into after full investigation, neither party relying upon any
statement or representation not embodied in this Lease or any other such written
agreement(s) made concurrently herewith. This Lease may be amended, and the
provisions hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant. The titles of the several Articles and Sections
contained herein are for convenience only and shall not be considered in
construing this Lease. The submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation of, or
option for, the Premises, and Tenant shall have no right to the Premises
hereunder until the execution and delivery hereof by both Landlord and Tenant.
Except as herein otherwise provided, the terms hereof shall be binding upon and
shall inure to the benefit of the successors and assigns, respectively, of
Landlord and Tenant and, if Tenant shall be an individual, upon and to his
heirs, executors, administrators, successors and assigns. If two or more persons
are named as Tenant herein, each of such persons shall be jointly and severally
liable for the obligations of the Tenant hereunder, and Landlord may proceed
against any one without first having commenced proceedings against any other of
them. Each term and each provision of this Lease to be performed by Tenant shall
be construed to be both an independent covenant and a condition and time is of
the essence with respect to the exercise of any of Tenant's rights under this
Lease. The reference contained to successors and assigns of Tenant is not
intended to constitute a consent to assignment of Tenant. Except as otherwise
set forth in this Lease, any obligations of Tenant (including, without
limitation, rental and other monetary obligations, repair obligations and
obligations to indemnify Landlord), shall survive the expiration or earlier
termination of this Lease, and Tenant shall immediately reimburse Landlord for
any expense incurred by Landlord in curing Tenant's failure to satisfy any such
obligation (notwithstanding the fact that such cure might be effected by
Landlord following the expiration or earlier termination of this Lease).
34.
<PAGE> 39
Witness the execution hereof under seal on the day and year first above written.
Landlord:
HUB PROPERTIES TRUST
By:
--------------------------------------
Jennifer B. Clark, Senior Vice
President
Tenant:
SIGNAL PHARMACEUTICALS, INC.
By:
--------------------------------------
35.
<PAGE> 40
[MAP]
<PAGE> 41
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, corridors, vestibules, halls,
elevators or stairways in or about the Building shall not be obstructed by
Tenant or used by Tenant for any purpose other than for access to the Premises
and the common areas.
2. Tenant shall not place objects against glass partitions, doors or
windows which would be unsightly from the Building corridor or from the exterior
of the Building. No signs, advertisements, placards, pictures, names, notices,
or lettering shall be exhibited, inscribed, painted or fixed by Tenant on any
window or part of the outside or inside of the Building or the Complex without
the prior consent of Landlord.
3. All window coverings shall be of a uniform shape, color, material and
design as prescribed by Landlord.
4. Tenant shall not place a load upon any floor of the Building
exceeding the lesser of the floor load which such floor was designed to carry or
that allowed by law.
5. Tenant shall not waste electricity or water in the Building and shall
cooperate fully with Landlord to assure the most effective operation of the
Building HVAC system.
6. No additional or different locks or bolts shall be affixed on doors
by Tenant without reasonable prior notice to Landlord. Tenant shall return all
keys to Landlord upon termination of Tenant's lease. Tenant shall not allow
peddlers, solicitors or beggars in the Building.
7. Tenant shall not use the Premises so as to cause any increase above
normal insurance premiums on the Building.
8. No vehicles or animals (except a seeing-eye dog) shall be brought
into or kept in or about the Premises. No space in the Building shall be used
for manufacturing (as opposed to development) or for the sale of merchandise of
any kind at auction or for storage thereof preliminary to such sale.
9. Tenant shall not engage or pay any employees of the Building without
approval from the Landlord. Tenant shall not employ any persons other than the
janitor or employees of Landlord for the purpose of cleaning Premises without
the prior written consent of Landlord.
10. All removals from the Building or the carrying in or out of the
Premises of any freight, furniture or bulky matter of any description which
removal involves loading docks or other common areas or facilities of the
Building must take place at such time and in such manner as Landlord may
determine from time to time. Landlord reserves the right to inspect all freight
to be brought into the Building and to exclude from the Building all freight
which violates any of the rules and regulations or provisions of Tenant's lease.
Heavy objects shall, if considered necessary by Landlord, stand on reinforcing
plates of such thickness and size as is necessary to properly distribute the
weight. Landlord will not be responsible for loss of or damage to any such
<PAGE> 42
property from any cause and all damage done to the Building by moving or
maintaining any such property shall be repaired at the sole cost and expense of
Tenant.
11. Tenant shall cooperate with Landlord in minimizing loss and risk
thereof from fire and associated perils.
12. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the Landlord and/or its contractors, agents and employees
during the making of repairs, alterations, additions or improvements in or to
the demised premises.
13. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed and no sweepings, rubbish, rags, acid or like substance shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by Tenant. Any equipment or apparatus within the Premises, including,
without limitation, x-ray effluent drains, shall be maintained by Tenant
throughout the term hereof, at Tenant's sole cost and expense.
14. Tenant may request HVAC service outside of Normal Building Operating
Hours by submitting a request in writing to the Building Manager's office by
noon of the preceding workday.
15. Landlord reserves the right to establish, modify and enforce parking
rules and regulations.
16. All refuse from the Premises shall be disposed of in accordance with
the requirements established therefor by Landlord and no dumpster shall be
overloaded by Tenant.
17. A Building directory will be provided for the display of the name
and location of the Tenant named on the Lease and Landlord reserves the right to
exclude any other names therefrom. Tenant shall be entitled to initial listings
on the directory for each Tenant indicated on the Lease. Additional listings
thereafter, if approved in writing by Landlord, shall be at the sole cost and
expense of the Tenant. Landlord's acceptance of any name for listing on the
building directory will not be deemed, nor will it substitute for, Landlord's
consent, as required by this Lease, to any sublease, assignment, or other
occupancy of the dernised Premises. All orders for directory listings should be
given to Landlord in writing by Tenant. No oral orders, changes, additions or
deletions shall be accepted by Landlord.
18. Landlord will direct electricians and telephone installers as to
where and how electrical and telephone wires are to be installed by Tenant
except where Landlord has previously reviewed and approved such plans. No boring
or cutting for wires will be allowed without the written consent of the
Landlord.
19. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
20. No air conditioning or heating unit or other similar apparatus shall
be installed or used by any Tenant without the prior written consent of
Landlord, which consent shall not be
<PAGE> 43
unreasonably withheld or delayed provided that such installation or use shall
not affect the HVAC system or its operation, or any other mechanical,
electrical, plumbing or structural element or system of the Building.
21. All doors opening onto public corridors and stairwells shall be kept
closed as required by state and local fire codes, except when being used for
ingress and egress, and shall be securely locked by Tenant before leaving the
Premises.
22. No cooking shall be done or permitted by Tenant on the Premises and
no vending machines of any description shall be installed, maintained or
operated upon the Premises without the prior written consent of Landlord.
23. No smoking is allowed in the Building (including the Premises) or
any other building or structure in the Complex.
24. No Tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Complex,
Buildings or Premises or those having business with them by the use of any
musical instrument, radio, stereo, television or in any other way.
25. The requirements of Tenant to which it is entitled hereunder will be
attended to only upon application at the Building office. Employees of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special written instructions from Landlord, and no employee will admit any
person (Tenant or otherwise) to any office, or sign acceptance of delivery for
any Tenant, without written specific instructions from Tenant.
26. Landlord shall furnish restroom supplies for public area restrooms
only. Tenant shall purchase supplies for any toilet rooms within such Tenant's
Premises and shall not be allowed to supply its private toilet areas from
Building supplies.
27. Landlord reserves the right at any time to rescind, alter or waive
any rule or regulation at any time prescribed for the Building and to impose
additional rules and regulations when in its judgment reasonably exercised
Landlord deems it necessary, desirable or proper for its best interest and for
the best interest of tenants and other occupants and invitees thereof. No
alteration or waiver of any rule or regulation in favor of one Tenant shall
operate as an alteration or waiver in favor of any other Tenant. Landlord shall
not be responsible to any Tenant for the non-observance or violation by any
other Tenant however resulting of any rules or regulations at any time
prescribed for the Building. In the event of any conflict between these Rules
and Regulations, or any further or modified rules and regulations from time to
time issued by Landlord, and the Lease provisions, the Lease provisions shall
govern and control.
<PAGE> 44
EXHIBIT C
ALTERATIONS REQUIREMENTS
A. GENERAL
1. All alterations, installations or improvements ("ALTERATIONS") to be
made by Tenant in, to or about the Premises shall be made in accordance with the
requirements of this Exhibit and by contractors or mechanics approved by
Landlord, which approval shall not be unreasonably withheld or delayed.
2. Tenant shall, prior to the commencement of any Alterations, submit
for Landlord's written approval, complete plans of the Premises, or of the floor
on which the Alterations are to occur, including mechanical, electrical,
plumbing and architectural drawings. Drawings are to be complete with full
details and specifications for all of the Alterations and shall be stamped by an
architect licensed in the state or district in which the Complex is located
certifying compliance with building codes.
3. The proposed Alterations must comply with the building code in effect
for the City of San Diego and the requirements, rules and regulations and any
governmental agencies having jurisdiction.
4. No work shall be permitted to commence without the Landlord being
furnished with a valid permit from the building department and/or other agencies
having jurisdiction in the City of San Diego.
5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Building operations, must be scheduled
and performed before or after Building hours (unless Landlord agrees otherwise)
and Tenant shall provide the Building manager with at least 24 hours' notice
prior to proceeding with such work.
6. All inquiries, submissions, approvals and all other matters shall be
processed through the Building manager.
B. PRIOR TO COMMENCEMENT OF WORK
1. Tenant shall submit to the Building manager a request to perform the
Alterations. The request shall include the following enclosures:
(i) A list of Tenant's contractors and/or subcontractors for
Landlord's approval.
(ii) Three complete sets of plans and specifications properly
stamped by a registered architect or professional engineer certifying compliance
with applicable building codes.
(iii) A properly executed building permit application form.
<PAGE> 45
(iv) Four executed copies of the Insurance Requirements agreement
in the form set forth in Exhibit D from Tenant's contractor and if requested by
Landlord, from the contractor's subcontractors.
(v) Contractor's and subcontractor's insurance certificates
including an indemnity in accordance with the Insurance Requirements agreement.
2. Landlord will return the following to Tenant:
(i) Plans approved or returned with comments (Such approval or
comments shall not constitute a waiver of Building Department approval or
approval of other governmental agencies).
(ii) Two fully executed copies of the Insurance Requirements
agreement.
3. Tenant shall obtain a building permit from the building department
and necessary permits from other governmental agencies. Tenant shall be
responsible for keeping current all permits. Tenant shall submit copies of all
approved plans and permits to Landlord and shall post the original building
permit on the Premises prior to the commencement of any work. All Alterations
shall be subject to reasonable supervision and inspection by Landlord's
representative. Such supervision and inspection shall be at Tenant's sole
expense and Tenant shall pay Landlord's reasonable charges for such supervision
and inspection. Landlord shall notify Tenant if it estimates that the expense of
supervision and inspection for any project shall exceed $ 1,000, if Tenant shall
first request such estimate.
C. REQUIREMENTS AND PROCEDURES
1. All structural and floor loading requirements shall be subject to the
prior approval of Landlord's structural engineer.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers. When necessary, Landlord will require engineering and shop
drawings, which drawings must be approved by Landlord before work is started.
Drawings are to be prepared by Tenant and all approvals shall be obtained by
Tenant.
3. Elevator service for construction work shall be charged to Tenant at
standard Building rates. Prior arrangements for elevator use shall be made with
the Building manager by Tenant. No material or equipment shall be carried under
or on top of elevators. If an operating engineer is required by any union
regulations, such engineer shall be paid for by Tenant.
4. If shutdown of risers and mains for electrical, HVAC, sprinkler and
plumbing work is required, such work shall not be undertaken without prior
approval of Landlord. No work will be performed in Building mechanical equipment
rooms without Landlord's approval and, if required by Landlord, under Landlord's
supervision.
5. Tenant's contractor shall:
<PAGE> 46
(i) have a superintendent or foreman on the Premises at all
times;
(ii) police the job at all times, continually keeping the
Premises orderly;
(iii) maintain cleanliness and protection of all areas, including
elevators and lobbies;
(iv) protect the front and top of all peripheral HVAC units and
thoroughly clean them at the completion of work;
(v) block off supply and return grills, diffusers and ducts to
keep dust from entering into the Building HVAC system; and
(vi) avoid the disturbance of other tenants.
6. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for any necessary or appropriate corrective work.
7. All equipment and installations must be equal to the Building
standards. Any deviation from such standards will be permitted only if indicated
or specified on the plans and specifications and approved by Landlord.
8. A properly executed air balancing report signed by a professional
engineer shall be submitted to Landlord upon the completion of all HVAC work.
9. Upon completion of the Alterations, Tenant shall submit to Landlord
the final Department of Building and Safety permit card and final approval by
all other governmental agencies having jurisdiction.
10. Tenant shall submit to Landlord a final "AS-BUILT" set of sepia
drawings showing all items of Alterations in full detail.
11. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.
<PAGE> 47
EXHIBIT D
CONTRACTOR'S INSURANCE REQUIREMENTS
Building:
Tenant:
Premises:
The undersigned contractor or subcontractor ("CONTRACTOR") has been hired by the
tenant or occupant (hereinafter called "TENANT") of the Building named above or
by Tenant's contractor to perform certain work ("WORK") for Tenant in the
Premises identified above. Contractor and Tenant have requested the undersigned
landlord ("LANDLORD") to grant Contractor access to the Building and its
facilities in connection with the performance of the Work and Landlord agrees to
grant such access to Contractor upon and subject to the following terms and
conditions:
1. Contractor agrees to indemnify and save harmless the Landlord, and if
Landlord is a general or limited partnership each of the partners thereof, and
if Landlord is a nominee trust the trustee(s) and all beneficiaries thereof, and
all of their respective officers, employees and agents, from and against any
claims, demands, suits, liabilities, losses and expenses, including reasonable
attorneys' fees, arising out of or in connection with the Work (and/or imposed
by law upon any or all of them) because of personal injuries, including death,
at any time resulting therefrom and loss of or damage to property, including
consequential damages, whether such injuries to person or property are claimed
to be due to negligence of the Contractor, Tenant, Landlord or any other party
entitled to be indemnified as aforesaid except to the extent specifically
prohibited by law or where such losses and expenses arise from the gross
negligence or willful misconduct of Landlord or its agents or servants (and any
such prohibition shall not void this agreement but shall be applied only to the
minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workmen's Compensation and Employers Liability Insurance
covering each and every workman employed in, about or upon the Work, as provided
for in each and every statute applicable to Workmen's Compensation and
Employers' Liability Insurance.
(b) Commercial General Liability Insurance including coverages
for Protective and Contractual Liability (to specifically include coverage for
the indemnification clause of this agreement) for not less than the following
limits:
Bodily Injury: $2,000,000 per person
$2,000,000 per occurrence
Property Damage: $2,000,000 per occurrence
$2,000,000 aggregate
<PAGE> 48
(c) Commercial Automobile Liability Insurance (covering all
owned, non-owned and/or hired motor vehicles to be used in connection with the
Work) for not less than the following limits:
Bodily Injury: $2,000,000 per person
$2,000,000 per occurrence
Property Damage: $2,000,000 per occurrence.
Contractor shall furnish a certificate from its insurance carrier or carriers to
the Building office before commencing the Work, showing that it has complied
with the above requirements regarding insurance and providing that the insurer
will give Landlord ten (10) days' prior written notice of the cancellation of
any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the
Work to provide the following insurance:
(a) Commercial General Liability Insurance including Protective
and Contractual Liability coverages with limits of liability at least equal to
the limits stated in paragraph 2(b).
(b) Commercial Automobile Liability Insurance (covering all
owned, non-owned and/or hired motor vehicles to be used in connection with the
Work) with limits of liability at least equal to the limits stated in paragraph
2(c).
Upon the request of Landlord, Contractor shall require all of its subcontractors
engaged in the Work to execute an Insurance Requirements agreement in the same
form as this Agreement.
Agreed to and executed this ___ day of _____________, 19___.
CONTRACTOR: LANDLORD:
BY: BY:
------------------------------- --------------------------------------
<PAGE> 49
EXHIBIT E
CLERK'S CERTIFICATE
I, _______________, the duly elected and acting [Secretary/Clerk] of
_______________, a _______________ corporation (the "CORPORATION"), hereby
certify that:
(A) at a meeting of the board of directors of the Corporation held on
_______________ in accordance with law and the Bylaws of the Corporation the
following resolutions were duly adopted:
VOTED: a. To approve a lease of approximately - rentable square feet of
space for terms of _______________ years with respect to _______________
in the building commonly known as _______________ in _______________
which lease grants the Corporation an option to extend the term for
___________ terms of ___________ years each, substantially in the form
of the draft presented at this meeting, a copy of which shall be placed
on file in the office of the [Secretary/Clerk] and be incorporated by
reference in this vote;
b. To authorize ______________, and _______________ or any
one of them (each hereinafter referred to as a "SIGNATORY"), to execute and
deliver in the name and on behalf of the Corporation the above-described lease
and to execute and deliver all other documents, agreements and instruments,
including, without limitation, notices of lease, and to take all other actions
with respect to the foregoing which any Signatory, in such Signatory's
discretion, shall determine to be necessary or appropriate to effect or secure
the transactions contemplated herein, the execution and delivery of any of the
foregoing or the taking of any such action to be conclusive evidence of such
Signatory's determination and of the Signatory's authority so to do granted by
this vote;
(B) as of this date the following individuals are duly elected and
qualified officers of the Corporation holding at this date, the offices
specified next to their names and the signature next to each such name is such
individual's true signature.
NAME OFFICE SIGNATURE
- --------------- ----------------- -----------------
- --------------- ----------------- -----------------
(C) The form of lease attached to this Certificate is the form referred
to in the foregoing vote.
(D) The resolutions set forth above are unmodified and continue to be in
full force and effect and the Corporation has adopted no other resolutions in
respect of the subject matter thereof.
<PAGE> 50
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation this _____ day of __________________, 19__.
-----------------------------
[Secretary/Clerk]
<PAGE> 1
EXHIBIT 10.49
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 CFR Sections 200.80,
200.83 and 230.406
FIRST AMENDMENT TO
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") to the Research, Development and
License Agreement by and between ARES TRADING S.A., a Swiss company ("ARES"),
and SIGNAL PHARMACEUTICALS, INC., a California corporation ("SIGNAL") dated as
of November 25, 1997 (the "Agreement") is entered into by and between ARES and
SIGNAL as of April 15th, 1999.
RECITALS
WHEREAS, ARES and SIGNAL wish to amend the Agreement pursuant to Section
8.17 of the Agreement to expand the Territory under the Agreement to include
Asia (hereinafter defined), to provide for certain payments to SIGNAL in
consideration of the expansion of the Territory and to make certain related
changes, all as set forth in this Amendment.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. AMENDMENT TO ARTICLE I. A new Section 1.04A is hereby added to the
Agreement as follows:
"Section 1.04A. Asia. Japan, China, South Korea, Taiwan, Cambodia, Laos,
Vietnam, Nepal, the Philippines, Singapore, Malaysia, Hong Kong, Myanmar
and Brunei."
2. AMENDMENT TO SECTION 1.22. Section 1.22 of the Agreement is hereby
deleted.
3. AMENDMENT TO SECTION 1.24. Section 1.24 of the Agreement is hereby
amended and restated in its entirety as follows:
"Section 1.24. Territory. The world."
4. AMENDMENT TO SECTION 2.05. Section 2.05 of the Agreement is hereby
amended and restated in its entirety as follows:
"Section 2.05. Exclusive Relationship. During the term of the Research,
SIGNAL represents and warrants that it shall not perform any research
relating to the Field other than the Research."
1
<PAGE> 2
5. AMENDMENT TO SECTION 2.10. The second sentence of Section 2.10 of the
Agreement is hereby amended to delete the language "(including Tanabe)".
6. AMENDMENT TO SECTION 2.11. Section 2.11 of the Agreement is hereby
amended to add the following language at the end of such section:
"In addition to the Research funding provided by ARES to SIGNAL under
this Section 2.11, during the period from the date of this Amendment
until the end of the Initial Term, SIGNAL agrees to expend a minimum of
[***] United States Dollars (US$[***]) of its own funds on SIGNAL's, its
agents', consultants' and academic collaborators' performance of the
Research."
7. AMENDMENT TO SECTION 3.03. Section 3.03 of the Agreement is hereby
amended to provide that Subsections 3.03.01 and 3.03.02 shall apply only
to the development and registration of Licensed Products by ARES, its
Affiliates or sublicensees in the Territory excluding Asia and to add
the following Subsection 3.03.04 at the end of such Section:
"3.03.04. Licensed Products in Asia. For each Licensed Product
developed and registered by ARES, its Affiliates or sublicensees in
Asia, ARES shall pay, or cause to be paid, to SIGNAL a nonrefundable
license fee of [***] United States Dollars (U.S. $[***]) upon the first
anniversary of the first commercial sale of such Licensed Product in
Asia, following receipt of marketing approval thereof."
8. AMENDMENT TO SECTION 3.05. Section 3.05 of the Agreement is hereby
amended and restated in its entirety as follows:
"Section 3.05.Ongoing Royalty. Subject to the provisions of this
Article III, ARES shall during the Term pay or cause to be paid to
SIGNAL royalties on Net Sales of Licensed Products or Combination
Products at the following rates:
3.05.01. Outside of Asia. With respect to Net Sales of
Licensed Products and Combination Products in the Territory, excluding
Asia:
(i) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products at or below [***]
United States Dollars (U.S. $[***]);
(ii) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]);
(iii)[***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]); and
(iv) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]);
*** CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE> 3
provided, however, that upon the expiration or invalidation of the last
remaining Valid Claim of a SIGNAL Patent or Joint Patent in effect in a
country that covers such Licensed Product or Combination Product,
royalties payable for such country with respect to such Licensed Product
or Combination Product shall be reduced by [***] percent ([***]%).
3.05.02. In Asia. With respect to Net Sales of Licensed
Products and Combination Products in Asia:
(i) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products at or below [***]
United States Dollars (U.S. $[***]);
(ii) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]);
(iii)[***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]); and
(iv) [***] percent ([***]%) of total annual Net
Sales of Licensed Products and Combination Products above [***] United
States Dollars (U.S. $[***]);
provided, however, that upon the expiration or invalidation of the last
remaining Valid Claim of a SIGNAL Patent or Joint Patent in effect in a
country that covers such Licensed Product or Combination Product,
royalties payable for such country with respect to such Licensed Product
or Combination Product shall be reduced by [***] percent ([***]%).
9. AMENDMENT TO SECTION 6.05. Section 6.05 of the Agreement is hereby
amended to change the reference in the first sentence to "Section
101(56) of the Bankruptcy Code" to a reference to "Section 101(35A) of
the Bankruptcy Code."
10. AMENDMENT TO SECTION 7.01. Section 7.01 of the Agreement is hereby
amended to delete the language "with the exception of rights granted to
Tanabe" from clauses (iii) and (iv) thereof.
11. AMENDMENT TO SECTION 8.06. Section 8.06 is hereby amended to delete the
proviso at the end of that Section.
12. PAYMENT OF LICENSE FEE. In consideration of the expansion of the
Territory to include Asia and the other agreements of SIGNAL contained
herein, ARES shall pay SIGNAL a nonrefundable license fee of Two Million
United States Dollars (U.S. $2,000,000) within thirty (30) days of the
execution and delivery of this Amendment.
13. FULL FORCE AND EFFECT. Except as specifically amended by this Amendment,
the terms and conditions of the Agreement shall remain unchanged and in
full force and effect.
*** CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE> 4
14. GOVERNING LAW. The form, execution, validity, construction and effect of
this Amendment shall be determined in accordance with the laws of the
Commonwealth of Massachusetts and the United States of America,
regardless of the choice of law principles of those or any other
jurisdictions.
15. COUNTERPARTS. This Amendment may be signed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon
a single instrument, and all such counterparts together shall be deemed
an original of this Amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the day and year first written above.
ARES TRADING S.A. SIGNAL PHARMACEUTICALS, INC.
By: /s/ Ernesto Bertarelli By: /s/ Douglas E. Richards
----------------------------------- ----------------------------------
Douglas E. Richards
Name: Ernesto Bertarelli Vice President, Corporate
--------------------------------- Development
Title: Chief Executive Officer
--------------------------------
4
<PAGE> 1
EXHIBIT 10.50
MEMORANDUM
This memorandum made and effective as of this 9th day of February, 2000 by and
between
NIPPON KAYAKU CO., LTD. ("NKC")
and
SIGNAL PHARMACEUTICALS INC. ("SIGNAL"),
WITNESSETH THAT:
WHEREAS, NKC and SIGNAL concluded a collaboration agreement as of February 9,
1998 ("Collaboration Agreement"); and
WHEREAS, NKC and SIGNAL desire to establish a collaborative relationship to
develop and commercialize novel drug products based on or derived from compounds
identified under Collaboration Agreement for the treatment and prevention of
diseases and disorders of the peripheral nervous system and central nervous
system; and
WHEREAS, SIGNAL has made a draft of Joint Development and Commercialization
Agreement ("Joint Agreement") and sent it to NKC and NKC sent a revised draft
dated January 31, 2000 to SIGNAL; and
WHEREAS, NKC and SIGNAL have intent to conclude Joint Agreement and are
negotiating with each other on the revised draft in good faith;
NOW THEREFORE, the parties hereto agree as follows:
1. Notwithstanding the provisions of Collaboration Agreement, the parties hereto
shall conclude Joint Agreement by the end of March 2000 and the effective date
of Joint Agreement shall be February 9, 2000.
2. In order to expedite the research and development under Joint Agreement, the
parties hereto shall carry out the following activities prior to and until
conclusion of Joint Agreement.
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<PAGE> 2
(1) Each party's representative of RMC shall agree to and sign a
protocol for studies on which the both parties hereto shall bear costs and
expenses jointly.
(2) Both of the parties hereto shall sign agreements with contract
laboratories for entrusting studies.
(3) The parties hereto deal costs and expenses according to the method
as before pursuant to Collaboration Agreement.
(4) The parties hereto determine long-range, annual and quarterly
research and development plans until the start of commercialization as well as
budgets and personnel plans in accordance with such research and development
plans.
(5) The parties hereto shall determine research and development plans,
budgets and personnel plans on research related to additional indications and
research of succeeding compounds.
IN WITNESS WHEREOF, the parties hereto have caused this memorandum in
English language to be executed in duplicate by their respective duly authorized
representatives.
NIPPON KAYAKU CO., LTD.
/s/ Tomiyo Harada
----------------------------------------
Tomiya HARADA
General Manager
Intellectual Property Division
Date: February 9, 2000
SIGNAL PHARMACEUTICALS INC.
/s/ Alan J. Lewis
----------------------------------------
Alan J. LEWIS
President and Chief Executive Officer
Date: February 9, 2000
2
<PAGE> 1
EXHIBIT 10.51
[SIGNAL LETTERHEAD]
May 18, 1998
Dear Doug:
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is pleased to formally
offer you the position of Vice President Corporate Development. The effective
date of your employment will be Monday, June 8 (your "Start Date"), although it
is understood that you shall have the option of working from your home in
Pennsylvania until Monday, June 29.
The terms of this offer of employment are as follows:
Position: Vice President, Corporate Development
Reporting to: Mr. Carl F. Bobkoski, Executive Vice President
Base Salary: $7,292 semi-monthly (175,000 per year), less all
required withholding for taxes, social security
and other deductions, to be increased annually
in accordance with the standard practice of the
Company.
House Purchase Loan: The Company will provide you with a $60,000
interest free, subordinated, secured loan to be
used for the purchase of a new principal
residence, to be funded upon closing on a house
in San Diego County, secured by your Signal
common stock. 1/3 of the loan will be forgiven
upon the second anniversary of your Start Date
at the Company, 1/3 upon the third such
anniversary, and 1/3 upon the fourth such
anniversary. Should your employment be
terminated, for any reason, prior to the fourth
anniversary of your Start Date, you will have
one year from such date of termination to repay
the remaining balance to the Company, including
interest accrued on such at a rate of 8% per
year.
Performance Bonus: You will receive a performance bonus of
up to 20% of your annual salary based upon
performance against measurable, mutually agreed
upon goals set according to the Company's
standard practice. Individual goals will be
assigned specific percent weighting.
Relocation: Reimbursed moving expenses will include
reasonable and customary closing costs for the
sale of your house, including realtors' fees,
reasonable and customary costs for the purchase
of a new home, including origination fees or
points, reasonable legal fees, surveys and
inspections, and the cost of recording the deed
1
<PAGE> 2
or mortgage; payment for movement of household
goods (and two cars), including packing,
unpacking, insurance, and up to three months of
storage, if necessary, and subsequent movement
to a final destination; economy air fares for
you and your immediate family from Yardley,
Pennsylvania, and two "house hunting" visits for
you and your immediate family; and up to four
months' payment of temporary accommodations and
car rental not to exceed $3,000 per month. In
addition, Signal will reimburse you for up to
four trips home to Yardley, Pennsylvania from
San Diego or until such time as your family has
relocated to the San Diego Area. All expenses
will be documented and paid either directly to
the vendor or reimbursed to you by normal means.
The Company will follow federal, state and local
tax regulations with regards to reporting
reimbursements associated with the move and will
"gross up" the compensation element of directly
paid or reimbursed relocation expenses. The
Company will pay all applicable taxes related to
the compensation element of these relocation
reimbursables (which will include the payment of
such taxes themselves). Notwithstanding the
above, Signal will reimburse a maximum of
$60,000 for such moving expenses.
Stock Option Grants: The Company will grant you an option 1) to
purchase 225,000 shares of the Company's Common
Stock. The exercise price of the option will be
$0.50 per share.
One fourth (25%) of the shares will vest on the
first day of your thirteenth month of
employment. The remaining shares will vest in
equal installments over a three year period
until all shares are vested. In the event of a
change in control of the Company, all
outstanding unvested options will become
immediately vested.
Benefits: You will receive the Company's standard family
medical and dental benefits and other benefits
enjoyed by officers of the Company, as such may
be in effect from time to time, including
vacation, 401k, etc.
At-will employment: (a) Your employment with the Company is for an
indefinite term. In other words, the employment
relationship is "at will," and either you or
Signal has the right to terminate that
employment relationship at any time. Signal
requires a baseline blood draw from all new
employees. This will be done on your first day
of employment at Signal (or as soon as
practicable thereafter). These vials will be
stored offsite to protect your privacy. No
testing will be done to the sample unless
required by legal proceedings.
You will be asked to sign an Employee's
Proprietary Information
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<PAGE> 3
and Inventions Agreement. In addition, you will
be expected to abide by the Company rules and
regulations as described in the Company
handbook.
The employment terms in this letter supersede
any other agreements or promises made to you. As
required by law, this offer is subject to
satisfactory proof of your right to work in the
United States.
(b) If your employment with the Company
terminates as a result of mutual agreement or
the Company terminates your employment for any
reason, you will receive a severance payment and
Benefits from the Company in an amount equal to
six (6) months of your then annual salary.
We have greatly enjoyed our meetings with you and look forward to your joining
the Signal team. We feel that your experience and enthusiasm can make a
substantial contribution to the success of Signal.
Sincerely,
/s/ Bradley B. Gordon
- -----------------------------------------
Bradley B. Gordon
Vice President Finance, CFO
AGREED TO AND ACCEPTED BY:
/s/ Douglas E. Richards 5/18/98
- ----------------------------------------- --------
Douglas E. Richards Date
3
<PAGE> 1
EXHIBIT 10.52
SECURED PROMISSORY NOTE
$60,000.00 August __, 1998
San Diego, California
FOR VALUE RECEIVED, DOUGLAS E. RICHARDS ("BORROWER"), hereby
unconditionally promises to pay to the order of SIGNAL PHARMACEUTICALS, INC., a
California corporation ("LENDER"), at 5555 Oberlin Drive, San Diego, California
92121, or at such other place as the holder hereof may designate in writing, in
lawful money of the United States of America and in immediately available funds,
the principal amount of Sixty Thousand Dollars ($60,000.00) together with
interest accrued on the unpaid principal (the "LOAN") and subject to the
Forgiveness Provisions described in Section 3 herein.
This Promissory Note is the Note referred to in and is executed and
delivered in connection with that certain Stock Pledge Agreement dated as of
even date herewith and executed by Borrower in favor of Lender (as the same may
from time to time be amended, modified or supplemented or restated, the "PLEDGE
AGREEMENT") attached hereto as Exhibit A. Additional rights of Lender are set
forth in the Pledge Agreement. All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Pledge Agreement.
1. PRINCIPAL REPAYMENT. Subject to Section 3 herein, the
outstanding principal amount of the Loan shall be due and payable one (1) year
from the date of the termination of the Borrower's employment with the Lender
(the "TERMINATION DATE") occurring for any reason whatsoever.
2. INTEREST RATE.
(a) From the date hereof through the Termination Date, this Note
shall be a non-interest bearing note and, as such, will be subject to the
provisions of Section 7872 of the Internal Revenue Code of 1986, as amended, and
the Treasury Regulations thereunder. Accordingly, Borrower shall take into
income imputed interest on the Loan at a rate equal to the applicable federal
rate, and the Lender shall be obligated to (i) report such imputed interest
income, and (ii) withhold appropriate taxes from Borrower's salary payments with
respect to such imputed interest. Notwithstanding the foregoing, Lender hereby
acknowledges and agrees to pay Borrower an amount equal to any federal and state
income taxes ("TAXES") incurred from the recognition of such imputed interest
income to Borrower (including any Taxes attributable to the receipt of such
payments by Borrower) (collectively, the "TAX GROSS-UP PAYMENTS") as further
described in a letter agreement executed as of even date herewith and attached
hereto as Exhibit B.
1
<PAGE> 2
(b) From and after the Termination Date, Borrower further
promises to pay interest on the outstanding principal amount of the Loan from
the Termination Date until payment in full, which interest shall be payable at
the rate of 8.0% per annum or the maximum rate permissible by law (which under
the laws of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less. Interest
shall be due and payable at the same time that the principal amount of this Note
becomes due and payable and shall be compounded annually and calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. FORGIVENESS PROVISIONS. The principal amount of the Loan shall
be forgiven by the holder hereof in three increments, provided that the Borrower
remains in continuous employment by the Lender as of each applicable date listed
below: (i) a principal amount of Twenty Thousand Dollars ($20,000.00) shall be
forgiven on June 8, 2000, such that the remaining principal balance of the loan
shall be Forty Thousand Dollars ($40,000.00); (ii) a principal amount of Twenty
Thousand Dollars ($20,000.00) shall be forgiven on June 8, 2001, such that the
remaining principal balance of the loan shall be Twenty Thousand Dollars
($20,000.00); and (iii) a principal amount of Twenty Thousand Dollars
($20,000.00) shall be forgiven on June 8, 2002, such that the remaining
principal balance of the loan shall be Zero Dollars ($0.00).
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. SECURED NOTE. The full amount of this Note is secured by the
Collateral identified and described as security therefor in the Pledge Agreement
executed by and delivered by Borrower. Borrower shall not, directly or
indirectly, create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on or in
the Collateral, or in any portion thereof, except as permitted pursuant to the
Pledge Agreement.
6. DEFAULT. Each of the following events shall be an "EVENT OF
DEFAULT" hereunder:
(a) Borrower fails to pay timely any of the principal amount due
under this Note on the date the same becomes due and payable or any accrued
interest or other amounts due under this Note on the date the same becomes due
and payable;
(b) An Event of Default under the Stock Pledge Agreement;
(c) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(d) An involuntary petition is filed against Borrower (unless
such petition is dismissed or discharged within sixty (60) days) under any
bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of Borrower.
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<PAGE> 3
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (c) or (d) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
applicable law.
7. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. PREPAYMENT. Borrower may prepay the unpaid principal in whole or
in part, ithout penalty, at any time, upon the payment of all unpaid interest
accrued to the date of such prepayment.
10. NON-TRANSFERABLE. The right of Borrower to request and receive
the Loan hereunder, as well as the other benefits under this Note, shall not be
assignable or otherwise transferable by Borrower.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall be
binding on any successor to Borrower and shall inure to the benefit of any
holder hereof.
/s/ Douglas E. Richards
--------------------------------------
DOUGLAS E. RICHARDS
ACKNOWLEDGED AND AGREED TO:
SIGNAL PHARMACEUTICALS, INC.
/s/ Bradley B. Gordon
- ---------------------------------------
BRADLEY B. GORDON
Vice President Finance, Chief Financial
Officer and Corporate Secretary
3
<PAGE> 4
EXHIBIT A - STOCK PLEDGE AGREEMENT
EXHIBIT B - SIDE LETTER AGREEMENT
4
<PAGE> 5
EXHIBIT A
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("PLEDGE AGREEMENT") is made as of August
__, 1998, by DOUGLAS E. RICHARDS, an individual residing at
___________________________ ("PLEDGOR"), in favor of SIGNAL PHARMACEUTICALS,
INC., a California corporation with its principal place of business at 5555
Oberlin Drive, San Diego, California 92121 ("PLEDGEE").
WHEREAS, Pledgor (also referred to herein as the "BORROWER") has
concurrently herewith executed that certain Promissory Note (the "NOTE") in
favor of Pledgee, which is secured by this Pledge Agreement; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Pledged Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such indebtedness
being the "LIABILITIES"), together with, without limitation, the prompt payment
of all expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incidental to the collection of the Liabilities and the
enforcement or protection of Pledgee's lien in and to the collateral pledged
hereunder, Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first
priority security interest in all of the following (collectively, the "PLEDGED
COLLATERAL"):
(a) all Common Stock in the Pledgee now or hereafter held by the
Pledgor, including, without limitation, (i) any such shares issued upon any
exercise of outstanding options to purchase shares of Common Stock of the
Pledgee, and (ii) any and all shares of Common Stock issued to Pledgor upon
exercise of any option to purchase shares of Common Stock of the Company granted
after the date of the Note (collectively, the "PLEDGED SHARES"), and all
dividends, cash, instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the
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<PAGE> 6
Pledged Shares), and the certificates representing such additional shares, and
all dividends, cash, instruments, and other property or proceeds from time to
time received, receivable, or otherwise distributed in respect of or in exchange
for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (i) collect by legal proceedings or otherwise all dividends,
interest, principal payments and other sums now or hereafter payable upon or on
account of said Pledged Collateral; (ii) enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any agreement in
any way relating to or affecting the Pledged Collateral, and in connection
therewith may deposit or surrender control of such Pledged Collateral
thereunder, accept other property in exchange for such Pledged Collateral and do
and perform such acts and things as it may deem proper, and any money or
property received in exchange for such Pledged Collateral shall be applied to
the indebtedness or thereafter held by it pursuant to the provisions hereof;
(iii) insure, process and preserve the Pledged Collateral; (iv) cause the
Pledged Collateral to be transferred to its name or to the name of its nominee;
or (v) exercise as to such Pledged Collateral all the rights, powers and
remedies of an owner, except that so long as no default exists under the Note or
hereunder Pledgor shall retain all voting rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events, each of which will constitute an "EVENT OF DEFAULT": (i)
failure to keep or perform any of the terms or provisions of this Pledge
Agreement; (ii) the levy of any attachment, execution or other process against
the Pledged Collateral; or (iii) an Event of Default under the Note.
5. Upon an Event of Default, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the Pledged Collateral in such order as Pledgee may elect, and any such sale may
be made either at public or private sale at its place of business or elsewhere,
or at any broker's board or securities exchange, either for cash or upon credit
or for future delivery; provided, however, that if such disposition is at
private sale, then the purchase price of the Pledged Collateral shall be equal
to the public market price then in effect, or, if at the time of sale no public
market for the Pledged Collateral exists, then, in recognition of the fact that
the sale of the
2
<PAGE> 7
Pledged Collateral would have to be registered under the Securities Act of 1933
and that the expenses of such registration are commercially unreasonable for the
type and amount of collateral pledged hereunder, Pledgee and Pledgor hereby
agree that such private sale shall be at a purchase price mutually agreed to by
Pledgee and Pledgor or, if the parties cannot agree upon a purchase price, then
at a purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by Pledgor within 10
days after written request by the Pledgee to do so, one named by Pledgee within
such 10 day period, and the third named by the two appraisers so selected, with
the appraisal to be rendered by such body within 30 days of the appointment of
the third appraiser. The cost of such appraisal, including all appraiser's fees,
shall be paid by the Pledgor. Pledgee may be the purchaser of any or all Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or right of redemption. Demands of performance, notices of
sale, advertisements and presence of property at sale are hereby waived, and
Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to
it. Any sale hereunder may be conducted by any officer or agent of Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor may have ceased.
9. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
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<PAGE> 8
10. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
11. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: August __, 1998
PLEDGOR:
/s/ Douglas E. Richards
- --------------------------------------
DOUGLAS E. RICHARDS
ACKNOWLEDGED AND AGREED TO:
SIGNAL PHARMACEUTICALS, INC.
/s/ Bradley B. Gordon
---------------------------------------
BRADLEY B. GORDON
Vice President Finance, Chief Financial
Officer and Corporate Secretary
4
<PAGE> 9
EXHIBIT 1
TO
STOCK PLEDGE AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
DOUGLAS E. RICHARDS, hereby sells, assigns and transfers unto
_____________________ a total of ___________________ (_______) shares of the
Common Stock of SIGNAL PHARMACEUTICALS, INC., standing in the undersigned's name
on the books of said corporation represented by Certificate Nos. ___________
herewith and does hereby irrevocably constitute and appoint
______________________________ to transfer the said stock on the books of said
corporation with full power of substitution in the premises.
This Assignment Separate From Certificate may only be used in accordance
with that certain Stock Pledge Agreement, dated as of ___________, 1998, between
Douglas E. Richards and Signal Pharmaceuticals, Inc.
Dated:
---------------
--------------------------------------
DOUGLAS E. RICHARDS
<PAGE> 10
EXHIBIT B
SIDE LETTER AGREEMENT
[SIGNAL LETTERHEAD]
August __, 1998
Dear Doug:
This letter serves to clarify the terms of an agreement by Signal
Pharmaceuticals, Inc. (the "Company") to pay you, Douglas E. Richards (the
"Borrower"), any federal and state income taxes incurred by Borrower with
respect to a Secured Promissory Note of even date herewith (the "Note") pursuant
to Section 2(a) therein (the "Tax Gross-Up Payments").
In general, the Tax Gross-Up Payments by the Company are intended to equal: (i)
the federal and state income taxes incurred by Borrower pursuant to the
recognition of imputed interest income from the Note, and (ii) a "gross-up" for
any taxes attributable to such payments.
Since the meaning of the phrase "tax gross-up" may be subject to various
interpretations and in the interest of memorializing the intent of the parties,
the Company and the Borrower hereby agree that the Tax Gross-Up Payments be
described as follows:
1. GENERAL. Subject to the limitations discussed below and in any other
documents contemplated in the Note, upon the determination of actual income tax
payments incurred by Borrower in connection with the imputed interest attributed
to Borrower under the Note, Borrower will receive payment(s) to cover any
federal and California state income tax liability resulting from such imputed
interest. In other words, not only will Borrower receive a payment equal to the
federal and California state income taxes attributable to income from such
imputed interest, but Borrower will also receive monies to cover any such
federal and California income taxes attributable to such payment(s).
2. COVERED TAXES. The Tax Gross-Up Payments will cover only federal and
California state income tax liabilities. The Tax Gross-Up Payments will not
cover any other federal, state, local or foreign taxes, including but not
limited to any payroll taxes, social security taxes, Federal Insurance
Contributions Act taxes, Federal Unemployment Tax Act taxes or California
disability taxes. In addition, the Tax Gross-Up Payments will not cover any
federal or California income tax liability for interest, penalties or other
charges attributable to a failure to file or otherwise comply with any tax laws.
3. TAX RATE. For purposes of calculating federal and California state
income tax liability, the Company will use the then-applicable maximum stated
tax rate (currently 39.6%
<PAGE> 11
federal and 9.3% California) and will assume that the California state tax
liability is fully deductible for purposes of calculating federal income tax
liability.
Please confirm your acceptance of the terms described herein by completing the
endorsement set forth below on this letter, whereupon this shall be and become a
binding mutual agreement between us in accordance with its terms.
Very truly yours,
SIGNAL PHARMACEUTICALS, INC.
By: /s/ Bradley B. Gordon
------------------------------------
Authorized Signatory
Agreed and Accepted to
as of August __, 1998
DOUGLAS E. RICHARDS
/s/ Douglas E. Richards
- --------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated February 4, 2000
(except Note 7, as to which the date is , 2000), in the Registration
Statement (Form S-1) and related Prospectus of Signal Pharmaceuticals, Inc. for
the registration of shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 7 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
February 18, 2000
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,613,834
<SECURITIES> 2,806,093
<RECEIVABLES> 108,959
<ALLOWANCES> 0
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<BONDS> 0
0
12,246
<COMMON> 1,847
<OTHER-SE> 5,968,469
<TOTAL-LIABILITY-AND-EQUITY> 14,538,865
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<CGS> 0
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<NET-INCOME> (7,855,748)
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