<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CURAGEN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8731 06-1331400
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
555 LONG WHARF DRIVE, 11TH FLOOR
NEW HAVEN, CONNECTICUT 06511
(203) 401-3330
(203) 401-3333 FACSIMILE
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JONATHAN M. ROTHBERG, PH.D.
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
CHAIRMAN OF THE BOARD
CURAGEN CORPORATION
555 LONG WHARF DRIVE, 11TH FLOOR
NEW HAVEN, CONNECTICUT 06511
(203) 401-3330
(203) 401-3333 FACSIMILE
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JONATHAN L. KRAVETZ, ESQ. KEITH F. HIGGINS, ESQ.
STANFORD N. GOLDMAN, JR., ESQ. ROPES & GRAY
MINTZ, LEVIN, COHN, FERRIS, ONE INTERNATIONAL PLACE
GLOVSKY AND POPEO, P.C. BOSTON, MASSACHUSETTS 02110
ONE FINANCIAL CENTER (617) 951-7000
BOSTON, MASSACHUSETTS 02111 (617) 951-7050 FACSIMILE
(617) 542-6000
(617) 542-2241 FACSIMILE
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this 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, as amended (the "Securities Act"), 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par
value................. $40,000,000 $12,121.00
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(o) under the Securities Act of
1933, as amended.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 16, 1997
Shares
[Company Logo]
CuraGen Corporation
COMMON STOCK
-----------
ALL OF THE SHARES OF COMMON STOCK ARE BEING SOLD BY CURAGEN CORPORATION
(THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL
BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
-----------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "CRGN."
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering overallotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Ropes & Gray, counsel for the Underwriters. It is expected that delivery of
the Shares will be made on or about , 1997 at the office of Morgan Stanley
& Co. Incorporated, New York, N.Y., against payment therefor in immediately
available funds.
-----------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
, 1997
<PAGE>
[GRAPHICAL DEPICTION OF THE COMPANY'S GENESCAPE OPERATING SYSTEM]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Use of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Selected Financial Data............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................ 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management......................... 50
Certain Transactions............... 56
Principal Stockholders............. 58
Description of Capital Stock....... 60
Shares Eligible for Future Sale.... 64
Underwriters....................... 66
Legal Matters...................... 67
Experts............................ 67
Additional Information............. 68
Glossary........................... 69
Index to Financial Statements...... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and an opinion thereon expressed by independent
accountants and quarterly reports for the first three quarters of each fiscal
year containing interim financial information.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
----------------
In this Prospectus, the terms the "Company" or "CuraGen" shall mean CuraGen
Corporation. The Company's corporate headquarters are located at 555 Long
Wharf Drive, New Haven, Connecticut 06511, and its telephone number is (203)
401-3330.
GeneScape(R) is a trademark of the Company which has been registered with the
United States Patent and Trademark Office. GeneCalling(TM), PathCalling(TM),
HitCalling(TM), GeneTools(TM), GeneShop(TM), QEA(TM), MIM(TM), CombiGen(TM),
OGI(TM), [Greek letter "mu"]Niagara(TM), Niagara(TM), MicroNiagara(TM) and
NanoNiagara(TM) are trademarks or service marks of the Company for which
registration applications have been filed with the United States Patent and
Trademark Office.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus. A Glossary of technical
terms used in this Prospectus appears at page of this Prospectus.
THE COMPANY
CuraGen Corporation ("CuraGen" or the "Company") is pioneering the systematic
application of genomics to accelerate the discovery and development of
therapeutic and agricultural products. CuraGen's fully-integrated genomics
technologies, processes and information systems are designed to rapidly
generate comprehensive information about gene expression, biological pathways
and the potential drugs that affect these pathways, each on a scale not
previously undertaken. The Company believes that it can overcome the
limitations of competing technologies, processes and databases and can condense
key steps in gene-based drug discovery and development. CuraGen believes its
technology platform will facilitate the development of highly specific and
effective drugs aimed at a variety of complex diseases such as cardiovascular
disease, stroke, cancer and metabolic disorders.
The Company's drug discovery platform has three primary systems, each
consisting of proprietary technologies, automated processes and a database: the
GeneCalling system for comprehensive gene expression analysis and gene
discovery; the PathCalling system for discovery of the roles of genes and the
proteins they encode in biological pathways; and the HitCalling system for
identification of small molecule drug candidates. The GeneCalling and
PathCalling systems are fully operational, and the Company expects to
commercialize its HitCalling system in 1998. These systems are integrated to
enable gene discovery, drug target validation and high-throughput screening of
drug candidates in a highly efficient and cost-effective manner.
In addition to accelerating the discovery of new drug candidates, CuraGen's
GeneCalling and PathCalling systems are well-positioned to predict the efficacy
and safety of drug candidates currently in pharmaceutical development pipelines
and to review the performance and side effects of drugs already on the market.
This pharmacogenomics approach can aid in the development of more effective,
safer drugs and identify more appropriate patient populations.
The Company's GeneCalling, PathCalling and HitCalling systems use proprietary
technologies to overcome current limitations of gene-based drug discovery. In
contrast to other gene expression methods used to identify disease-related
genes that may not detect previously undiscovered genes or genes expressed at
low levels, GeneCalling has been designed to measure 95% of the genes expressed
in any cell, including novel genes and those expressed at the level of a single
copy per cell. GeneCalling generates multiple fragments per gene for enhanced
reproducibility, precision and fault-tolerance. In order to validate proteins
as drug targets, PathCalling replaces cumbersome protein-by-protein research
methods with a process that tests simultaneously for interactions between
billions of combinations of proteins. PathCalling assembles these interactions
into a database of biological pathways to link a disease-related protein with
its biological role. HitCalling is designed to screen thousands of these
proteins simultaneously against hundreds of thousands of potential drugs,
building a database of targets and drug candidates to accelerate drug
discovery.
The Company has unified its GeneCalling, PathCalling and HitCalling
technologies, processes and databases under its GeneScape bioinformatics
operating system that integrates all aspects of process management, data
analysis and visualization. GeneScape provides an easy-to-use web-based
interface to its
4
<PAGE>
technology platform, thereby allowing researchers Internet access and
interactive capabilities from multiple sites to meet their individual discovery
and development needs. GeneScape also includes GeneTools, a full-featured
bioinformatics software suite for further gene and protein characterization.
CuraGen's goal is to establish its fully-integrated technologies and
GeneScape operating system as the preferred platform for genomics and to
pursue, both internally and through collaborations, a broad portfolio of
research programs for drug discovery, drug development and pharmacogenomics.
During the next five years, the Company intends to analyze systematically the
genetic basis of many common diseases in order to identify potential
therapeutic proteins, targets and small molecule drug candidates. CuraGen is
marketing its genomics technology and information to pharmaceutical,
biotechnology and agricultural companies through research collaborations and
database subscriptions. Research collaborations will involve the application of
CuraGen's GeneCalling, PathCalling and HitCalling technologies to a
collaborator's projects and will include support services required to
characterize gene and target discoveries. Database subscriptions will provide
subscribers with access to CuraGen's GeneCalling, PathCalling and HitCalling
databases. The Company believes these collaborations and subscription
arrangements will establish milestone and royalty-based revenues from products
emerging from the drug development programs of multiple partners.
To date, CuraGen has entered into a research collaboration with Pioneer Hi-
Bred International, Inc. ("Pioneer Hi-Bred"). In May 1997, Pioneer Hi-Bred made
a $7.5 million investment and may fund up to $18.5 million in research at the
Company over five years to identify genes responsible for agricultural seed
product performance. The Company has also used its GeneCalling and PathCalling
systems in its internal programs in areas including cardiovascular disease,
stroke, cancer and metabolic disorders, has discovered over disease-related
genes and has filed patent applications relating to these discoveries.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... shares
Common Stock to be outstanding after the
Offering................................ shares(1)
Use of Proceeds.......................... The Company plans to use approxi-
mately $15 million of the net pro-
ceeds for research and development,
including the further development of
its GeneCalling, PathCalling and
HitCalling databases, approximately
$10 million for capital expenditures
and $1,750,000 to redeem all of the
Series B Preferred Stock. The bal-
ance of the net proceeds will be
used for working capital and general
corporate purposes. See "Use of Pro-
ceeds."
Proposed Nasdaq National Market Symbol... CRGN
</TABLE>
- --------
(1) Based on 8,871,987 shares of Common Stock outstanding on June 30, 1997.
Excludes 1,290,800 and 1,583,866 shares of Common Stock reserved for
issuance upon the exercise of stock options and warrants, respectively,
outstanding on June 30, 1997, at weighted average exercise prices of $2.66
and $4.12 per share, respectively. Also excludes an aggregate of 333,000
shares of Common Stock issuable upon the exercise of stock options granted
to employees after June 30, 1997, at a weighted average exercise price of
$8.77 per share, and 10,000 shares of Common Stock issuable upon exercise
of a warrant at an exercise price of $10.00 per share.
Unless otherwise indicated, all share and per share data in this Prospectus
have been adjusted to reflect: (i) the amendment and restatement of the
Company's Certificate of Incorporation (as amended and restated, the "Restated
Certificate"), to be filed and effective upon the closing of the Offering, to,
among other things, (a) increase the number of authorized shares of Common
Stock from 25,000,000 shares to 50,000,000 shares and (b) decrease the number
of authorized shares of Preferred Stock from 7,500,000 to 3,000,000 shares;
(ii) the conversion upon the closing of the Offering of all outstanding shares
of the Company's Series A Convertible Preferred Stock, Series C Convertible
Preferred Stock, Series D Convertible Preferred Stock and Series E Convertible
Preferred Stock into an aggregate of 3,418,635 shares of Common Stock (the
"Automatic Conversion"); (iii) the redemption upon the closing of the Offering
of all of the 175,000 outstanding shares of the Company's Series B Redeemable
Preferred Stock (the "Series B Preferred Stock"); and (iv) the termination upon
the closing of the Offering of certain redemption rights relating to 394,031
shares of Redeemable Common Stock (the "Redeemable Common Stock") described in
Note 6 of Notes to Financial Statements. The information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
6
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data set forth below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's audited
financial statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------------
1994 1995 1996(1) 1996 1997
--------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 257,536 $ 1,581,175 $ 4,422,947 $1,428,595 $ 2,879,632
--------- ----------- ----------- ---------- -----------
Operating expenses:
Research and
development.......... 647,640 1,466,375 3,516,035 1,143,947 3,640,767
General and
administrative....... 525,671 961,815 1,140,325 405,340 980,566
--------- ----------- ----------- ---------- -----------
Total operating
expenses........... 1,173,311 2,428,190 4,656,360 1,549,287 4,621,333
--------- ----------- ----------- ---------- -----------
Loss from operations.... (915,775) (847,015) (233,413) (120,692) (1,741,701)
Other income (expenses),
net.................... (40,254) (93,729) (162,746) (72,552) 88,511
--------- ----------- ----------- ---------- -----------
Net loss................ (956,029) (940,744) (396,159) (193,244) (1,653,190)
Preferred dividends..... -- -- (17,106) -- (34,212)
--------- ----------- ----------- ---------- -----------
Net loss attributable to
common stockholders.... ($956,029) ($940,744) ($413,265) ($193,244) ($1,687,402)
========= =========== =========== ========== ===========
Pro forma net loss per
share attributable to
common stockholders....
=========== ===========
Pro forma weighted
average number of
shares of common stock
outstanding............
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $21,271,408
Working capital..................................... 20,144,221
Total assets........................................ 26,401,455
Total long-term liabilities......................... 1,584,614
Redeemable Common Stock............................. 1,536,722
Series B Preferred Stock............................ 1,424,984
Accumulated deficit................................. (4,515,889)
Stockholders' equity................................ 20,754,286
</TABLE>
- --------
(1) During the year ended December 31, 1996, the Company completed its
development stage activities with the signing of its first collaborative
research agreement and commenced its planned principal operations.
(2) As adjusted to reflect the pro forma capitalization of the Company, giving
effect to the redemption of the 175,000 outstanding shares of Series B
Preferred Stock, the termination of certain redemption rights relating to
394,031 shares of Redeemable Common Stock and the sale of the shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $ per share and the receipt of the estimated net
proceeds therefrom.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below and elsewhere
in this Prospectus.
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITS
The Company has had a limited operating history and is at an early stage of
development. For the six months ended June 30, 1997 and the years ended
December 31, 1996, 1995 and 1994, the Company had net losses attributable to
common stockholders of $1,687,402, $413,265, $940,744 and $956,029,
respectively, and as of June 30, 1997, the Company had an accumulated deficit
of $4,515,889. To date, a significant portion of the Company's revenue has
come from United States government grants. The development of the Company's
technologies, including the Company's expansion of its GeneCalling and
PathCalling database development efforts, together with the development of its
HitCalling database, will require substantial increases in expenditures over
the next several years. In addition, the Company expects to incur substantial
increases in expenditures in connection with its internal research programs.
As a result, the Company currently expects to incur operating losses at least
through 2000 and the Company may never achieve significant revenues or
profitability. The Company's ability to achieve significant revenues or
profitability will depend upon its ability to obtain research collaborators
and subscribers for its GeneCalling, PathCalling and HitCalling databases and
related products and services. The Company currently has one research
collaboration and no subscription arrangements, and there can be no assurance
that the Company will be able to obtain any additional research collaborations
or enter into any subscription arrangements for such databases and related
products and services.
There can be no assurance that the Company's technologies will continue to
be successfully developed, or that any therapeutic, agricultural or diagnostic
products discovered or developed through the utilization of such technologies
will prove to be commercially useful, meet applicable regulatory standards in
a timely manner or at all, successfully compete with other technologies and
products, avoid infringing the proprietary rights of others, be manufactured
in sufficient quantities or at reasonable costs or be marketed successfully.
The Company expects that it will be a number of years, if ever, before the
Company will recognize revenue from therapeutic, agricultural or diagnostic
product sales or royalties.
TECHNOLOGICAL UNCERTAINTY AND PRODUCT DEVELOPMENT RISK
The Company has developed and intends to continue to develop its
GeneCalling, PathCalling and HitCalling databases and related technology for
the identification of novel genes, biological pathways and drug candidates
useful for the discovery and development of therapeutic, agricultural and
diagnostic products. These technologies involve new and unproven approaches.
Failure to identify genes, biological pathways and drug candidates useful for
the discovery and development of therapeutic, agricultural and diagnostic
products could have a material adverse effect on the Company. The Company's
technology and development focus is primarily directed toward complex diseases
as well as agronomic traits. There is limited scientific understanding
generally relating to the role of genes in these diseases and traits, and few
products based on gene discoveries have been developed and commercialized.
Accordingly, even if the Company is successful in identifying genes,
biological pathways or drug candidates associated with specific diseases or in
identifying genes associated with certain agronomic traits, there can be no
assurance that these discoveries will lead to the development of therapeutic,
agricultural or diagnostic products. To date, the Company has not developed or
commercialized any such products based on its technological methods.
8
<PAGE>
In addition, the success of the Company's GeneCalling, PathCalling and
HitCalling databases and its related products and services will depend upon
the Company's ability to generate data concerning gene expression, biological
pathways and drug candidates using software tools. The Company's database
products are complex and sophisticated and could contain design defects or
software errors that are difficult to detect. There can be no assurance that
errors will not be found in the Company's current and future products, if any.
The Company's GeneCalling, PathCalling and HitCalling databases and related
products and services represent a business for which there is little
precedent. There can be no assurance that the Company's methods, processes and
related services will be accepted. To date, the Company has entered into a
research collaboration with Pioneer Hi-Bred and there are currently no
subscribers to any of the Company's databases. There can be no assurance that
the Company will be able to establish any additional research collaborations
or enter into any subscription arrangements. The Company's strategy of using a
systematic analysis of the genome to discover and develop novel therapeutic,
agricultural and diagnostic products is unproven. In addition, the Company has
limited experience in providing software-based products or services. The
Company's ability to achieve and sustain profitability depends on attracting
additional collaborators and subscribers for its databases and related
products and services. The specialized nature and price of the Company's
databases and related products and services are such that there are a limited
number of pharmaceutical, biotechnology and agricultural companies that are
potential customers for such products and services. Additional factors that
may affect demand for the Company's products and services include the extent
to which the Company's potential collaborators and subscribers determine to
conduct in-house gene research, the success of competitors offering similar
services at competitive prices, the ability of the Company to service
satisfactorily its collaborators and subscribers, the extent to which the gene
expression analyses, as well as the identification of biological pathways,
drug candidates and related information contained in the Company's databases,
are made public by or are the subject of patents issued to others, and the
emergence of technological innovations that are more advanced than those used
by and available to the Company.
The building of the Company's PathCalling database is still in its early
stages. In addition, the Company has not yet completed the development of its
CombiGen technology to enable it to conduct high-throughput screening of
protein targets, and has not yet started to develop its HitCalling database.
There can be no assurance that the Company will be able to populate its
PathCalling database in a timely manner or develop its CombiGen technology or
its HitCalling database successfully or that, if completed or developed
successfully, such technology or database will be accepted by the Company's
collaborators or subscribers.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's comprehensive approach to developing therapeutic products
through the application of genomics has required it to establish a substantial
scientific infrastructure. The Company has used substantial amounts of cash to
date and expects capital and operating expenditures to increase over the next
several years as it expands its infrastructure and its research and
development activities, including the completion of its PathCalling database
and the development of its HitCalling database and CombiGen technology. The
Company's future capital requirements will depend on many factors, including
progress of its research programs, the number and breadth of these programs,
the ability of the Company to attract collaborators for or subscribers to its
products and services, achievement of milestones under the Company's existing
collaborations, the ability of the Company to establish and maintain
additional collaborations, and the progress of the Company's collaborators.
These factors also include the level of the Company's activities relating to
commercialization rights it has retained in its collaborations, competing
technological and market developments, the costs involved in enforcing patent
claims and other intellectual property rights and the costs and timing of
regulatory approvals. The Company expects that it will require significant
additional financing in the future, which it may seek to raise through public
or private equity offerings, debt financings or additional collaborations and
licensing arrangements. There can be no assurance that additional financing
will be available when needed, or, if available, that such financing will be
obtained on terms favorable to the Company or its stockholders. To the extent
that the Company raises additional capital by issuing equity securities,
ownership dilution to stockholders will result. To the extent that the Company
raises additional funds through collaborations and licensing arrangements, the
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Company may be required to relinquish rights to certain of its technologies or
product candidates, or to grant licenses on terms that are not favorable to
the Company, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
event that adequate funds are not available, the Company's business, financial
condition and results of operations would be materially, adversely affected.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RELIANCE ON RESEARCH COLLABORATIONS
The Company's strategy for development and commercialization of therapeutic,
agricultural and diagnostic products based upon its discoveries depends upon
the formation of various research collaborations and licensing arrangements.
To date, the Company and Pioneer Hi-Bred have entered into a research
collaboration, which Pioneer Hi-Bred may terminate after November 16, 1998
with three months' notice if the Company has not identified any genes
associated with certain traits of interest to Pioneer Hi-Bred. There can be no
assurance that this collaboration will not be terminated at such time or
earlier upon a material breach by the Company. Any such termination could have
a material adverse effect on the Company's business, financial condition and
results of operation. There can be no assurance that the Company will be able
to maintain or expand existing collaborations or establish additional research
collaborations or licensing arrangements necessary to develop and
commercialize therapeutic, agricultural or diagnostic products resulting from
the Company's technology, that any such collaborations or licensing
arrangements will be on terms favorable to the Company or that the current or
any future collaborations or licensing arrangements ultimately will be
successful. Under the Company's current strategy, in the near term, the
Company does not expect to develop or market therapeutic, agricultural or
diagnostic products on its own. As a result, the Company will be dependent on
its collaborators for the preclinical study and clinical development of
therapeutics and for regulatory approval, manufacturing and marketing of
therapeutic and agricultural products based on the results of these
collaborative research programs. The agreements with collaborators typically
will allow them significant discretion in electing whether to pursue such
activities. The Company cannot control the amount and timing of resources its
collaborators devote to the Company's programs or potential products. If any
of the Company's collaborators were to breach or terminate its agreement with
the Company or otherwise fail to conduct collaborative activities successfully
and in a timely manner, the preclinical or clinical development or
commercialization of product candidates or research programs would be delayed
or terminated. Any such delay or termination could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company intends to structure the agreements with its collaborators so
that after a period of initial exclusivity and unless a collaborator elects to
pay for an extended period of exclusivity, the research data developed during
the collaboration will become available for subscribers to the Company's
general databases. There can be no assurance that the Company's collaborators
will agree to such provisions. If the Company is unable to obtain rights to
this data, it may have to amend its collaboration strategy and rely more
heavily on its own internal discovery programs to fill its subscription
databases.
The Company intends to rely on its collaborators for significant funding in
support of its research efforts. If funding from one or more of its
collaborative programs were reduced or terminated, the Company would be
required to devote additional internal resources to product development, scale
back or terminate certain research development programs or seek alternative
collaborators. See "--Future Capital Requirements; Uncertainty of Additional
Funding" and "Business--Research Collaborations." Disputes may arise in the
future with respect to the ownership of rights to any technology developed
with collaborators. These and other possible disagreements between
collaborators and the Company could lead to delays in the collaborative
research, development or commercialization of certain therapeutic,
agricultural or diagnostic products, or could require or result in litigation
or arbitration to resolve. Any such event could have a material adverse effect
on the Company's business, financial condition and results of operations.
COMPETITION
The Company faces, and will continue to face, intense competition from
pharmaceutical, biotechnology and diagnostic companies, as well as academic
and research institutions and government agencies. The Company is
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subject to significant competition from organizations that are pursuing
technologies and products that are the same as or similar to the Company's
technology and products. Many of the organizations competing with the Company
have greater capital resources, research and development staffs and facilities
and marketing capabilities than the Company. In addition, research in the field
of genomics generally is highly competitive. Competitors of the Company in the
genomics area include, among others, public companies such as Affymetrix, Inc.,
Human Genome Sciences, Inc., Incyte Pharmaceuticals, Inc. and Millennium
Pharmaceuticals, Inc., as well as private companies and major pharmaceutical
companies. Universities and other research institutions, including those
receiving funding from the federally funded Human Genome Project, also compete
with the Company. The Company's future success will depend in large part on its
maintaining a competitive position in the genomics field. Rapid technological
development by the Company or others may result in products or technologies
becoming obsolete before the Company recovers the expenses it incurs in
connection with their development. Products offered by the Company could be
made obsolete by less expensive or more effective technologies. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with newly emerging technologies.
See "Business--Competition."
A number of competitors are attempting to rapidly identify and patent genes
and gene fragments sequenced at random, typically without specific knowledge of
the function of such genes or gene fragments. The Company's competitors may
discover or characterize important genes or gene fragments in advance of the
Company, which events could have a material adverse effect on any related
disease research program of the Company. The Company expects competition to
intensify in genomics research as technical advances are made and become more
widely known. See "Business--Background" and "--Technology Platform."
PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS
The Company's business and competitive position are dependent upon its
ability to protect its GeneCalling, PathCalling and HitCalling proprietary
databases, proprietary software and other proprietary methods and technology.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to obtain and use information that the Company regards as
proprietary. The Company relies on patent, trade secret and copyright law and
nondisclosure and other contractual arrangements to protect such proprietary
information. The Company has filed patent applications for its proprietary
methods and devices for gene expression analysis, and for discovery of
biological pathways and for drug screening for pharmaceutical product
development. As of September 30, 1997, the Company had 14 patent applications
pending covering its technology with the United States Patent and Trademark
Office (the "USPTO"), and had filed several corresponding international and
foreign patent applications. To date, no patents have been issued to the
Company with respect to its technology and there can be no assurance that any
patents will issue. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's proprietary information,
that such information will not be disclosed or that the Company can effectively
protect its rights to unpatented trade secrets or other proprietary
information.
The Company's commercial success will also depend in part on obtaining patent
protection on gene and protein discoveries for which it or its collaborators or
subscribers discover utility and on products, methods and services based on
such discoveries. The Company has applied for patent protection on novel
mutants of known genes and their uses, partial sequences of novel proteins and
their gene sequences and uses, and novel uses for previously identified genes
discovered by third parties. The Company has sought and intends to continue to
seek patent protection for novel uses for genes which may have been patented by
third parties. In such cases, the Company would need a license from the holder
of the patent with respect to such gene in order to make, use or sell such
gene. There can be no assurance that the Company will be able to acquire such
licenses on commercially reasonable terms, if at all. The Company's patent
application filings that result from the identification of genes associated
with the cause or effect of a particular disease generally seek to protect the
genes and encoded proteins if these genes and encoded proteins are, among other
things, novel and non-obvious, as well as therapeutic, diagnostic and drug
screening methods and products, and other subject matter based upon a gene and
its indication. Where information is discovered on the specific biological
pathway in which the protein
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encoded by the gene participates, the Company also seeks to protect the newly
identified protein complex as well as the methods for identifying intervention
strategies. Each application typically contains multiple genes discovered for a
particular disease system.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any of the
Company's pending patent applications will result in issued patents, that the
Company will develop additional proprietary technologies that are patentable,
that any patents issued to the Company or its collaborative customers will
provide a basis for commercially viable products or will provide the Company
with any competitive advantages or will not be challenged or circumvented or
invalidated by third parties, or that the patents of others will not have an
adverse effect on the ability of the Company to do business. In addition,
patent law relating to the scope of claims in the technology fields in which
the Company operates is still evolving. The degree of future protection for the
Company's proprietary rights is uncertain. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
issued to the Company, design around the patented technologies developed by the
Company. In addition, the Company could incur substantial costs in litigation
if it is required to defend itself in patent suits brought by third parties or
if it initiates such suits.
There can be no assurance that patents for the Company's products or methods
will be obtained, or that, if issued, such patents will provide substantial
protection or be of commercial benefit to the Company. The issuance of a patent
is not conclusive as to its validity or enforceability, nor does it provide the
patent holder with freedom to operate without infringing the patent rights of
others. A patent could be challenged by litigation and, if the outcome of such
litigation were adverse to the patent holder, competitors could be free to use
the subject matter covered by the patent, or the patent holder may license the
technology to others in settlement of such litigation. The invalidation of key
patents owned by or licensed to the Company or non-approval of pending patent
applications could increase competition, and result in a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that any application or
exploitation of the Company's technology will not infringe patents or
proprietary rights of others or that licenses that might be required as a
result of such infringement for the Company's processes or products would be
available on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in the issuance of valid patents. Litigation, which
could result in substantial cost to the Company, may also be necessary to
enforce the Company's patent and proprietary rights and/or to determine the
scope and validity of others' proprietary rights. The Company may participate
in interference proceedings that may in the future be declared by the USPTO to
determine priority of invention, which could result in substantial cost to the
Company. There can be no assurance that the outcome of any such litigation or
interference proceedings will be favorable to the Company, that the Company
will be able to obtain licenses to technology that it may require or that, if
obtainable, such technology can be licensed at a reasonable cost.
The public availability of expressed sequence tags ("ESTs") or other sequence
information prior to the time the Company applies for patent protection on a
corresponding full-length or partial gene could adversely affect the Company's
ability to obtain patent protection with respect to such gene or gene
sequences. In addition, certain other groups are attempting to rapidly identify
and characterize genes through the use of gene expression analysis and other
technologies. To the extent any patents issue to other parties on such partial
or full-length genes or uses for such genes, the risk increases that the sale
of potential products, including therapeutics, or processes developed by the
Company or its collaborators may give rise to claims of patent infringement.
Others may have filed and in the future are likely to file patent applications
covering genes or gene products that are similar or identical to those of the
Company. No assurance can be given that any such patent application will not
have priority over patent applications filed by the Company. Any legal action
against the Company or its collaborators claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in
addition to subjecting the Company to potential liability for damages, require
the Company or its collaborators to obtain a license in order to continue to
manufacture or market the affected products and
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processes or could enjoin the Company from continuing to manufacture or market
the affected products and processes. There can be no assurance that the Company
or its collaborators would prevail in any such action or that any license
required under any such patent would be made available on commercially
acceptable terms, if at all. The Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources.
There is substantial uncertainty concerning the extent to which supportive
data will be required for issuance of patents for human therapeutics. If data
additional to that available to the Company is required, the Company's ability
to obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, there can be no
assurance that the USPTO examiners will follow such guidelines or that the
USPTO's position will not change with respect to what is required to establish
utility for gene sequences and products and methods based on such sequences.
Furthermore, the enactment of the legislation implementing the General
Agreement on Tariffs and Trade has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patent protection for patent applications filed on or after June 8, 1995 is no
longer a period of seventeen years from the date of grant. The new term of
United States patents will commence on the date of issuance and terminate
twenty years from the earliest filing date in the United States to which
priority is claimed for the application. Because the time from filing to
issuance of biotechnology patent applications is often more than three years, a
twenty-year term from the claimed United States priority date may result in a
substantially shortened term of patent protection, which may adversely affect
the Company's patent position. If this change results in a shorter period of
patent coverage, the Company's business could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from its strategic partners is based on the existence of a valid patent.
The Company also relies upon trade secret protection for some of its
confidential and proprietary information that is not subject matter for which
patent protection is being sought. The Company believes that it has developed
proprietary technology, processes and information systems for use in gene
expression and biological pathway discovery, as well as in the identification
of molecular targets for pharmaceutical development, including proprietary
biological protocols, instrumentation, robotics and automation, software and an
integrated bioinformatics system. In addition, the Company has developed a
database of proprietary gene expression patterns and biological pathways which
it updates on an ongoing basis and which can be accessed over the Internet. The
Company has taken security measures to protect its proprietary technologies,
processes, information systems and data and continues to explore ways to
enhance such security. There can be no assurance, however, that such measures
will provide adequate protection for the Company's trade secrets or other
proprietary information. While the Company requires employees, academic
collaborators and consultants to enter into confidentiality and/or non-
disclosure agreements where appropriate, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade
secrets. See "Business--Intellectual Property."
UNCERTAINTIES RELATING TO COMMERCIALIZATION RIGHTS
In the Company's research collaborations, the Company will seek to retain
commercialization rights for the development and marketing of certain
pharmaceutical, agricultural and diagnostic products or services. There can be
no assurance that the Company will be successful in retaining such rights and
no such pharmaceutical, agricultural or diagnostic products or services have
been developed to date by the Company. The Company may seek to commercialize
any such retained rights, as well as any products developed in its internal
development programs, directly or through collaborations with others. To date,
the Company has not initiated significant activities with respect to the
exploitation of any of its retained commercialization rights or any products
developed in its internal development programs. The value of these rights and
products, if any, will be largely derived from the Company's gene expression,
biological pathway and drug screening efforts, the success of
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which is also uncertain. See "--Technological Uncertainty and Product
Development Risk." Even if the Company identifies and characterizes relevant
disease-related genes, biological pathways and/or drug candidates, the
commercialization of retained rights and products developed internally
requires, in addition to capital resources, technological, product
development, manufacturing, regulatory, marketing and sales resources that the
Company does not currently possess. There can be no assurance that the Company
will be able to develop or obtain such resources. To the extent that the
Company is required to rely on third parties for these resources, failure to
establish and maintain such relationships could have a material adverse effect
on the Company's ability to realize value from its retained commercialization
rights and products developed internally. If the Company seeks to
commercialize retained rights and products developed internally through joint
ventures or research collaborations, it may be required to relinquish material
rights on terms that may not be favorable to the Company. No agreements
concerning any such arrangements currently exist, and there can be no
assurance that the Company will be able to enter into any such agreements on
acceptable terms, if at all, or that the Company will be able to realize any
value from any retained commercialization rights and products developed
internally. See "Business--CuraGen's Strategy" and "--Research
Collaborations."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any new drug developed by the Company or its
collaborative customers must undergo an extensive regulatory approval process
in the United States and other countries. This regulatory process, which
includes preclinical and clinical studies, as well as post-marketing
surveillance to establish a compound's safety and efficacy, can take many
years and require the expenditure of substantial resources. Data obtained from
such studies are susceptible to varying interpretations that could delay,
limit or prevent regulatory approval. The rate of completion of clinical
trials is dependent upon, among other factors, the enrollment of patients.
Patient accrual is a function of many factors, including the size of the
patient population, the proximity of patients to clinical sites, the
eligibility criteria for the study and the existence of competitive clinical
trials. Delays in planned patient enrollment in clinical trials may result in
increased costs, program delays or both, which could have a material adverse
effect on the Company. Delays or rejections may also be encountered based upon
changes in United States Food and Drug Administration ("FDA") policies for
drug approval during the period of product development and FDA regulatory
review of each submitted new drug application ("NDA") in the case of new
pharmaceutical agents, or product license application ("PLA") in the case of
biologics. Similar delays also may be encountered in the regulatory approval
of any diagnostic product and in obtaining regulatory approvals in foreign
countries. Under current guidelines, proposals to conduct clinical research
involving gene therapy at institutions supported by the National Institutes of
Health ("NIH") must be approved by the Recombinant DNA Advisory Committee and
the NIH. There can be no assurance that regulatory approval will be obtained
for any drugs or diagnostic products developed by the Company or its
collaborative customers. Furthermore, regulatory approval may impose
limitations on the indicated use of a drug. Because certain of the products
likely to result from the Company's disease research programs involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities and, as a result, regulatory
approvals may be obtained more slowly than for products using more
conventional technologies.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may have adverse effects on the Company's business,
financial condition and results of operations, including withdrawal of the
product from the market. Violations of regulatory requirements at any stage,
including preclinical studies and clinical trials, the approval process or
post-approval, may result in various adverse consequences to the Company,
including the FDA's delay in approval or refusal to approve a product,
withdrawal of an approved product from the market or the imposition of
criminal penalties against the manufacturer and NDA or PLA holder. The Company
has not submitted an investigational new drug application ("IND") for any
product candidate, and no product candidate has been approved for
commercialization in the United States or elsewhere. The Company intends to
rely primarily on its collaborators to file INDs and generally direct the
regulatory approval process. No assurance can be given that the Company or any
of its collaborators will be able to conduct clinical testing or obtain the
necessary approvals
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from the FDA or other regulatory authorities for any products. Failure to
obtain required governmental approvals will delay or preclude the Company's
collaborators from marketing drugs or diagnostic products developed by the
Company or limit the commercial use of such products and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's research and development activities involve the controlled use
of hazardous materials and chemicals. The Company is subject to federal, state
and local laws and regulations governing the use, storage, handling and
disposal of such materials and certain waste products. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by federal, state and local
laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
liability could exceed the resources of the Company. See "Business--Government
Regulation."
ATTRACTION AND RETENTION OF KEY EMPLOYEES
The Company is highly dependent on the principal members of its management
and scientific staff, including Dr. Jonathan Rothberg, its Chief Executive
Officer, President and Chairman of the Board, Dr. Gregory Went, its Executive
Vice President, and certain other members of the Company's senior management,
including Drs. Fuller and Kingsmore and Mr. Wurzer, the three of whom joined
the Company in the fall of 1997. The loss of services of any of these
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has not entered
into employment agreements with Dr. Rothberg, Dr. Went or any of the other
principal members of its management and scientific staff that bind any of them
to a specific term of employment. The Company maintains key person life
insurance on the lives of each of Drs. Rothberg and Went in the amount of
$2,000,000. The Company's future success also will depend in part on the
continued services of its key scientific and management personnel and its
ability to attract, hire and retain additional personnel. There is intense
competition for such qualified personnel and there can be no assurance that
the Company will be able to continue to attract and retain such personnel.
Failure to attract and retain key personnel could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management."
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
The Company has recently experienced significant growth in the number of its
employees, the extent of its genomics efforts and database development, its
research programs and collaborations and the scope of its operations. This
growth has placed, and may continue to place, a significant strain on the
Company's management and operations. The Company's ability to manage
effectively such growth will depend upon its ability to strengthen its
management team and its ability to attract and retain skilled employees. The
Company's success will also depend on the ability of its officers and key
employees to continue to implement and improve its operational, management
information and financial control systems and to expand, train and manage its
work force. In addition, the Company must continue to take steps to provide
resources to supports its collaborative customers and subscribers as their
numbers increase. The Company's inability to manage growth effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Employees" and "--Facilities."
DEPENDENCE UPON LICENSED TECHNOLOGIES; GOVERNMENT RIGHTS TO FUNDED
TECHNOLOGIES
Certain components of the Company's technologies have been acquired or
licensed from third parties. Changes in such third party agreements, or
termination thereof, could materially adversely affect the Company's research
and development activities. There can be no assurance that the Company will be
able to acquire from third parties or develop new technologies, either alone
or with others. Failure to license or otherwise acquire necessary technologies
could have a material adverse effect on the Company's business, financial
condition and results of operation. In addition, certain of such licenses
impose an obligation on the Company to market the licensed technology to third
parties. A breach by the Company of any such license or other failure by the
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Company to maintain rights to such technology could have a material adverse
effect on the Company's business, financial condition and results of operation.
Under the Company's government grants and agreements, the government has a
statutory right to practice or have practiced and, under certain circumstances
(including inaction on the part of the Company or its licensees to achieve
practical application of the invention or a need to alleviate public health or
safety concerns not reasonably satisfied by the Company or its licensees), to
grant to other parties licenses under, any inventions first reduced to practice
under the government grants and agreements.
DEPENDENCE ON ACADEMIC COLLABORATORS AND SCIENTIFIC ADVISORS
The Company has relationships with collaborators and consultants at academic
and other institutions who conduct research at the Company's request. Such
collaborators and consultants are not employees of the Company. Substantially
all of the Company's collaborators and consultants are employed by employers
other than the Company and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the
Company. As a result, the Company has limited control over their activities
and, except as otherwise required by its collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to
the Company's activities. The Company's ability to discover genes and
biological pathways involved in human disease and commercialize products based
on those discoveries may depend in part on continued collaborations with
researchers at academic and other institutions. There can be no assurance that
the Company will be able to negotiate additional acceptable collaborations with
collaborators or consultants at academic and other institutions or that its
existing collaborations will be successful.
The Company's academic collaborators, consultants and scientific advisors may
have relationships with other commercial entities, some of which could compete
with the Company. The academic collaborators, consultants and scientific
advisors sign agreements which provide for confidentiality of the Company's
proprietary information and of the results of studies. There can be no
assurance that the Company will be able to maintain the confidentiality of its
technology and other confidential information in connection with every academic
collaboration or advisory arrangement, and any unauthorized dissemination of
the Company's confidential information could have a material adverse effect on
the Company's business, financial condition and results of operations. Further,
there can be no assurance that any such collaborator, consultant or advisor may
not enter into an employment or consulting arrangement with a competitor of the
Company. See "Business--CuraGen Internal Programs."
LENGTHY SALES CYCLE
The ability of the Company to obtain collaborators and subscribers for its
products and services depends in significant part upon the perception that such
products and services can help accelerate drug discovery and development
efforts. The sales cycle is typically lengthy due to the education effort that
is required as well as the need to effectively sell the benefits of the
Company's products and services to a variety of constituencies within potential
collaborators and subscribers, including research and development personnel and
key management. In addition, each subscription and collaboration will involve
the negotiation of agreements containing terms that may be unique to each
subscriber or collaborator. The Company may expend substantial funds and
management effort with no assurance that a database subscription or a
collaboration will result.
VARIATION IN QUARTERLY OPERATING RESULTS
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. The Company expects that losses will fluctuate from quarter to
quarter and the such fluctuations may be substantial. Quarterly operating
results can fluctuate as a result of a number of factors, including the
commencement, delay, cancellation or completion of contracts; the mix of
services provided; the timing of start-up expenses for new services and
facilities; the timing and integration of acquisitions and changes in
regulations related to the products and services of the Company. The Company
believes that quarterly comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. In addition, fluctuations in quarterly results could affect the
market price of the Common Stock in a manner unrelated to the longer term
operating performance of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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RISKS ASSOCIATED WITH COMMERCIALIZATION OF PROPRIETARY PRODUCTS
Although the Company is not currently developing any potential
pharmaceutical products, should the Company choose to do so, any such products
will require significant research and development and preclinical testing, and
will require extensive clinical testing prior to submission of any regulatory
application for commercial use. Such activities, if undertaken without the
collaboration of others, would require the expenditure of significant funds.
Such potential pharmaceutical products will be subject to the risks of failure
inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that such potential
pharmaceutical products will be found to be unsafe or ineffective or otherwise
fail to receive necessary regulatory clearances; that the products, if safe
and effective, will be difficult to manufacture on a large scale or
uneconomical to market; that proprietary rights of third parties will preclude
the Company or its partners from marketing such products; or that third
parties will market superior or equivalent products. As a result, there can be
no assurance that the Company's research and development activities will
result in any commercially viable products. Clinical trials or marketing of
any such potential pharmaceutical products may expose the Company to liability
claims from the use of such pharmaceutical products. There can be no assurance
that the Company will be able to obtain product liability insurance or, if
obtained, that sufficient coverage can be acquired at a reasonable cost. In
addition, should the Company choose to develop pharmaceutical products
internally, it will have to make significant investments in pharmaceutical
product development, marketing, sales and regulatory compliance resources, and
it will have to establish or contract for the manufacture of products under
the Good Manufacturing Practices of the FDA. There can be no assurance that
the Company will be able to develop or commercialize successfully any
potential pharmaceutical products. Any potential products developed by the
Company's licensees will be subject to the same risks. See "Business--
Government Regulation."
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The Company's business, financial condition and results of operations may be
materially adversely affected by the continuing efforts of government and
third party payors to contain or reduce the costs of health care through
various means. In certain foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical and diagnostic products. Cost
control initiatives could decrease the price that the Company or any of its
subscribers and collaborators receives for any products in the future and may
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's subscribers or
collaborators, the Company's ability to commercialize its products and to
realize royalties could be adversely affected.
The ability of the Company and any subscriber or collaborative customer to
commercialize pharmaceutical or diagnostic products may depend in part on the
extent to which reimbursement for the products will be available from
government and health administration authorities, private health insurers and
other third party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Third party
payors, including Medicare, increasingly are challenging the prices charged
for medical products and services. Government and other third party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products and by refusing in
some cases to provide coverage for uses of approved products for disease
indications for which the FDA has not granted labeling approval. There can be
no assurance that any third party insurance coverage will be available to
patients for any products discovered and developed by the Company or its
subscribers or collaborators. If adequate coverage and reimbursement levels
are not provided by government and other third party payors for the Company's
products, the market acceptance of these products may be reduced. Any such
reduction may have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.
CONTROL BY EXISTING STOCKHOLDERS
Following completion of this Offering, the Company's directors, executive
officers and principal stockholders and certain of their affiliates will
beneficially own approximately % of the Common Stock. Accordingly, they
collectively will have the ability to determine the election of all of the
Company's directors
17
<PAGE>
and to determine the outcome of most corporate actions requiring stockholder
approval, including the merger of the Company with or into another company, a
sale of substantially all of the Company's assets and amendments to the
Company's Certificate of Incorporation. See "Principal Stockholders."
POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is authorized to issue up to 3,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Restated Certificate provides for a classified Board of Directors
and members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least a majority of the shares of capital
stock of the Company entitled to vote. Furthermore, the Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"), which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which such person first becomes an
"interested stockholder," unless the business combination is approved in a
prescribed manner. The application of these provisions could have the effect
of delaying or preventing a change of control of the Company. Certain other
provisions of the Restated Certificate could also have the effect of delaying
or preventing changes of control or management of the Company, which could
adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock."
NO PRIOR TRADING MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for
the Common Stock will develop or be sustained after this offering. The initial
public offering price will be determined by negotiations between the Company
and the representatives of the Underwriters and may not be indicative of
future market prices. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of the Company's Common Stock could be subject to significant fluctuations in
response to announcements of results of research activities, technological
innovations or new commercial products by the Company or its competitors,
changes in government regulations, regulatory actions, changes in patent laws,
developments concerning proprietary rights, quarterly variations in operating
results, litigation or other events. The stock market has from time to time
experienced extreme price and volume fluctuations that have affected
particularly the market prices for biotechnology companies and that often have
been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Underwriters."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE
Sales of Common Stock (including Common Stock issued upon the exercise of
outstanding options and warrants) in the public market after this offering
could materially adversely affect the market price of the Common Stock. These
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company's management deems acceptable, or at all. Upon the completion of
this offering, the Company will have shares of Common Stock outstanding,
assuming no exercise of options or warrants after September 30, 1997 and
assuming no exercise of the Underwriters' overallotment option. Of these
outstanding shares of Common Stock, the shares sold in this offering will
be freely tradeable, without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under
18
<PAGE>
the Securities Act. The remaining 8,871,987 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act and were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities
Act. These shares may be resold in the public market only if registered or
pursuant to an exemption from registration, such as Rule 144 under the
Securities Act. All officers, directors and certain holders of Common Stock
owning, in the aggregate, shares of Common Stock have agreed, pursuant to
certain lock-up agreements, that they will not offer, sell, contract to sell,
grant any option to sell, pledge, hypothecate or otherwise dispose of,
directly or indirectly, any shares of Common Stock owned by them, or that
could be purchased by them through the exercise of options or warrants to
purchase Common Stock of the Company, for a period of 180 days after the date
of this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. Upon expiration of the lock-up agreements, all shares of Common
Stock currently outstanding will be immediately eligible for resale, subject
to the requirements of Rule 144. Immediately following the completion of this
Offering, holders of 3,710,000 shares of Common Stock and warrants to purchase
388,005 shares of Common Stock will be entitled to certain registration
rights. See "Shares Eligible for Future Sale" and "Description of Capital
Stock--Registration Rights." If such holders, by exercising their demand
rights, cause a large number of shares to be registered and sold on the public
market, such sales could have a material adverse effect on the market price of
the Company's Common Stock. The Company intends to file a registration
statement covering the shares of Common Stock issued or reserved for
issuance under its stock plans and, upon filing, any shares subsequently
issued under such plans will be eligible for sale in the public market,
subject to compliance with Rule 144 in the case of affiliates of the Company.
The Company is unable to predict the effect that sales may have on the then
prevailing market price of the Common Stock. See "Management--Stock Option
Plans," "Description of Capital Stock" and "Shares Eligible for Future Sale."
DILUTION
Purchasers in the offering will experience immediate and substantial
dilution in the net tangible book value of the Common Stock from the initial
public offering price. Additional dilution is likely to occur upon exercise of
options and warrants granted by the Company. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid dividends on its capital stock and does not
intend to pay any cash dividends on its Common Stock for the foreseeable
future. See "Dividend Policy."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be $ million
($ million if the Underwriters' overallotment option is exercised in full),
assuming an initial public offering price of $ per share (the midpoint of
the range set forth on the cover page of this Prospectus) and after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company expects to use approximately $15 million of the net proceeds for
research and development, including internal discovery programs, the further
development of its GeneCalling, PathCalling and HitCalling databases,
approximately $10 million for capital expenditures and $1,750,000 (plus
dividends of approximately $200,000) to redeem, upon the closing of the
Offering, all of the 175,000 outstanding shares of the Series B Preferred
Stock. See "Description of Capital Stock--Preferred Stock." The Company
expects to use the balance of the net proceeds for working capital and general
corporate purposes. The amounts actually expended for each purpose, other than
the amount expended for the redemption of the Series B Preferred Stock, may
vary significantly depending upon numerous factors, including progress of the
Company's internal programs and research and development projects, the number
and breadth of these programs, achievement of milestones under collaborative
arrangements, the ability of the Company to establish and maintain research
collaborations and database subscriptions, and the progress of the development
efforts of the Company's collaborators and subscribers. These factors also
include the level of the Company's activities relating to commercialization of
rights it has retained in its collaborative arrangements, competing
technological and market developments, the costs involved in the defense,
prosecution and enforcement of patent claims and other intellectual property
rights and the costs and timing of regulatory approvals.
From time to time in the ordinary course of business, the Company evaluates
the acquisition of products, businesses and technologies that complement the
Company's business, for which a portion of the net proceeds may be used.
Currently, however, the Company does not have any understandings, commitments
or agreements with respect to any such acquisitions.
Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short- term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
The Company has never paid dividends on its capital stock and does not plan
to pay any cash dividends on its Common Stock for the foreseeable future. The
Company currently intends to retain earnings, if any, to finance the
development of its business.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect (i) the redemption of the 175,000 outstanding shares of Series B
Preferred Stock, (ii) the filing of the Restated Certificate, (iii) the
termination of certain redemption rights relating to 394,031 shares of
Redeemable Common Stock, and (iv) the sale by the Company of shares of
Common Stock offered hereby, based upon an assumed initial public offering
price of $ per share and after deducting underwriting discounts and
commissions and estimated offering expenses, and application of the estimated
net proceeds thereof. This table should be read in conjunction with the
Company's audited financial statements, including the notes thereto, which
appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Obligations under capital leases including current
portion.............................................. $ 2,130,029 $2,130,029
Other long-term liabilities........................... 140,767 140,767
----------- ----------
2,270,796 2,270,796
----------- ----------
Redeemable Common Stock(1)............................ 1,536,722 --
----------- ----------
Stockholders' equity(1)(2):
Preferred Stock, $0.01 par value; 7,500,000 shares
authorized, 175,000 shares issued and outstanding
actual; 3,000,000 shares authorized, no shares
issued and outstanding as adjusted................. 1,424,984
Common Stock, $0.01 par value; 25,000,000 shares
authorized, 8,477,956 shares issued and outstanding
actual; 50,000,000 shares authorized, shares
issued and outstanding as adjusted................. 84,779
Additional paid-in capital.......................... 23,760,412
Accumulated deficit................................. (4,515,889)
----------- ----------
Total stockholders' equity......................... 20,754,286
----------- ----------
Total capitalization.............................. $24,561,804 $
=========== ==========
</TABLE>
- --------
(1) See Notes 1, 4 and 6 of Notes to Financial Statements.
(2) Excludes 1,290,800 and 1,583,866 shares of Common Stock reserved for
issuance upon the exercise of stock options and warrants, respectively,
outstanding on June 30, 1997, at weighted average exercise prices of $2.66
and $4.12 per share, respectively. Also excludes an aggregate of 333,000
shares of Common Stock issuable upon the exercise of stock options granted
to employees after June 30, 1997, at a weighted average exercise price of
$8.77 per share, and 10,000 shares of Common Stock issuable upon exercise
of a warrant at an exercise price of $10.00 per share.
21
<PAGE>
DILUTION
As of June 30, 1997, the pro forma net tangible book value per share of
Common Stock, assuming the redemption of the Series B Preferred Stock and the
termination of certain redemption rights relating to 394,031 shares of
Redeemable Common Stock, was $2.30. After giving effect to the sale by the
Company of shares of Common Stock offered hereby, based upon an assumed
initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses, the pro
forma net tangible book value of the Company at June 30, 1997 would have been $
or $ per share, representing an immediate $ per share dilution of new
investors purchasing shares in the Offering. The following table illustrates
such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
----
Pro forma net tangible book value per share before the
Offering(1)................................................. $ 2.30
Increase per share attributable to new investors.............
-------
Pro forma net tangible book value per share after the
Offering......................................................
----
Dilution per share to new investors(2)......................... $
====
</TABLE>
- --------
(1) Pro forma net tangible book value per share of Common Stock is determined
by dividing the Company's pro forma net tangible book value at June 30,
1997 of $20,364,682, by the pro forma number of shares of Common Stock
outstanding, in each case assuming the redemption of the Series B Preferred
Stock and the termination of certain redemption rights relating to 394,031
shares of Redeemable Common Stock.
(2) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after the Offering from the assumed
initial public offering price per share.
The following table sets forth on a pro forma basis as of June 30, 1997,
assuming the redemption of the Series B Preferred Stock and the termination of
certain redemption rights relating to 394,031 shares of Redeemable Common
Stock, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
stockholders and to be paid by new investors, based on an assumed initial
public offering price of $ per share and before deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 8,871,987 % $24,947,522 % $2.81
New investors...............
--------- --- ----------- ---
Total..................... 100% $ 100%
========= === =========== ===
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options or
warrants to purchase Common Stock. At June 30, 1997, there were outstanding
options and warrants to purchase 1,290,800 shares and 1,583,866 shares of
Common Stock, respectively, at weighted average exercise prices of $2.66 and
$4.12 per share, respectively. The foregoing tables also exclude an aggregate
of 333,000 shares of Common Stock issuable upon the exercise of stock options
granted to employees after June 30, 1997, at a weighted average exercise price
of $8.77 per share and 10,000 shares of Common Stock issuable upon exercise of
a certain warrant at an excercise price of $10.00 per share. To the extent such
options and warrants are exercised, there will be further dilution to the new
investors. See "Capitalization," "Management--Stock Option Plans," "Description
of Capital Stock" and Note 6 of Notes to Financial Statements.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for each of the three years in
the period ended December 31, 1996 are derived from the Company's balance
sheets as of December 31, 1995 and 1996 and the related audited statements of
operations, of stockholders' equity (deficiency) and of cash flows for the
three years ended December 31, 1994, 1995 and 1996 and notes thereto, which
appear elsewhere in this Prospectus, as audited by Deloitte & Touche LLP,
independent auditors. The selected financial data as of June 30, 1997 and for
the six months ended June 30, 1996 and 1997 and notes thereto, which appear
elsewhere in this Prospectus, have been derived from the Company's unaudited
financial statements and include, in the opinion of management, all normal
recurring adjustments necessary for a fair presentation of the data for such
periods. The operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1997. The selected financial data for the years ended
December 31, 1992 and 1993 have been derived from the Company's unaudited
financial statements, which have not been included in this Prospectus. The
selected financial data set forth below should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's audited
financial statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996(1) 1996 1997(2)
-------- --------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Grant revenue.......... -- $ 21,903 $ 257,536 $1,581,175 $4,047,947 $1,428,595 $ 1,891,049
Collaborative revenue.. -- -- -- -- 375,000 -- 988,583
-------- --------- ---------- ---------- ---------- ---------- -----------
Total revenue.......... -- 21,903 257,536 1,581,175 4,422,947 1,428,595 2,879,632
-------- --------- ---------- ---------- ---------- ---------- -----------
Operating expenses:
Research and
development........... -- 309,351 647,640 1,466,375 3,516,035 1,143,947 3,640,767
General and
administrative........ $ 12,281 250,729 525,671 961,815 1,140,325 405,340 980,566
-------- --------- ---------- ---------- ---------- ---------- -----------
Total operating
expenses.............. 12,281 560,080 1,173,311 2,428,190 4,656,360 1,549,287 4,621,333
-------- --------- ---------- ---------- ---------- ---------- -----------
Loss from operations.... (12,281) (538,177) (915,775) (847,015) (233,413) (120,692) (1,741,701)
-------- --------- ---------- ---------- ---------- ---------- -----------
Other income (expenses):
Interest income........ 366 2,786 20,544 12,306 20,848 271 237,826
Interest expense....... -- (22,484) (60,798) (106,035) (183,594) (72,823) (149,315)
-------- --------- ---------- ---------- ---------- ---------- -----------
Total other income
(expenses)............ 366 (19,698) (40,254) (93,729) (162,746) (72,552) 88,511
-------- --------- ---------- ---------- ---------- ---------- -----------
Net loss................ (11,915) (557,875) (956,029) (940,744) (396,159) (193,244) (1,653,190)
Preferred dividends..... -- -- -- -- (17,106) -- (34,212)
-------- --------- ---------- ---------- ---------- ---------- -----------
Net loss attributable to
common stockholders.... ($11,915) ($557,875) ($956,029) ($940,744) ($413,265) ($193,244) ($1,687,402)
======== ========= ========== ========== ========== ========== ===========
Net loss per share
attributable to common
stockholders...........
======== ========= ========== ========== ========== ========== ===========
Weighted average number
of shares of common
stock outstanding......
======== ========= ========== ========== ========== ========== ===========
Pro forma net loss per
share attributable to
common stockholders....
========== ===========
Pro forma weighted
average number of
shares of common stock
outstanding............
========== ===========
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997(2)
-------- --------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 14,579 $ 368,458 $ 276,890 $ 9,129 $3,298,642 $ 50,887 $21,271,408
Working capital
(deficiency)........... (14,421) 231,511 285,386 (625,015) 2,474,038 (567,917) 20,144,221
Total assets............ 18,108 722,898 795,161 1,006,816 5,653,391 1,404,448 26,401,455
Total long-term
liabilities............ -- 74,583 622,591 897,691 1,482,601 1,049,893 1,584,614
Redeemable Common
Stock.................. -- -- 731,250 914,063 1,142,579 1,025,391 1,536,722
Series B Preferred
Stock.................. -- -- -- -- 1,390,772 -- 1,424,984
Accumulated deficit..... (11,892) (569,767) (1,525,796) (2,466,540) (2,862,699) (2,626,905) (4,515,889)
Stockholders' equity
(deficiency)........... (10,892) 528,233 (793,769) (1,772,107) 1,401,536 1,891,800 20,754,286
</TABLE>
- --------
(1) During the year ended December 31, 1996, the Company completed its
development stage activities with the signing of its first collaborative
research agreement and commenced its planned principal operations.
(2) For an explanation of the calculation of weighted average number of common
shares outstanding, pro forma weighted average number of common shares
outstanding and presentation of stockholders' equity, see Note 1 of Notes
to Financial Statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
OVERVIEW
The Company is a biotechnology company focusing on the application of
genomics to the systematic discovery of genes, biological pathways and drug
candidates in order to accelerate the discovery and development of the next
generation of therapeutic, agricultural and diagnostic products. The Company
was incorporated in November 1991 and, until March 1993, was engaged primarily
in organizational activities, research and development of the Company's
technology, grant preparation and obtaining financing. The Company has
incurred losses since inception, principally as a result of research and
development and general and administrative expenses in support of its
operations. As of June 30, 1997, CuraGen had an accumulated deficit of
$4,515,889. The Company anticipates incurring additional losses over at least
the next several years as it expands its internal and collaborative gene
discovery efforts, continues development of its technology and expands its
operations. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial.
In June 1996, the Company entered into a pilot collaborative agreement with
Genentech to evaluate the application of CuraGen's gene expression technology
to Genentech, pursuant to which the Company received $200,000. Based on its
successful pilot, in December 1996, the Company commenced an additional
collaborative agreement to provide research services to Genentech during 1997,
for a minimum research fee of $667,000. For the six months ended June 30,
1997, the Company received revenues from Genentech of $500,250, or 17% of
total revenues. In connection with the execution of the pilot agreement,
Genentech made an equity investment in the Company of $1,800,000. See
"Business--Research Collaborations."
Effective June 1, 1997, the Company entered into a collaborative research
and development agreement with Pioneer Hi-Bred, whereby the Company is to
perform agricultural research that will be funded by Pioneer Hi-Bred. In
conjunction with the execution of this agreement, Pioneer Hi-Bred made an
equity investment of $7,500,000. In addition, Pioneer Hi-Bred agreed to pay
the Company an annual minimum fee of $2,500,000 based on an established number
of CuraGen employees devoted to Pioneer Hi-Bred research. The agreement also
includes provisions for payments based on potential milestones, database
subscriptions, licensing of discoveries and royalties. See "Business--Research
Collaborations."
The Company's revenue to date has primarily consisted of government grants
and ongoing payments for research and development under collaborative
agreements. Grant revenue is recognized as the related costs qualifying under
the terms of the grants are incurred. Revenue on collaborative agreements is
recognized based upon work performed or upon the attainment of certain
benchmarks specified in the related agreement. Payments under collaborative
agreements that are received in advance, and are in excess of amounts earned,
are classified as deferred revenue.
The Company anticipates that collaborations will become an increasingly
important element of its business strategy and future revenues. The Company
also expects that government grant revenues will decrease, both in actual
dollar amounts and as a percentage of revenues, during the remainder of 1997
and in future years. Therefore, the loss of revenues from existing
collaborations would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's ability to
generate revenue growth and become profitable is dependent, in part, on the
ability of the Company to enter into additional
24
<PAGE>
collaborative arrangements, and on the ability of the Company and its
collaborative partners to successfully commercialize products incorporating, or
based on, the Company's technologies. There can be no assurance that the
Company will be able to maintain or expand existing collaborations, enter into
future collaborations to develop applications of its GeneCalling, PathCalling
or HitCalling technologies on terms satisfactory to the Company, if at all, or
that any such collaborative arrangements will be successful.
Failure of the Company to successfully develop and market additional products
over the next several years, or to realize existing product revenues, would
have a material adverse effect on the Company's business, financial condition
and results of operations. Royalties or other revenue generated from commercial
sales of products developed by using the Company's technologies are not
expected for at least several years, if at all.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue for the six months ended June 30, 1997 of $2,879,632 represented an
increase of $1,451,037, or 102%, compared to $1,428,595 for the first six
months of 1996. The increase was largely due to $988,583 of collaboration
revenue recorded in 1997, primarily under the Company's arrangements with
Pioneer Hi-Bred and Genentech. The remaining $462,454 of the revenue increase
was the result of increased grant revenue during the first six months of 1997,
as the Company achieved research objectives under certain federal grants.
Interest income increased from $271 in the first six months of 1996 to $237,826
in the same period for 1997, primarily as a result of interest received on
funds from sales of the Company's preferred stock and warrants, and from
research collaborations.
Research and development expenses for the six months ended June 30, 1997 were
$3,640,767, an increase of $2,496,820 or 218%, compared to the same period in
1996. The increase was primarily attributable to increased personnel expenses
as the Company hired additional research and development personnel, increased
purchases of laboratory supplies, increased equipment depreciation and
increased facilities expenses in connection with the expansion of the Company's
internal and collaborative research efforts. The Company expects research and
development expenses to increase as additional personnel are hired and research
and development facilities are expanded to accommodate the Company's strategic
collaborations and internal research.
General and administrative expenses for the first six months of 1997, were
$980,566, an increase of $575,226 or 142%, compared to $405,340 for the first
six months of 1996. The Company expects general and administrative expenses
will continue to increase in proportion to its revenue growth and research and
development expenses. Interest expense for the six months ended June 30, 1997
of $149,315 increased $76,492 or 105% compared to $72,823 for the same period
in 1996. This increase was due to additional capital lease obligations during
the six months ended June 30, 1997, to support research and development
activities, primarily through equipment acquisitions.
As of June 30, 1997, the Company had accumulated losses of $4,515,889 since
inception and, therefore, has not paid any Federal income taxes. Realization of
deferred tax assets is dependent on future earnings, if any, the timing and
amount of which are uncertain. Accordingly, valuation allowances in amounts
equal to the deferred income tax assets have been established to reflect these
uncertainties in all periods presented. See Note 7 of Notes to Financial
Statements.
25
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue for the year ended December 31, 1996 was $4,422,947, an increase of
$2,841,772 or 180%, over 1995. The increase was primarily due to $2,466,772 of
increased grant revenue as the Company achieved certain research objectives
under certain federal grants, and $375,000 of collaboration revenue recorded
in 1996 of which $200,000 was associated with the Genentech arrangement.
Interest income increased by $8,542 to $20,848, or 69%, in 1996, from $12,306
in 1995, primarily as a result of interest received on funds received from
private placements of the Company's preferred stock and warrants and from
research collaborations.
Research and development expenses for the year ended December 31, 1996, were
$3,516,035, an increase of $2,049,660, or 140%, over 1995. The increase was
primarily attributable to increased personnel expenses as the Company hired
additional research and development personnel, increased purchases of
laboratory supplies, increased equipment depreciation and increased facilities
expenses in connection with the expansion of the Company's internal and
collaborative research efforts.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue for the year ended December 31, 1995 was $1,581,175, an increase of
$1,323,639 or 514%, compared to $257,536 in 1994. The increase was due
entirely to additional grant revenue as the Company was awarded several
federal grants. Interest income decreased to $12,306 in 1995, from $20,544 in
1994, as initial funds received from private placements of securities were
expended in support of the Company's growth.
Research and development expenses totaled $1,466,375 for the year ended
December 31, 1995, an increase of $818,735, or 126% compared to $647,640 for
1994. The increase was primarily attributable to increased personnel expenses
as the Company hired additional research and development personnel, increased
purchases of laboratory supplies, increased equipment depreciation and
increased facilities expenses in connection with the expansion of the
Company's internal research efforts.
General and administrative expenses for 1995 were $961,815, an increase of
$436,144 or 83%, compared to $525,671 for 1994, in support of the Company's
growth, grant revenue and research and development. Interest expense for the
year ended December 31, 1995 of $106,035 increased $45,237 or 74% compared to
$60,798 for 1994, as capital lease obligations increased to support additional
research and development activities. The remainder of the Company's interest
expense in 1995 and 1994 was the result of a note payable to a Connecticut
state agency, borrowed in February 1994, that remained outstanding through
December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $21,271,408 at June 30,
1997. The Company has financed its operations since inception primarily
through private placements of equity securities, government grants,
collaborative research and development agreements and capital leases. As of
June 30, 1997, the Company had recognized $9,088,193 of cumulative sponsored
research revenues from government grants and collaborative research
agreements. The sale by the Company of equity securities has provided the
Company with gross proceeds of approximately $26,500,000, including $7,500,000
from Pioneer Hi-Bred, $1,800,000 from Genentech and $1,000,000 from Biogen. To
date inflation has not had a material effect on the Company's business.
The Company's investing activities, other than purchases and sales of cash
equivalent securities, have consisted entirely of acquisitions of equipment
and expenditures for leasehold improvements. At June 30, 1997,
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the Company's gross investment in equipment and leasehold improvements since
inception was $4,614,890. At June 30, 1997 equipment with a gross book value
of $2,720,613 secures the Company's equipment financing facility. Although the
Company had no material commitments for capital expenditures at June 30, 1997,
the Company expects capital expenditures to increase over the next several
years as it expands facilities to support expansion of its collaborative
agreements and internal research and development.
Net cash used in operating activities was $907,508 for the six months ended
June 30, 1997, resulting primarily from the Company's net loss, increased
grants receivable balances and decreases in accrued expenses, partially offset
by increased accounts payable balances and deferred revenue. The increase in
deferred revenue on collaboration agreements during the six-month period was
due to the receipt of cash prior to completion of work to be performed under
the agreements. Net cash provided by operating activities was $13,898 in 1996,
compared to net cash used in operating activities of $222,029 in 1995 and
$673,307 in 1994. The increase in net cash provided by operating activities in
1996 compared to 1995 resulted from a decrease in the Company's net loss,
increases in accounts payable and accrued expenses, partially offset by
increases in grants receivable and accounts receivable, consistent with the
Company's growth in revenues. The decrease in net cash used in operating
activities in 1995 compared to 1994 was primarily due to increases in accrued
expenses and deferred revenue; partially offset by increases in grants
receivable.
As of June 30, 1997, the Company had net operating loss carryforwards of
approximately $4,500,000 to offset federal and state income taxes. If not
utilized, the federal and state net operating loss carryforwards will begin to
expire in 2008 and 1998, respectively. The Company's research and development
tax credit carryforwards at June 30, 1997, estimated to be approximately
$1,090,000 for federal and state income tax purposes. An initial public
offering of the Company's securities will not result in any additional
limitation on the future utilization of these operating loss and tax credit
carryforwards.
The Company expects its cash requirements will increase significantly in
future periods because of planned expansion of its operations and its
technology platform. The planned expansion will be in support of expected
growth in collaborative agreements, database subscriptions and internal
research and development programs. The Company believes that the net proceeds
from this offering, together with existing cash and cash equivalents, and
anticipated cash flows from its current collaboration agreements, will be
sufficient to support the Company's operations through at least 1999. The
Company's belief is based on its current operating plan, which could change in
the future and require additional funding sooner than anticipated. Even if the
Company has sufficient cash for its current operating plan, it may also seek
to raise additional capital because of favorable market conditions or other
strategic factors. The Company can offer no assurance that it will be able to
establish additional collaborations or retain existing collaborators, or that
such collaborations will produce sufficient revenues, which together with cash
and cash equivalents will be adequate to fund the Company's cash requirements.
The Company has no credit facility or other sources of committed capital.
The Company's future capital requirements depend on numerous factors,
including: (i) the receipt of payments and the achievement of milestones under
existing and possible future collaborative agreements; (ii) the availability
of government research grant payments; (iii) the progress of internal research
and development projects; (iv) defense and enforcement of patent claims or
other intellectual property; (v) the purchase of additional capital equipment;
(vi) investments in complementary technologies; (vii) the development of
manufacturing, sales and marketing capabilities; and (viii) competing
technological and market demands.
The Company expects that it will require significant additional financing in
the future, which it may seek to raise, at any time, through public or private
equity offerings, debt financings or additional strategic collaborations and
licensing arrangements. No assurance can be given that additional financing or
strategic collaborations and licensing arrangements will be available when
needed, or that if available, such financing will be obtained on terms
favorable to the Company or its stockholders. If adequate funds are not
available when needed, the Company may have to curtail operations or attempt
to raise funds on unattractive terms. See "Risk Factors--Future Capital
Requirements; Uncertainty of Additional Funding."
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RECENTLY ENACTED PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, Earnings Per Share, was
issued in March 1997, effective for periods ending after December 15, 1997.
Earlier application is not permitted. This pronouncement simplifies the
standards for computing earnings per share (EPS). When effective, this
statement will replace the presentation of primary EPS with presentation of
basic EPS and diluted EPS on the face of the Statement of Operations. For the
Company, basic and diluted EPS under this pronouncement would have equalled
reported EPS, as currently presented in the Company's Statement of Operations.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, was issued in June 1997 and is effective for fiscal years beginning
after December 15, 1997. This pronouncement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company will adopt this
pronouncement in 1998 and does not expect its implementation will have a
material effect on the Company's financial statements as currently presented.
Statement of Financial Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information, was also issued in June
1997 and is effective for fiscal periods beginning after December 15, 1997.
This pronouncement establishes the way in which publicly held business
enterprises report information about operating segments in annual financial
statements and interim reports to stockholders. As the Company operates in a
single business segment the implementation of this standard is not expected to
significantly impact the Company's financial statements as currently
presented.
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BUSINESS
CuraGen is pioneering the systematic application of genomics to accelerate
the discovery and development of therapeutic and agricultural products.
CuraGen's fully-integrated genomics technologies, processes and information
systems are designed to rapidly generate comprehensive information about gene
expression, biological pathways and the potential drugs that affect these
pathways, each on a scale not previously undertaken. The Company believes that
it can overcome the limitations of competing technologies, processes and
databases and can condense key steps in gene-based drug discovery and
development. CuraGen believes its technology platform will facilitate the
development of highly specific and effective drugs aimed at a variety of
complex diseases such as cardiovascular disease, stroke, cancer and metabolic
disorders.
The Company's drug discovery platform has three primary systems, each
consisting of proprietary technologies, automated processes and a database:
the GeneCalling system for comprehensive gene expression analysis and gene
discovery; the PathCalling system for discovery of the roles of genes and the
proteins they encode in biological pathways; and the HitCalling system for
identification of small molecule drug candidates. The GeneCalling and
PathCalling systems are fully operational, and the Company expects to
commercialize its HitCalling system in 1998. These systems are integrated to
enable gene discovery, drug target validation and high-throughput screening of
drug candidates in a highly efficient and cost-effective manner.
In addition to accelerating the discovery of new drug candidates, CuraGen's
GeneCalling and PathCalling systems are well-positioned to predict the
efficacy and safety of drug candidates currently in pharmaceutical development
pipelines and to review the performance and side effects of drugs already on
the market. This pharmacogenomics approach can aid in the development of more
effective, safer drugs and identify more appropriate patient populations.
The Company has unified its GeneCalling, PathCalling and HitCalling
technologies, processes and databases under its GeneScape bioinformatics
operating system that integrates all aspects of process management, data
analysis and visualization. GeneScape provides an easy-to-use, web-based
interface to its technology platform, thereby allowing researchers remote
Internet access and interactive capabilities from multiple sites to meet their
individual discovery and development needs. GeneScape also includes GeneTools,
a full-featured bioinformatics software suite for further gene and protein
characterization.
BACKGROUND
Successful treatment of disease is often limited by a lack of understanding
of its initiation and progression at the level of genes, proteins and
biological pathways. Technologies and processes that have been used
successfully in the past to discover treatments for diseases with relatively
simple causes have been less effective against complex diseases that arise
through a combination of multiple genetic and environmental factors.
Cardiovascular disease, cancer, stroke and metabolic disorders are examples of
prevalent complex diseases. Treating these complex diseases requires an
understanding of how the body uses its genetic information, how disruptions in
this information can lead to disease and, in turn, how drugs can arrest or
reverse disease progression. As scientific advances improve our understanding
of the genetic basis of disease, the Company believes that the methods the
pharmaceutical industry uses to develop new drugs will undergo a fundamental
transformation. Companies that can anticipate this transformation and develop
and apply new technologies may have a unique opportunity to develop the next
generation of therapeutic products for important complex diseases.
In recent years, scientists have begun to analyze large portions of the
genetic information contained within the human genome. This discipline, termed
genomics, employs large-scale efforts catalyzed by the Human Genome Project.
By understanding the role of genes in the control and function of biological
pathways and cellular processes, scientists seek to understand more fully the
genetic basis of disease and develop more effective treatments. To date,
however, neither the pharmaceutical nor the agricultural industries have used
genomics extensively to develop new product opportunities. These industries
have used genomics to a limited extent for three primary reasons: technologies
have been inadequate; inefficient, non-automated discovery processes have
incompletely evaluated the influence of genetic and environmental factors; and
uniform information systems to drive the discovery process have been
unavailable.
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Treatment of complex diseases remains a major technical challenge and will
require an integrated set of genomic technologies and processes. CuraGen
believes that knowledge of genes, proteins, biological pathways and their
interplay with the environment, together with information systems to use this
knowledge, will accelerate drug discovery and development. CuraGen has
developed its technologies, processes and information systems to provide this
knowledge and is applying its integrated platform towards the discovery and
development of the next generation of genomics-based therapeutic, diagnostic
and agricultural products.
GENES, PATHWAYS AND DISEASE
The GENOME is the complete set of genetic information within each cell of an
organism. The information in the genome is stored in chromosomes, which are
long molecules of DNA. Sections of DNA contain discrete units of hereditary
information called GENES, each of which contains a set of instructions for the
cell to produce a particular protein. In GENE EXPRESSION, the instructions
encoded in the DNA are used by a cell to make a protein molecule. Initially,
the genetic information in the DNA is copied to a complementary molecule called
messenger RNA (MRNA). The information in the mRNA is then translated into a
PROTEIN with a precise sequence of AMINO ACID building blocks which determine
its structure and function. Although all genes are present in all cells, each
cell normally expresses only those genes it needs for the specific functions it
performs. The level of mRNA expressed for each gene dictates its activity and
the number of protein molecules produced.
Proteins carry out the biological functions of cells through a series of
highly specific, organized cascades of interactions with other proteins, genes
and chemicals. These carefully regulated, complex networks of protein
interactions are termed BIOLOGICAL PATHWAYS. These pathways are generally
classified as metabolic pathways, responsible for cellular metabolism such as
the production of energy from glucose, and SIGNAL TRANSDUCTION PATHWAYS, which
use secreted proteins, cell-surface receptor proteins, and intracellular
proteins to allow cells to communicate, coordinate, and regulate their
activities. The activities of biological pathways have many levels of control
and redundancy, and thus can be affected by many genes within a pathway. In
addition to the effects of inherited genetic differences in the genome, a
biological pathway is also affected by the EXPRESSION LEVELS of its key genes
and proteins. Many of the genes at control points along a biological pathway
are expressed at levels as low as one mRNA molecule in 100,000. Therefore, very
small changes in the expression levels of these genes can produce substantial
changes in the operation of the biological pathways under their control.
It is now recognized that essentially all stages of disease and its
progression are caused by a sequence of changes in the expression levels of
genes and the activities of specific proteins and pathways in affected cells.
Although some diseases are caused by defects in a single gene, many prevalent
diseases involve multiple genetic factors that either cause disease directly or
predispose an individual to disease in conjunction with environmental factors.
The genes and biological pathways involved in complex diseases, however, remain
largely uncharacterized. This lack of knowledge has limited the development of
drugs to treat these diseases.
GENE-BASED DRUG DISCOVERY AND DEVELOPMENT
Most treatments for disease rely on drugs that modify the activities of
biological pathways by interacting with proteins expressed by genes in the
affected cells and tissues. In the search for safer and more effective drugs to
treat a wider range of diseases, pharmaceutical companies have begun to explore
the application of genomics to gene-based drug discovery and development.
Modern gene-based drug discovery and development programs typically involve
the following steps: (i) GENE DISCOVERY, finding a disease-related gene; (ii)
TARGET IDENTIFICATION, ascertaining that the protein encoded by a disease-
related gene can potentially serve as a novel drug-discovery target; (iii)
TARGET VALIDATION, confirming that the potential target is at a control point
in a disease-related pathway and that a drug which interacts with the target is
expected to have a beneficial effect; (iv) ASSAY DEVELOPMENT, using the target
in a test that is designed to mimic aspects of the disease process; (v) HIGH-
THROUGHPUT SCREENING, using this assay to screen hundreds of thousands of small
organic compounds to identify compounds, or hits, which interact with the
target protein; and (vi) LEAD SELECTION AND OPTIMIZATION, identifying the most
promising hits as lead drug
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candidates according to expected efficacy, safety and bioavailability.
Typically, each step involves a laborious, time-consuming process which must be
completed before subsequent steps are undertaken. In addition, several of the
steps currently require highly skilled personnel to perform non-automated,
bench biology experiments on a single gene or target at a time. Consequently,
this has been a very costly and time-consuming approach to drug discovery and
development.
Gene Discovery. Gene discovery involves the identification of a gene related
to disease susceptibility, onset or progression. Although previous attempts to
identify disease-related genes have resulted in a better understanding of
certain diseases, they have discovered only a limited number of disease-related
genes and have led to relatively few new drugs due to limitations of the
technologies employed. The current methods for gene discovery include genome
sequencing, gene mapping, positional cloning and, more recently and less widely
used, gene expression.
GENOME SEQUENCING involves determining the sequence of large portions of DNA.
This technology identifies genes primarily at random, providing little direct
association of genes with disease. GENE MAPPING and POSITIONAL CLONING are used
together to identify disease-related genes. Gene mapping is a laborious process
that requires the extensive collection of tissue samples and family histories
in order to identify regions of the genome whose inheritance correlates with
the occurrence of disease. Positional cloning describes efforts to find the
gene within the region contributing to disease. Positional cloning can take
years to find the correct gene, is particularly difficult for complex diseases,
and has been limited in practice to identifying the genes responsible for
simple genetic disorders. Furthermore, gene mapping and positional cloning do
not directly identify additional proteins that are in the same biological
pathway as the disease-related gene and may be more suitable targets for drugs.
GENE EXPRESSION methods are based upon comparisons of biological samples,
such as cells from human biopsies over the progression of a disease, to
identify genes whose expression levels correlate with the disease. The most
significant correlations involve genes that are expressed in disease-specific
tissues, change expression levels over the stages of a disease, and are
expressed at low levels consistent with the ability to regulate biological
pathways. In contrast to gene mapping and positional cloning, gene expression
can identify multiple disease-related genes. Even if these genes do not cause
disease directly, they are likely to encode proteins that participate in
disease-related biological pathways and can offer places to intervene in
disease progression. Some disease-related genes, such as secreted proteins, can
even serve directly as protein drugs.
CuraGen believes that gene expression methods will be the most efficient and
broadly applicable approach to identifying genes related to disease. To be most
useful, gene expression methods should be fault tolerant, measure the
expression levels for a majority of the expressed genes, including those
expressed at a single copy per cell, and be applicable to humans, animals,
plants and pathogens. Many current gene expression methods, however, face
significant limitations. Expression methods based on the repetitive sequencing
of small portions of mRNA molecules, termed expressed sequence tags (ESTS), are
inefficient. These methods cannot accurately measure genes expressed at low
levels and often miss genes that control important pathways. Hybridization-
based gene expression methods usually use portions of known genes as probes to
determine the expression levels of those genes in biological samples. These
methods are generally ineffective in discriminating between genes with closely
related sequences. Further, their application is limited to the small set of
known genes, often precluding their use for animal models which are essential
to human disease research. Methods such as differential display generate
patterns of fragments from expressed mRNA molecules, attempt to detect changes
in these patterns, and then attempt to identify the genes responsible for these
changes. These methods can be imprecise and inefficient in measuring gene
expression levels, are especially problematic when each gene generates at most
one gene fragment, and can require time-consuming steps to confirm which genes
are responsible for particular changes in the patterns.
Target Identification and Validation. After a disease-related gene has been
identified, the next step is to decide whether the protein it encodes can serve
as a target for a drug. Part of TARGET IDENTIFICATION is determining whether
the protein is related structurally to proteins that have served successfully
as targets, including receptors and other proteins in biological pathways.
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If a protein is not appropriate as a target, potential targets are then
sought among proteins in the same biological pathway as the disease-related
gene. Although other proteins in the same pathway can exhibit correlated
levels of gene expression, this information is often insufficient to sort
proteins into specific pathways or to show how proteins interact within a
pathway. Most research to understand biological pathways relies on non-
automated bench biology techniques able to identify only one protein at a
time. Despite the promise of this protein-by-protein approach, the associated
time, effort and expense have limited its use and, as a result, many
discoveries of disease-related genes have not led to suitable targets.
Once a protein target is identified, it must be validated in order to
provide evidence that it plays an important role in disease and that finding a
chemical compound that is active against it could lead to a drug. Alternative
techniques for TARGET VALIDATION can take months or years to complete because
it is not usually possible to view a given protein in the context of a
disease-related biological pathway.
Assay Development and High-Throughput Screening. Each validated target
usually requires the development of a specific assay or specialized
measurement technique to identify compounds that interact with it. Each assay
often requires months to develop. Potential drugs are identified by testing a
target against a chemical diversity library, usually comprising hundreds of
thousands of different small organic molecules, in HIGH-THROUGHPUT SCREENING.
Although screening a single target can be relatively rapid, screening multiple
targets can be time-consuming because most assays require that each target be
screened in a separate assay. The screening process often produces multiple
hits. To date, little progress has been made towards developing general assays
that do not require customization for each new disease-related gene and
validated target.
Drug Development. Hits that are suitable for development into potential
drugs are chosen for LEAD COMPOUND SELECTION AND OPTIMIZATION. Optimizing a
lead compound entails synthesizing and testing a series of closely related
organic compounds. The most promising leads are selected based on expected
efficacy, safety and bioavailability. This selection process typically does
not use detailed information of a candidate drug's MECHANISM OF ACTION, which
would show how a drug interacts with particular proteins and biological
pathways to achieve its desired therapeutic affect. The lack of information
often results in inaccurate predictions of efficacy and safety.
Following optimization, leads are entered into PRECLINICAL TRIALS to predict
their efficacy and safety based on animal testing. If preclinical trials are
promising, candidate drugs advance to CLINICAL TRIALS to determine their
efficacy and safety in human patients. Drug candidates have a high attrition
rate at this stage due to the lack of understanding of the mechanism of
action, poor predictions of efficacy and unexpected side effects. On average,
only one out of ten candidates that enter clinical trials gains FDA approval.
Failure at the later stages of drug development is especially significant as
it can account for half of the $360 million average cost to attain FDA
approval.
Pharmacogenomics. Even after a drug has been approved and marketed, there is
often limited knowledge of how it works. Consequently, many side effects are
observed only after use by a larger, more diverse population of patients who
may not have been adequately represented in the original trials, including
patients taking additional medications which can cause unanticipated adverse
effects. The study of the genes that determine the efficacy, pharmacology and
toxicity of a drug is referred to as PHARMACOGENOMICS. Unfortunately, previous
technologies have lacked the ability to show comprehensively what genes,
proteins and biological pathways are affected by a drug. This lack of
information has led to failures and FDA recalls of widely-prescribed drugs
such as thalidomide and dexfenfluramine.
TECHNOLOGY INTEGRATION AND INFORMATION SYSTEMS
Biotechnology companies have attempted to overcome limitations in the gene-
based drug discovery by focusing on single, isolated technologies. Major
pharmaceutical firms have been left with the challenge to integrate these
disparate components into a cohesive discovery and development pipeline. This
has created a great need for sophisticated bioinformatics systems to manage
what is now a disjointed process.
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CURAGEN'S APPROACH
CuraGen's integrated genomics technologies, processes and information systems
are designed to overcome significant technological limitations and condense key
steps in gene-based drug discovery and development. The Company believes that
its technology platform has the potential to rapidly generate comprehensive
information about gene expression, biological pathways and the compounds
affecting these pathways, each on a scale not previously undertaken. CuraGen
believes this will permit the comprehensive analysis of many diseases and
enable the discovery of disease-related genes, drug targets and potential
drugs.
[Graph showing the steps involved in both traditional gene-based drug discovery
and using CuraGen's approach to gene-based drug discovery]
CURAGEN'S APPROACH TO GENE-BASED DRUG DISCOVERY
GENE DISCOVERY (QEA AND GENECALLING)
CuraGen has developed its proprietary Quantitative Expression Analysis
("QEA") and GeneCalling technologies to overcome significant limitations of
existing gene discovery methods. QEA and GeneCalling enable the rapid, precise
measurement of substantially all of the differences in gene expression levels
between biological samples in order to discover disease-related genes. QEA and
GeneCalling are designed to detect genes expressed at the level of a single
mRNA molecule per cell, to measure comprehensively the expression levels of 95%
of the genes expressed in any species and to be integrated into an efficient,
automated, high-throughput process in order to rapidly generate large databases
of gene expression profiles. These technologies permit the Company to pursue
research programs for many disease systems, process many samples in parallel
and potentially discover and seek patent protection for commercially valuable
disease-related genes.
TARGET IDENTIFICATION AND VALIDATION (MIM AND PATHCALLING)
The Company has developed its proprietary Multiplexed Interaction Method
("MIM") and PathCalling technologies to reduce the time and cost of target
identification and validation. MIM is an automated, high-throughput process
that simultaneously tests for interactions between billions of combinations of
proteins. PathCalling is the Company's proprietary software and database that
assembles the protein-protein interactions
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discovered by the MIM system into connected biological pathways. The Company
intends to populate the database with as complete a set as possible of the
protein-protein interactions that constitute the pathways in humans and model
organisms that are relevant to disease. By identifying protein-protein
interactions with MIM and comparing them with pathways within the PathCalling
database, the role of these proteins within a given biological pathway can be
elucidated and the database further augmented. PathCalling permits disease-
related genes to be linked rapidly to specific biological pathways, providing
valuable biological context for gene discoveries and additional targets for
therapeutic intervention. The Company believes that its PathCalling database
has the potential to streamline target identification and validation into a
single, efficient, accelerated process. The Company further believes that the
number of pathway-related protein-protein interactions currently in its
proprietary PathCalling database is greater than the total number of
interactions previously described in the scientific literature.
ASSAY DEVELOPMENT AND HIGH-THROUGHPUT SCREENING (COMBIGEN AND HITCALLING)
The Company is developing its proprietary CombiGen technology and HitCalling
database and information system to accelerate the identification of hits by
screening protein targets in parallel against small molecule diversity
libraries. The Company has designed CombiGen to avoid any need to develop a
specialized assay for each new target. With the ability to screen thousands of
targets simultaneously, the Company believes that its automated, high-
throughput screening assays will have the potential to screen more
combinations of targets and compounds than any competing technology of which
it is aware. The Company believes that this capacity enables a new approach to
drug discovery. The Company intends to pursue this approach by using CombiGen
to screen every protein that it discovers to participate in a protein-protein
interaction, including proteins both in disease-related pathways and in
pathways not yet associated with disease. The HitCalling database will store
the identities of proteins and hits. The Company anticipates that a newly-
identified disease-related gene can be linked into a pathway whose proteins
have already been screened. The identities of proteins and hits can then be
retrieved from the HitCalling database, reducing or eliminating the need for
further target identification, target validation, assay development or high-
throughput screening and thereby potentially accelerating a program by two to
three years following the first identification of a disease-related gene.
DRUG DEVELOPMENT AND PHARMACOGENOMICS (GENECALLING; PATHCALLING)
The Company believes that its GeneCalling and PathCalling technologies can
also be used to predict which drugs are more likely to succeed by analyzing
gene expression changes induced by drug treatment in humans and animal models
in preclinical and clinical trials. For drugs already on the market, the
Company has commenced generating GeneCalling databases with the objective of
selecting appropriate patient populations and accelerating the development of
an improved generation of drugs with fewer side effects. By providing a
precise correlation of gene expression levels and the activities of biological
pathways following treatment with specific drugs, the objective of the
Company's pharmacogenomics approach is to minimize the side effects of drugs,
to identify appropriate patient populations for existing drugs and to aid the
development of safer, more effective drugs.
TECHNOLOGY INTEGRATION AND INFORMATION SYSTEMS (GENESCAPE)
The Company has integrated its GeneCalling, PathCalling and HitCalling
process and databases under its GeneScape BIOINFORMATICS operating system that
unifies all aspects of process management, data analysis and visualization.
CuraGen's goal is to establish its fully-integrated technology and the
GeneScape operating system as the preferred platform for genomics and to apply
its platform to accelerate drug discovery, drug development and
pharmacogenomics. GeneScape provides a standardized, web-based interface to
its technology platform, thereby allowing researchers remote access and
interactive capabilities from multiple sites to meet their individual
discovery and development needs. Once the HitCalling database is established,
the Company expects that all three databases will be interrelated. Thus,
researchers who discover a disease-related gene through GeneCalling have the
potential to locate the relevant biological pathways in the PathCalling
database and to use the HitCalling database to identify hits active against
proteins in this pathway.
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CURAGEN'S STRATEGY
CuraGen's goal is to establish the first fully-integrated genomics business
providing comprehensive characterization of gene expression, biological
pathways and potential drugs for drug discovery and development. The Company
believes that its integrated approach can be the preferred alternative to
competitive methods employed today. The key elements of the Company's strategy
are as follows:
Provide fully-integrated, innovative technologies to overcome limitations in
drug discovery and development. The Company believes that its integrated
genomics platform provides enabling technologies at each of the three critical
levels of the genomics-based pharmaceutical development process: identification
of disease-related genes (gene discovery), elucidation of biological pathways
(target identification and validation) and identification of compounds that
interact with such pathways (assay development, high-throughput screening, lead
selection and optimization). These technologies have the potential to advance
the discovery and development of treatments for complex diseases. The Company
has designed these technologies to be (i) applicable to a broad range of
diseases; (ii) comprehensive in the analysis of substantially all expressed
genes, biological pathways and potential drugs; (iii) standardized to enable
the simultaneous processing of many combinations of biological samples,
proteins and drug candidates; (iv) integrated under a single information system
to facilitate the processing, analysis and use of information generated from a
variety of sources; and (v) readily used in existing pharmaceutical development
pipelines.
Apply its technology for drug discovery, drug development and
pharmacogenomics systematically to major diseases. The Company intends to apply
its technologies to address a wide range of diseases. CuraGen plans to obtain
biological samples from numerous models of disease (human tissue, animal and
cell-based models) in an effort to examine systematically the genes and
biological pathways involved in major diseases and to develop new drugs. The
Company believes that this broad-based approach will maximize its opportunities
to participate in the discovery and development of drugs either alone or in
collaboration with others. Through pharmacogenomics, the Company believes it
can help pharmaceutical companies develop more effective drugs with fewer side
effects by assessing the efficacy and safety of their currently marketed drugs
as well as drug candidates within their product pipelines.
Generate revenue through research collaborations. The Company intends to
enter into research collaborations with pharmaceutical, biotechnology and
agricultural companies. The Company expects to receive revenues for applying
its proprietary technologies to a collaborator's own samples, for providing a
period of exclusivity for analyzing the data generated and from milestone and
royalty payments derived from licensed products. Data generated in
collaborations may become part of CuraGen's subscription databases. To date,
the Company has entered into a collaboration with Pioneer Hi-Bred.
Generate revenue through database subscriptions. The Company believes that
the information in its GeneCalling, PathCalling and HitCalling databases will
be a valuable resource for pharmaceutical and agricultural product development.
The Company intends to generate revenue by providing subscribers with fee-
based, non-exclusive access to its databases for defined periods. The Company
expects that its research collaborators will enter into subscriptions as they
seek to access the additional information available in the Company's databases.
Retain product rights to select internal research and drug discovery
programs. The Company intends to devote a substantial portion of its resources
to its internal research programs. The initial programs selected by the Company
are expected to focus on disease systems which, the Company believes, have the
potential to result in the discovery of novel proteins as drug candidates or
targets for drug discovery. The Company also expects that its internal research
programs will be an ongoing source of data for its GeneCalling, PathCalling and
HitCalling databases.
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PRODUCTS AND SERVICES
CuraGen intends to market its genomics technology and information to the
pharmaceutical, biotechnology and agricultural industries through two
arrangements: research collaborations and subscriptions. RESEARCH
COLLABORATIONS currently involve the application of CuraGen's GeneCalling and
PathCalling technologies to a collaborator's projects, include those support
services required to characterize gene and target discoveries, and provide
ready integration with a collaborator's existing development pipeline. The
Company anticipates that collaborations will involve HitCalling when it becomes
available. DATABASE SUBSCRIPTIONS will provide subscribers with access to
CuraGen's GeneCalling, PathCalling and HitCalling databases. The Company does
not currently have any database subscribers. Both arrangements will use the
GeneScape operating system, the Company's web-based software that manages the
Company's processes, provides access to the Company's databases and includes
GeneTools, a full-featured bioinformatics software suite.
QEA AND GENECALLING: GENE EXPRESSION SERVICES AND DATABASE
CuraGen developed its proprietary QEA and GeneCalling technology to overcome
significant limitations of competing gene discovery methods. QEA is the
Company's method for generating and analyzing gene expression profiles.
GeneCalling is the Company's information system and database that analyzes and
stores differences in these gene expression profiles to identify disease-
related genes. QEA and GeneCalling permit sensitive detection of genes that can
control biological pathways when expressed at very low levels, and unlike EST-
based methods, do not require repetitive sequencing to measure gene expression.
The Company's technology is comprehensive in detecting genes with novel
sequences and therefore applicable universally to humans, animals, plants, and
pathogens. In comparison, hybridization-based methods are primarily limited to
known genes and do not readily discriminate between many genes which share
related DNA sequences.
QEA and GeneCalling provide the ability to discover disease-related genes by
measuring expression levels and determining gene expression differences between
biological samples, such as diseased and normal human tissues. These samples
are usually processed within a month of receipt, and profiles of gene
expression levels are available immediately for inspection and analysis. The
Company's current capacity is 5,000 biological samples per year. The Company
detects multiple fragments for each gene in a sample and believes that it can
quantify accurately the expression levels of over 150 million gene fragments
per year. The Company believes that this capability exceeds the capacity of
competing technologies, can be up to 6,000 times faster than EST-based methods
for comprehensive expression profiling, and can observe a greater number of
genes than methods relying on the detection of a single fragment per gene.
Based upon its current capacity, the Company estimates that it could conduct
approximately 250 projects per year consisting of approximately 20 samples
each. The Company believes this is sufficient to support five collaborators
while meeting the needs of the Company's internal programs. See "--CuraGen
Internal Programs." The Company has designed its processes to be modular and
scalable in order to accommodate increases in the number of collaborations.
The Company's GeneCalling database stores data generated by QEA for exclusive
access for collaborations and internal programs. Through GeneScape, researchers
can access their projects and are able to select samples that have been
processed by QEA and use GeneCalling to analyze expression profiles to identify
those genes that are specific to a disease. The Company intends to structure
its collaborations such that, after the period of exclusivity has ended, data
generated from samples using QEA revert to CuraGen's GeneCalling subscription
database which currently contains gene expression data from normal human and
animal tissues.
Using QEA and GeneCalling, CuraGen has developed an innovative approach for
gene discovery for inherited diseases: POSITIONAL EXPRESSION CLONING. By
combining its gene expression analysis with existing gene mapping techniques,
the Company can rapidly discover genes associated with inherited diseases by
identifying candidate genes that both show altered expression and map to the
chromosomal locations known to contain underlying disease genes. The Company
believes its positional expression cloning approach will be particularly
effective in identifying and characterizing susceptibility and protective genes
in many common complex diseases.
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The Company believes that its technology for disease-related gene discovery
has significant advantages over genome sequencing, positional cloning and
competing gene expression technologies. CuraGen's methods permit the Company to
pursue research programs for many disease systems in parallel, with the
potential to identify rapidly a large number of commercially valuable disease-
related genes. As part of its internal programs, the Company seeks patent
protection for newly discovered disease-related genes and proteins, as well as
for novel uses of known genes and the proteins they encode. See "--Intellectual
Property" and "Risk Factors--Patents and Proprietary Rights; Third-Party
Rights."
MIM AND PATHCALLING: PATHWAY ANALYSIS SERVICES AND DATABASE
Once genes involved in a disease have been identified using GeneCalling, it
is important to be able to determine how the proteins they encode interact in
the complex pathways involved in the disease. Although a particular disease-
related protein might not be a potential protein drug or drug discovery target,
knowledge of the other proteins in the same pathway may lead to promising
protein drug or target candidates. CuraGen's MIM technology and PathCalling
database were developed to provide the link between disease-related proteins
and their biological pathways to aid in the identification and validation of
appropriate targets following the discovery of a disease-related gene.
MIM consists of proprietary automated, high-throughput biological operations
that simultaneously test for interactions between billions of pairs of
proteins. By using MIM, CuraGen can routinely test 100,000 proteins against
100,000 other proteins, potentially identifying all interacting pairs.
PathCalling is the Company's proprietary software and database that assembles
protein-protein interactions discovered by the MIM system into connected
biological pathways, including pathways discovered previously by CuraGen or
previously described in the scientific literature. The Company's objective is
to build this database to contain as complete a set as possible of the protein-
protein interactions that constitute the pathways that are relevant to disease.
The PathCalling database permits the graphical display of all pathways
contained in the database involving any particular protein and allows these
pathways to be queried for information in much the same way gene sequence
databases are queried today. The Company believes that this will facilitate the
rapid linkage of disease-related genes to specific biological pathways,
providing the crucial biological context for gene discoveries, which may lead
to the identification of potential targets for therapeutic intervention.
The Company seeks patent protection on the utility of specific proteins or
protein-protein interactions as drug targets based on information provided by
MIM and PathCalling, in addition to composition of matter claims based on the
sequences of novel and non-obvious proteins and the genes encoding them. There
can be no assurance, however, that such patents will be granted. See "--
Intellectual Property" and "Risk Factors--Patents and Proprietary Rights;
Third-Party Rights."
COMBIGEN AND HITCALLING: DRUG SCREENING SERVICES AND DATABASE
Traditionally, potential drugs have been screened against one target at a
time. Even with many of the advances in high-throughput screening, this process
remains inefficient, time-consuming and labor intensive. In an effort to
overcome these shortcomings, CuraGen is developing its proprietary CombiGen
technology and HitCalling database to identify simultaneously both novel
targets and hits. These technologies are based upon a combinatorial approach
for screening libraries of potential protein targets against libraries of
potential drugs.
CombiGen is being developed to use a biological assay system that will permit
the parallel processing of hundreds of drug discovery targets in the form of
single proteins or protein-protein interactions in a single high-throughput
screening assay. CombiGen has been designed to work efficiently with the
proteins in biological pathways which were identified by PathCalling. The
Company has designed this technology to avoid any need to develop a specialized
assay for each new target. With the ability to screen targets in parallel, the
Company believes that its automated, high-throughput screening assays have the
potential to screen more combinations of targets and compounds than any
competing technology of which the Company is aware.
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When CombiGen is fully operational, the Company intends to commence screening
of many of the proteins in its PathCalling database, both in disease-related
biological pathways and in pathways not yet associated with disease, to
generate its HitCalling database. In this new approach, the Company believes
that, when a disease-related gene is discovered, the HitCalling database may
accelerate drug discovery by displaying hits against other proteins in that
gene's pathway.
CuraGen expects that it will complete pilot studies of its CombiGen
technology and commercialize HitCalling in 1998. The Company intends to
generate a database containing a large collection of hits against many of the
proteins in its PathCalling database. Where appropriate, the Company plans to
file patent applications to protect targets, small organic compounds and their
utilities. There can be no assurance, however, that the Company will
successfully complete the development of CombiGen and HitCalling, that the
Company will discover hits through the use of this technology, that patent
applications will be filed or that patents on such hits will be granted. See
"Risk Factors--New and Uncertain Business" and "--Patents and Proprietary
Rights; Third-Party Rights."
GENESCAPE OPERATING SYSTEM FOR GENOMICS
CuraGen designed its GeneScape bioinformatics software to meet the needs of
researchers for a single operating system which integrates research requests,
project management, database access and data analysis and visualization. The
Company's GeneScape web-based bioinformatics operating system provides the user
with a standardized, Internet-enabled interface to its processes and databases
for GeneCalling, PathCalling and HitCalling. GeneScape operates on any computer
platform that supports a standard web browser. GeneScape is designed to be
modular and extendable to incorporate other processes. GeneScape currently
consists of three components: Discovery, Study Management, and GeneTools.
Discovery. The Discovery component manages queries to the GeneCalling,
PathCalling and HitCalling databases. GeneScape provides data analysis and
visualization through a flexible, easy-to-use point-and-click interface
organized in three sections corresponding to GeneCalling, PathCalling, and
HitCalling. GeneScape provides the answers to queries in visual format,
organized according to preferences set by the end user: differential gene
expression; expression in particular samples, tissues, or disease stages;
participation in metabolic or signal transduction pathways; map position;
functional role; interactions with proteins or small molecules; or other custom
criteria. The Company believes that the ability to respond to direct queries
with the comprehensive analysis of gene expression and biological pathways may
make GeneScape a preferred platform for discovering disease-related genes and
drug discovery targets.
Study Management. CuraGen's collaborators can manage processes and resources
over the Internet to meet their individual research needs. Separate links on
the Study Management page provide direct, up-to-the-minute status reports for
projects, individual processes within projects, and resource allocation among
projects and processes. Study Management automates the operation of every
station in the QEA and MIM process and monitors quality control at each
processing step.
GeneTools. The GeneScape operating system also includes GeneTools, an easy-
to-use, unified bioinformatics software package for DNA and protein sequence
analysis; sequence similarity to known genes, protein drugs and protein
targets; three-dimensional structure prediction; identification of proteins
participating in biological pathways; and custom literature searches. GeneTools
also provides users with access to publicly available sequence, mapping and
expression databases that the Company has imported, assembled, and annotated
for enhanced value. In addition, the Company has assembled proprietary sequence
and mapping databases for portions of the corn, mouse, rat and human genomes.
Collaborators can elect to have CuraGen link their own proprietary or third-
party sequence databases into GeneScape and GeneTools for their own exclusive
use.
GENESHOP
Through its GeneShop, the Company now offers its collaborators services that
will complement its proprietary GeneCalling, PathCalling, and HitCalling
technologies. GeneShop can provide high-throughput,
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efficient and essential research services including confirmation of gene
expression differences, gene sequencing, delivery of full-length clones of
genes, gene mapping and mutation detection. These services and materials can
all be requested, for a fee, directly through GeneScape.
RESEARCH COLLABORATIONS
The Company's business strategy includes the establishment of research
collaborations with pharmaceutical, biotechnology and agricultural companies.
The Company anticipates that such collaborations will generally provide
revenues in the form of fees for the generation of gene expression and
biological pathway data from samples provided by a collaborator. The
collaborator will have the ability to control how resources are allocated to
generate GeneCalling and PathCalling databases and to perform additional
research services through GeneShop, including the sequencing of gene fragments
and the generation of full-length clones. Fees will also give each such
partner exclusive access for a defined period of time to the GeneCalling or
PathCalling databases containing the information produced in the
collaboration. The Company expects that collaborators will have the right to
license, for an up-front fee, discoveries arising from a collaboration,
including rights to novel genes, novel uses of previously identified genes,
and protein targets and hits. Collaborations may also include milestone
payments and royalty payments on sales of products developed using discoveries
made through the use of the Company's technology. After the period of
exclusivity expires, rights to genes and portions of the data not licensed by
the collaborator are expected to revert to CuraGen. The Company intends to
include this data in its expanding subscription databases.
The Company intends to seek collaborations that will be non-exclusive with
respect to a given field or disease indication, for example stroke or
cardiovascular disease, but exclusive for a specific period of time for
certain disease models, such as a research project using a mouse model for
stroke or cardiovascular disease. To date, the Company has entered into
collaborations with Pioneer Hi-Bred and Genentech.
PIONEER HI-BRED
In May 1997, CuraGen and Pioneer Hi-Bred entered into a research
collaboration to identify genes responsible for agricultural seed product
performance, including crop yield, drought resistance and pest resistance (the
"Pioneer Agreement"). Pioneer Hi-Bred is a leader in the development of
genetically based agricultural crop seed products, with approximately 42% of
the North American corn seed market and a significant share of the market in
other major corn-growing areas of the world. Historically, Pioneer Hi-Bred has
developed new hybrid seed strains with favorable traits using traditional
cross breeding techniques with only limited knowledge of the genes responsible
for such traits. The Company believes that by applying QEA and GeneCalling
technologies, it will discover the genes responsible for these favorable
traits, thereby enabling Pioneer Hi-Bred to develop, faster and more
efficiently, a new generation of seed products with superior traits.
Under the terms of the Pioneer Agreement, Pioneer Hi-Bred agreed to fund a
research program for up to five years in certain areas related to agricultural
crop seed research and product development, and the Company agreed not to
collaborate with any other parties within such areas. Payments by Pioneer Hi-
Bred to the Company in the form of research funding could reach $18.5 million
if the research program continues for its full five-year term, with minimum
annual payments of $2.5 million. In connection with the collaboration, Pioneer
Hi-Bred made a $7.5 equity million investment in the Company.
Pioneer Hi-Bred has the right, at any time after November 1998, to terminate
the research program on three months' notice if the Company has not identified
any genes associated with certain traits of interest to Pioneer. Pioneer Hi-
Bred may also terminate the research program at any time after May 2000 on six
months' notice. Unless earlier terminated in accordance with its terms, the
Pioneer Agreement will remain in effect until the expiration of the
obligations of Pioneer Hi-Bred to pay royalties under the Pioneer Agreement.
The Pioneer Agreement provides Pioneer Hi-Bred with exclusive, worldwide,
royalty-bearing rights to develop and commercialize products based on gene
discoveries made in the collaboration in certain areas related
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to seed products, non-seed plant products and agricultural chemicals. CuraGen
will receive specified royalties on the sale of seed products incorporating
trait-specific genes identified by CuraGen. Royalties with respect to non-seed
plant products and agricultural chemicals are to be negotiated. The Pioneer
Agreement provides the Company with a worldwide right to develop and
commercialize products in the fields of human healthcare, pharmaceuticals,
animal health and microbial applications based upon gene discoveries arising
from the collaboration.
The Company believes that this collaboration offers it significant discovery
benefits because Pioneer Hi-Bred has assembled one of the world's largest
collections of genetic materials, which contains a wide range of genes and
pathways responsible for important agricultural traits. Many of the genes and
pathways plant cells use to carry out biological processes have closely
related genes and pathways in human cells. CuraGen has retained all rights to
use the information gained in studies of plant genes for applications to the
Company's programs in human disease.
GENENTECH
In June 1996 and December 1996, CuraGen and Genentech entered into
exploratory programs to evaluate the application of CuraGen's integrated
genomics technologies to selected internal programs at Genentech. These
agreements are limited in scope and duration. Under the terms of these
agreements, CuraGen received a $1.8 million equity investment and will receive
research and development payments of a minimum of $667,000 to cover three
separate exploratory programs. The agreements call for milestone payments and
royalties on therapeutic product sales.
BIOGEN
In June 1997, CuraGen and Biogen entered into an agreement to evaluate the
application of CuraGen's technology to a particular program of interest to
Biogen. Under the terms of this agreement, Biogen made a $1 million equity
investment in the Company.
DATABASE SUBSCRIPTIONS
As part of its business strategy, the Company intends to offer subscriptions
which will provide users with non-exclusive access to its GeneCalling,
PathCalling and HitCalling databases through the GeneScape operating system.
The Company will also provide subscribers access to its GeneTools
bioinformatics software. The Company anticipates updating its databases
regularly with selected data generated from internal programs, as well as data
from collaborations which have reverted to the Company. The Company intends to
structure its arrangements to receive initial fees and periodic maintenance
fees for each subscription. In addition, the Company may receive license fees,
milestone payments and royalties in connection with the licensing or use of
proprietary information in its databases for the development of products.
Certain subscribers may also seek to take advantage of the full range of the
Company's GeneCalling, PathCalling, HitCalling and GeneShop services by
entering into collaborations with the Company. To date, the Company has not
entered into any subscription arrangements.
CURAGEN INTERNAL PROGRAMS
The Company intends to use its integrated genomics technology platform to
pursue a broad portfolio of research programs that encompass drug discovery,
drug development and pharmacogenomics. During the next five years, the
Company's objective is to analyze systematically the genetic basis of many
common diseases as well as the mechanisms of action and adverse side effects
of many commonly prescribed drugs. CuraGen is focusing its efforts on programs
that address unmet medical needs and that the Company believes have the
potential to yield products that can be commercialized in a relatively short
time. In particular, the Company selects human diseases and animal models of
human disease based on their potential to yield protein drugs, to identify
novel targets for common diseases that lack effective treatments or to aid
rational development or marketing of existing drugs. At each stage, the
Company plans to reevaluate the relative merits of continuing such programs
through internal efforts or through research collaborations.
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DISCOVERY PROGRAMS
The Company currently has programs in cardiovascular disease, including
hypertension and stroke; endocrine and metabolic disorders, including obesity,
diabetes and osteoporosis; autoimmune disorders including arthritis; cancer;
and infectious diseases. In its internal programs, CuraGen has discovered over
disease-related genes and has filed patent applications relating to
these discoveries.
Certain of the genetic disease models selected by the Company are designed
to discover variations of genes that protect individuals from disease in
addition to finding mutations in genes that are involved in the
susceptibility, onset or progression of disease. The Company intends to
explore the potential of the proteins encoded by protective genes as protein
drugs. The Company has already identified gene variants that are potentially
protective in stroke. These gene variants were identified from animal models
using QEA and GeneCalling within months of project inception. The Company has
also discovered mutations in genes involved in diabetes and hypertension, one
of which the Company believes may be a suitable target for small molecule drug
development.
Cardiovascular Disease and Stroke. Cardiovascular diseases such as stroke
and atherosclerosis are the leading cause of death in the United States.
Treatments for these diseases have limited efficacy. Using GeneCalling and
PathCalling, CuraGen is analyzing genetic models of hypertension and ischemic
stroke to identify disease-related genes. This strategy has led to the
discovery of a secreted protein variant that appears to protect against stroke
and the discovery of a gene that may contribute to hypertension.
Endocrine and Metabolic Diseases. Within the field of endocrine and
metabolic diseases, CuraGen is analyzing a variety of genetic models including
obesity, type II diabetes, osteoporosis, osteoarthritis and gall stone
disease. The Company believes that its technology platform is well-suited to
identifying the genes and pathways involved in these diseases, which are known
to involve errors in signal transduction and the regulation of metabolic
pathways. To date, the Company has used QEA and GeneCalling to discover over
40 genes associated with these diseases and is using PathCalling in an attempt
to identify disease-related pathways and potential targets for drug discovery.
The Company believes that this information may also lead to the discovery of
protein drugs.
Autoimmunity, Arthritis, and Allergy. Although diseases of the immune
system, such as systemic lupus erythematosus and rheumatoid arthritis, are
among the most common and chronic, existing drugs for autoimmune diseases have
exhibited limited efficacy and debilitating side effects. The Company has used
QEA and GeneCalling in nine different genetic models of systemic autoimmune
disease to identify disease-related genes. CuraGen is using MIM and
PathCalling to identify pathways which incorporate these genes.
Cancer. Cancer encompasses disease processes of almost every organ system
and involves the loss of control of multiple, diverse mechanisms of signal
transduction and pathway regulation. CuraGen is applying GeneCalling and
PathCalling to identify the genes and pathways involved in the early
development of cancer and its step-wise progression to metastatic disease.
CuraGen has analyzed a number of models of cancer and has identified pathways
incorporating proteins common to many of the models.
Infectious Diseases. The Company believes that its program for pathogenic
diseases offers advantages over alternative approaches that primarily aim at
sequencing pathogen genomes with little characterization of the role of
specific pathogen proteins in biological pathways. CuraGen's research,
however, uses MIM and PathCalling to identify protein-protein interactions,
including both pathogen-pathogen and pathogen-host interactions, and
biological pathways to provide this characterization, which is valuable for
target identification and validation. The Company anticipates discovering
novel pathways specific to unique human infectious agents, including viruses,
bacteria and parasites, that are important during resting, vegetative, and
pathogenic states of infection. The Company believes its approach may
facilitate the development of diagnostic assays for infectious diseases and
improved vaccines and drugs. The Company has initiated a program for a
specific bacterial pathogen and has discovered novel protein-protein
interactions that tie into known pathways conferring pathogenicity.
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DRUG DEVELOPMENT AND PHARMACOGENOMICS
The Company believes that the application of QEA and GeneCalling to identify
genes that are differentially expressed in response to treatment with drug
candidates and marketed drugs represents a significant commercial opportunity.
Using this approach, the tissues targeted by the drug, as well as the organs
that might exhibit side effects, including liver or kidney damage, can be
studied in animal models thought to be indicative of human response. The
Company believes that this information may help pharmaceutical companies
select and optimize drug candidates based on efficacy and reduced side
effects. In addition to reducing the time and cost of developing drugs, the
Company believes that such results may strengthen FDA applications. For drugs
already on the market, an understanding of the mechanism of action through
pharmacogenomics can help identify appropriate patient populations and lead to
an improved generation of drugs.
The Company has begun to analyze drugs whose commercial viability or
clinical indications are threatened either by a lack of understanding of
mechanism of action or by severe side effects. The Company's goal is to
generate GeneCalling databases for 20 to 50 drugs a year to provide
pharmacology and toxicology information, to understand the mechanism of drug
action, to identify patient populations that are likely to respond favorably
to a particular medication, and potentially to identify new indications or
more optimal targets.
TECHNOLOGY PLATFORM
CuraGen's integrated genomics technologies, processes and information
systems are designed to rapidly generate extensive and precise information
about gene expression, biological pathways and the chemicals that affect these
pathways, each on a scale not previously undertaken. CuraGen's GeneCalling,
PathCalling and HitCalling and related core technologies have been integrated
under its GeneScape operating system. The Company has 14 patent applications
pending on its proprietary technologies. CuraGen intends to continue to pursue
a broad intellectual property position with respect to its GeneCalling,
PathCalling, HitCalling and related core technologies.
QEA AND GENECALLING: CURAGEN'S TECHNOLOGY FOR GENE DISCOVERY
CuraGen's QEA technology and GeneCalling database, accessed over the
Internet through GeneScape, serve as the basis of the Company's collaboration
with Pioneer Hi-Bred. The use of these technologies has led to patent filings
relating to over disease-related genes in internal programs and research
collaborations.
The QEA process starts with a biological sample from which mRNA molecules
are isolated. The gene expression information contained in the mRNA molecules
is copied back to DNA molecules, which are more chemically stable, to create a
pool of complementary DNA (CDNA). Each of 48 to 96 QEA reactions probes a
separate portion of the original cDNA pool with a unique pair of subsequences,
short stretches of bases. If a cDNA molecule contains both subsequences, it
produces a fluorescently-labeled gene fragment whose length is determined by
the number of bases between the subsequences as they occur in the gene. Each
QEA reaction produces approximately 200 different fragments. The QEA process
typically generates multiple fragments per gene to provide fault tolerance by
minimizing the possibility that a gene will not be detected.
The labeled fragments from each QEA reaction are loaded into individual
lanes of an electrophoresis gel and separated according to length. The
quantity of fragments of each length is determined by optical detection of the
fragment labels. The more copies of a given gene, the more fragments are
produced and the brighter the signal from that gene's fragments. The Company's
proprietary instrumentation and software has the sensitivity to detect
fragments at the level of 1 in 250,000, sufficient to detect a single mRNA
molecule per cell. The detection of 200 fragments in each lane contains
information on both the identities (from the lengths) and expression levels
(from the fluorescence intensities) of approximately 200 genes, as opposed to
alternative EST-sequencing approaches, where a single lane yields information
solely on the identity of a single gene. Analysis of 48 to 96 lanes from
different QEA reactions generates data for approximately 10,000 to 20,000
fluorescently labeled gene fragments. Gene fragment patterns are stored in the
Company's GeneCalling database.
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After a sample has been processed by QEA to produce gene fragment patterns,
GeneCalling software uses the subsequence pair in a QEA reaction like an area
code, the fragment length like a phone number, and a database of known genes
like a phone book to identify the gene that generated each fragment. Fragments
which do not have any match in the database of known genes, and which therefore
may represent valuable novel genes, may also be observed. The Company sequences
just these unmatched fragments for inclusion in its database.
QEA and GeneCalling are designed to be sufficiently sensitive to detect genes
expressed at the level of a single mRNA per cell, comprehensive by measuring
the expression levels of 95% of the genes expressed in a cell, and efficient in
processing samples, generating gene expression profiles, and identifying genes
whose expression levels correlate with disease. The Company's technology is
able to detect genes with novel sequences and therefore is applicable broadly
to humans, animals, plants and pathogens. The Company believes that QEA and
GeneCalling provide advantages over other technologies that analyze gene
fragment patterns but lack fault tolerance, specificity or the ability to look
up gene identity in a database.
MIM AND PATHCALLING: CURAGEN'S TECHNOLOGY FOR TARGET IDENTIFICATION AND
VALIDATION
CuraGen's MIM technology and PathCalling database were developed to provide a
link between disease-related genes and the biological pathways in which the
proteins encoded by such genes interact. The Company believes that these
technologies, accessed over the Internet through GeneScape, will serve as a
significant component of the Company's research collaborations and
subscriptions. The use of these technologies in internal programs has led to
patent filings on proteins that participate in disease-related biological
pathways.
MIM uses genetically engineered cells to simultaneously test for interactions
between thousands of pairs of proteins. First, two cDNA libraries are produced
from the genes expressed in any biological sample, including human tissues,
animals or pathogens. Next, each cell in the MIM system is engineered to
contain a foreign protein encoded by a gene from one of the two cDNA libraries.
Each of these foreign proteins is connected to one half of an essential
activating protein that has been split in two and cannot function unless
reconstituted. Billions of these engineered cells are then fused,
simultaneously, to test for interactions between the majority of possible
combinations of foreign proteins from each library. If a cell contains two
foreign proteins which interact with each other, the essential activating
protein is reconstituted and permits the cell to live. Those cells that do not
contain interacting proteins die. The identities of the interacting proteins in
the surviving cells are then determined by sequencing the DNA encoding the
foreign proteins.
The Company believes its automated MIM technology is an advance over
technical approaches in which a single target protein is the same in all the
cells, while the second foreign protein is from a cDNA library. This approach
can identify only those proteins that interact with a single target protein of
interest. The Company has introduced proprietary advances that permit testing
of interactions using two protein libraries simultaneously, which eliminates
the need for a specific target protein and the protein-by-protein approach for
elucidating pathways. The Company believes that its proprietary advances in
biological methods and computer software also allow a significant reduction in
the error rate due to incorrect identification of protein-protein interactions.
COMBIGEN AND HITCALLING: CURAGEN'S TECHNOLOGY FOR MULTIPLEXED HIGH-THROUGHPUT
SCREENING ASSAYS
The Company is developing its CombiGen technology and HitCalling database to
accelerate high-throughput screening of novel protein targets. The Company's
CombiGen technology is designed to employ cells that have been engineered to
express foreign protein targets. Many of these cells, each potentially
expressing unique targets, are then introduced into each well of an assay
plate. The engineered cells in each well are then exposed to a small molecule
from a chemical diversity library as part of an automated, high-throughput
screen. In most cases, the small molecule does not bind to any of the foreign
proteins and all the cells in a well die. If the small molecule does bind to a
foreign protein target in one of the cells, however, that cell lives. This
selection step allows the assay to be multiplexed for many protein targets in
parallel: thousands or millions of cells, each expressing different targets,
can be introduced at once and assayed against the same small molecule. Growth
in a
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well implies that the small molecule is active against one or more of the
foreign protein targets. The identity of the targets can then be determined by
sequencing DNA from the surviving cells. The identities of the protein targets
and hits will be stored in the HitCalling database.
CombiGen technology leverages CuraGen's expertise with MIM technology and is
directly applicable to proteins discovered by MIM and PathCalling to
participate in protein-protein interactions. CombiGen also permits screening of
protein targets discovered through methods other than MIM.
CORE TECHNOLOGY DEVELOPMENT
The Company has historically reduced its reliance on equity financing for
developing its GeneCalling, PathCalling, HitCalling and related core
technologies by competing successfully for federal grants. Granting agencies
have included the National Cancer Institute (NCI) and the National Human Genome
Research Institute (NHGRI) of the National Institutes of Health (NIH) and the
National Institute of Standards and Technology (NIST) of the United States
Department of Commerce through its Advanced Technology Program (ATP). The
Company believes that these multiple awards, in particular the receipt of three
separate ATP awards in a highly competitive selection process, attest to
CuraGen's excellence in developing and applying innovative, commercially
valuable technology.
Bioinformatics. CuraGen's GeneScape operating system provides web-based
access to its technologies, processes and databases; full capabilities for
project management and discovery queries over the Internet or at a client's
site; and use of GeneTools, a full-featured suite of bioinformatics software.
GeneScape uses JAVA and C programs to interact with an underlying Oracle
database. The Company plans to continue development of GeneScape as a modular,
cross-platform system able to serve as a standardized operating system for
multiple genomic-based technologies.
Instrumentation. CuraGen has conducted extensive technology research and
development for the analysis of DNA fragments, which the Company considers to
be an important unit operation for genomics. The Company believes that there is
strategic value in developing in-house, proprietary technology and
instrumentation that offers higher performance than commercially-available DNA
electrophoresis and hybridization platforms.
The Company has developed its Niagara DNA analysis device to operate in
conjunction with QEA and GeneCalling. The Company believes that Niagara is
faster, more sensitive and flexible, and offers better resolution of closely-
spaced gene fragments than commercially available instruments. In addition, the
Company has developed its proprietary Open Genome Initiative ("OGI") software
for signal processing and data analysis in conjunction with its Niagara device.
OGI software is integrated with the GeneScape operating system, but is also
capable of stand-alone operation or for use with commercially available DNA
analysis instruments.
CuraGen is developing an upgrade path for the Niagara instrument that
includes MicroNiagara, combining features of slab-gel and capillary
electrophoresis, and NanoNiagara, a micromachined separation chip that uses a
non-electrophoretic, liquid-phase mechanism for DNA separation. The Company
believes that these advanced programs will help maintain its competitive
advantage in the separation, detection and analysis of DNA.
COMPETITION
The Company faces, and will continue to face, intense competition from
pharmaceutical, biotechnology and diagnostic companies, as well as academic and
research institutions and government agencies. The Company is subject to
significant competition from organizations that are pursuing technologies and
products that are the same as or similar to the Company's technology and
products. Many of the organizations competing with the Company have greater
capital resources, research and development staffs and facilities and marketing
capabilities than the Company. In addition, research in the field of genomics
generally is highly competitive. Competitors of the Company in the genomics
area include, among others, public companies such as Affymetrix, Inc., Human
Genome Sciences, Inc., Incyte Pharmaceuticals, Inc. and Millennium
Pharmaceuticals, Inc., as well as private
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companies and major pharmaceutical companies. Universities and other research
institutions, including those receiving funding from the federally funded
Human Genome Project, also compete with the Company. The Company's future
success will depend in large part on its maintaining a competitive position in
the genomics field. Rapid technological development by the Company or others
may result in products or technologies becoming obsolete before the Company
recovers the expenses it incurs in connection with their development. Products
offered by the Company could be made obsolete by less expensive or more
effective technologies. There can be no assurance that the Company will be
able to make the enhancements to its technology necessary to compete
successfully with newly emerging technologies. See "Business--Competition."
A number of competitors are attempting to identify and patent genes and gene
fragments sequenced at random, typically without specific knowledge of the
function of such genes or gene fragments. The Company's competitors may
discover, characterize or develop important genes or gene fragments in advance
of the Company, which could have a material adverse effect on any related
disease research program of the Company. The Company expects competition to
intensify in genomics research as technical advances are made and become more
widely known. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY
The Company's business and competitive position are dependent upon its
ability to protect its GeneCalling, PathCalling and HitCalling proprietary
technologies, processes, databases and information systems. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to obtain and use information that the Company regards as proprietary.
The Company relies on patent, trade secret and copyright law and nondisclosure
and other contractual arrangements to protect such proprietary information.
The Company has filed patent applications for its proprietary methods and
devices for gene expression analysis, for discovery of biological pathways and
for drug screening for pharmaceutical product development. As of September 30,
1997, the Company had 14 patent applications pending, with the United States
Patent and Trademark Office ("USPTO"), covering its technology and had filed
several corresponding international and foreign patent applications. To date,
no patents have been issued to the Company with respect to such technology and
there can be no assurance that any patents will issue. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's proprietary information, that such information will not be disclosed
or that the Company can effectively protect its rights to unpatented trade
secrets or other proprietary information.
The Company's commercial success will also depend in part on obtaining
patent protection on gene and protein target discoveries for which it or its
collaborators or subscribers discover utility and on products, methods and
services based on such discoveries. The Company has applied for patent
protection for novel mutants of known genes and their uses, partial sequences
of novel proteins and their gene sequences and uses, and novel uses for
previously identified genes discovered by third parties. The Company has
sought and intends to continue to seek patent protection for novel uses for
genes which may have been patented by third parties. In such cases, the
Company would need a license from the holder of the patent with respect to
such gene in order to make, use or sell such gene. There can be no assurance
that the Company will be able to acquire such licenses on commercially
reasonable terms, if at all. The Company's patent application filings that
result from the identification of genes associated with the cause or effect of
a particular disease generally seek to protect the genes and encoded proteins
if these genes and encoded proteins are, among other things, novel and non-
obvious, as well as therapeutic, diagnostic and drug screening methods and
products, and other subject matter based upon a gene and its indication. Where
information is discovered on the specific biological pathway in which the
protein encoded by the gene participates, the Company also seeks to protect
the newly identified protein complex as well as the methods for identifying
intervention strategies. Each application typically contains multiple genes
discovered for a particular disease system.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance
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that any of the Company's pending patent applications will result in issued
patents, that the Company will develop additional proprietary technologies that
are patentable, that any patents issued to the Company or its collaborative
customers will provide a basis for commercially viable products or will provide
the Company with any competitive advantages or will not be challenged or
circumvented or invalidated by third parties, or that the patents of others
will not have an adverse effect on the ability of the Company to do business.
In addition, patent law relating to the scope of claims in the technology
fields in which the Company operates is still evolving. The degree of future
protection for the Company's proprietary rights is uncertain. Furthermore,
there can be no assurance that others will not independently develop similar or
alternative technologies, duplicate any of the Company's technologies, or, if
patents are issued to the Company, design around the patented technologies
developed by the Company. In addition, the Company could incur substantial
costs in litigation if it is required to defend itself in patent suits brought
by third parties or if it initiates such suits.
There can be no assurance that patents for the Company's products or methods
will be obtained, or that, if issued, such patents will provide substantial
protection or be of commercial benefit to the Company. The issuance of a patent
is not conclusive as to its validity or enforceability, nor does it provide the
patent holder with freedom to operate without infringing the patent rights of
others. A patent could be challenged by litigation and, if the outcome of such
litigation were adverse to the patent holder, competitors could be free to use
the subject matter covered by the patent, or the patent holder may license the
technology to others in settlement of such litigation. The invalidation of key
patents owned by or licensed to the Company or non-approval of pending patent
applications could increase competition, and result in a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that any application or
exploitation of the Company's technology will not infringe patents or
proprietary rights of others or that licenses that might be required as a
result of such infringement for the Company's processes or products would be
available on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of others' proprietary rights. The Company may participate in
interference proceedings that may in the future be declared by the USPTO to
determine priority of invention, which could result in substantial cost to the
Company. There can be no assurance that the outcome of any such litigation or
interference proceedings will be favorable to the Company or that the Company
will be able to obtain licenses to technology that it may require or that, if
obtainable, such technology can be licensed at a reasonable cost.
The public availability of ESTs or other sequence information prior to the
time the Company applies for patent protection on a corresponding full-length
or partial gene could adversely affect the Company's ability to obtain patent
protection with respect to such gene or gene sequences. In addition, certain
other groups are attempting to rapidly identify and characterize genes through
the use of gene expression analysis and other technologies. To the extent any
patents issue to other parties on such partial or full-length genes or uses for
such genes, the risk increases that the sale of potential products, including
therapeutics, or processes developed by the Company or its collaborators may
give rise to claims of patent infringement. Others may have filed and in the
future are likely to file patent applications covering genes or gene products
that are similar or identical to those of the Company. No assurance can be
given that any such patent application will not have priority over patent
applications filed by the Company. Any legal action against the Company or its
collaborators claiming damages and seeking to enjoin commercial activities
relating to the affected products and processes could, in addition to
subjecting the Company to potential liability for damages, require the Company
or its collaborators to obtain a license in order to continue to manufacture or
market the affected products and processes or could enjoin the Company from
continuing to manufacture or market the affected products and processes. There
can be no assurance that the Company or its collaborators would prevail in any
such action or that any license required under any such patent would be made
available on commercially acceptable terms, if at all. The Company believes
that there may be significant litigation in the industry regarding patent and
other intellectual property rights. If the Company becomes involved in such
litigation, it could consume a substantial portion of the
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Company's managerial and financial resources. Under the Company's government
grants and contracts, the federal government has a nonexclusive,
nontransferable, paid-up license to practice or have practiced for or on behalf
of the United States, throughout the world and, under certain circumstances, to
grant to other parties licenses under, any inventions conceived or first
actually reduced to practice under the government grants and contracts.
There is substantial uncertainty concerning the extent to which supportive
data will be required for issuance of patents for human therapeutics. If data
additional to that available to the Company is required, the Company's ability
to obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, there can be no
assurance that USPTO examiners will follow such guidelines or that the USPTO's
position will not change with respect to what is required to establish utility
for gene sequences and products and methods based on such sequences.
Furthermore, the enactment of the legislation implementing the General
Agreement on Tariffs and Trade has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patent protection for patent applications filed on or after June 8, 1995 is no
longer a period of seventeen years from the date of grant. The new term of
United States patents will commence on the date of issuance and terminate
twenty years from the earliest filing date in the United States to which
priority is claimed for the application. Because the time from filing to
issuance of biotechnology patent applications is often more than three years, a
twenty-year term from the claimed United States priority date may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. If this change results in a shorter period of
patent coverage, the Company's business could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from its strategic partners is based on the existence of a valid patent.
The Company also relies upon trade secret protection for some of its
confidential and proprietary information that is not subject matter for which
patent protection is being sought. The Company believes that it has developed
proprietary technology, processes and information systems for use in gene
expression and biological pathway discovery, as well as in the identification
of molecular targets for pharmaceutical development, including proprietary
biological protocols, instrumentation, robotics and automation, software and an
integrated bioinformatics system. In addition, the Company has developed a
database of proprietary gene expression patterns and biological pathways which
it updates on an ongoing basis and which can be accessed over the Internet. The
Company has taken security measures to protect its proprietary technologies,
processes, information systems and data and continues to explore ways to
enhance such security. There can be no assurance, however, that such measures
will provide adequate protection for the Company's trade secrets or other
proprietary information. While the Company requires employees, academic
collaborators and consultants to enter into confidentiality and/or non-
disclosure agreements where appropriate, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade
secrets. See "Risk Factors--Patents and Proprietary Rights; Third Party
Rights."
GOVERNMENT REGULATION
Prior to marketing, any new drug developed by the Company or its
collaborative customers must undergo an extensive regulatory approval process
in the United States and other countries. This regulatory process, which
includes preclinical and clinical studies, as well as post-marketing
surveillance to establish a compound's safety and efficacy, can take many years
and require the expenditure of substantial resources. Data obtained from such
studies are susceptible to varying interpretations that could delay, limit or
prevent regulatory approval. The rate of completion of clinical trials is
dependent upon, among other factors, the enrollment of patients. Patient
accrual is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the eligibility
criteria for the study and the existence of competitive clinical trials. Delays
in planned patient enrollment in clinical trials may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company. Delays or rejections may also be encountered based upon changes in FDA
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policies for drug approval during the period of product development and FDA
regulatory review of each submitted NDA in the case of new pharmaceutical
agents, or PLA in the case of biologics. Similar delays also may be
encountered in the regulatory approval of any diagnostic product and in
obtaining regulatory approvals in foreign countries. Under current guidelines,
proposals to conduct clinical research involving gene therapy at institutions
supported by the NIH must be approved by the Recombinant DNA Advisory
Committee and the NIH. There can be no assurance that regulatory approval will
be obtained for any drugs or diagnostic products developed by the Company or
its collaborative customers. Furthermore, regulatory approval may impose
limitations on the indicated use of a drug. Because certain of the products
likely to result from the Company's disease research programs involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities and, as a result, regulatory
approvals may be obtained more slowly than for products using more
conventional technologies.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may have adverse effects on the Company's business,
financial condition and results of operations, including withdrawal of the
product from the market. Violations of regulatory requirements at any stage,
including preclinical studies and clinical trials, the approval process or
post-approval, may result in various adverse consequences to the Company,
including the FDA's delay in approval or refusal to approve a product,
withdrawal of an approved product from the market or the imposition of
criminal penalties against the manufacturer and NDA or PLA holder. The Company
has not submitted an IND for any product candidate, and no product candidate
has been approved for commercialization in the United States or elsewhere. The
Company intends to rely primarily on its collaborators to file INDs and
generally direct the regulatory approval process. No assurance can be given
that the Company or any of its collaborators will be able to conduct clinical
testing or obtain the necessary approvals from the FDA or other regulatory
authorities for any products. Failure to obtain required governmental
approvals will delay or preclude the Company's collaborators from marketing
drugs or diagnostic products developed by the Company or limit the commercial
use of such products and could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's research and development activities involve the controlled use
of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by federal, state and local laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any liability could exceed the resources of the
Company. See "Risk Factors--Government Regulation; No Assurance of Regulatory
Approval."
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EMPLOYEES
At September 30, 1997, the Company had 150 full-time equivalent employees, of
whom 70 held Ph.D. or other doctoral degrees and 12 others held masters or
other post-graduate degrees. The employee group includes engineers, physicians,
molecular biologists, chemists and computer scientists. The Company intends to
expand its number of full-time equivalent employees and affiliates prior to the
end of 1997. The Company believes that its relations with its employees are
good. None of the Company's employees is represented by a union.
FACILITIES
CuraGen's principal administrative offices are located in New Haven,
Connecticut in a 26,000 square foot leased facility. The Company also leases an
8,000 square foot technology development laboratory at its original site in
Branford, Connecticut, and a 4,000 square foot facility in Alachua, Florida.
The Company also supports scientists at the University of California at
Berkeley MicroFabrication laboratory. CuraGen believes that its facilities are
adequate for the Company's operations and that suitable additional space will
be available in New Haven, Branford and Alachua as needed.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages as of
October 1, 1997, and their positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jonathan M. Rothberg, Ph.D............ 34 Chief Executive Officer, President
and Chairman of the Board
Gregory T. Went, Ph.D................. 34 Executive Vice President and
Director
David M. Wurzer, C.P.A................ 39 Executive Vice President, Treasurer
and Chief Financial Officer
Elizabeth A. Whayland, C.P.A.......... 37 Director of Financial Management and
Secretary
Peter A. Fuller, Ph.D................. 42 Vice President, Business Development
Stephen F. Kingsmore, M.B., Ch.B...... 37 Vice President, Research
Vincent T. DeVita, Jr., M.D........... 62 Director
</TABLE>
Jonathan M. Rothberg, Ph.D. has served as Chief Executive Officer, President
and Chairman of the Board of Directors of the Company since its formation in
1991. Dr. Rothberg received his B.S. in Chemical Engineering from Carnegie
Mellon University and his M.S., M. Phil. and Ph.D. in Biology from Yale
University.
Gregory T. Went, Ph.D. has served as Executive Vice President of the Company
since February 1997 and as a Director of the Company since October 1997. From
September 1994 until February 1997, Dr. Went served as Vice President,
Business Development of the Company. From the Company's formation until
September 1994, Dr. Went served as Director of Structural Biology. Dr. Went
received his B.S. in Chemical Engineering from Carnegie Mellon University and
his Ph.D. in Chemical Engineering from the University of California, Berkeley.
David M. Wurzer, C.P.A. has served as Executive Vice President, Treasurer
and Chief Financial Officer of the Company since September 1997. From January
1991 to September 1997, Mr. Wurzer served as Senior Vice President and Chief
Financial Officer and in other senior managerial positions for Value Health,
Inc., a managed health care provider. Mr. Wurzer received his B.B.A. from the
University of Notre Dame.
Elizabeth A. Whayland, C.P.A. has served as Director of Financial Management
since November 1994 and as Secretary of the Company since September 1997. From
July 1982 to November 1994, Ms. Whayland served as a Senior Manager and in
other staff and management positions with Deloitte & Touche. Ms. Whayland
received her B.A. from Grove City College and her M.S.T. from the University
of Hartford.
Peter A. Fuller, Ph.D. has served as Vice President, Business Development of
the Company since October 1997. From September 1983 to October 1997, Dr.
Fuller served as Director, Technology Identification & Assessment, Director,
Technology Access, Director, Technology Acquisition Group and Soybean Research
Station Manager for Pioneer, a leading supplier of agricultural genetics. Dr.
Fuller received his B.S. from California State University and his M.S. and
Ph.D. from the University of Nebraska.
Stephen F. Kingsmore, M.B., Ch.B. has served as Vice President, Research of
the Company since October 1997. From July 1994 to October 1997, Dr. Kingsmore
served as Assistant Professor at the University of Florida in its Department
of Medicine, Division of Rheumatology and Clinical Immunology and at its
Center for Mammalian Genetics. He also served as an Affiliate Assistant
Professor at the University of Florida in its Department of Pathology and
Laboratory Medicine from July 1994 to October 1997, and in its Department of
Molecular Genetics and Microbiology from August 1996 to October 1997. From
March 1988 to July 1994, he
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served in the positions of Postdoctoral Fellow, Intern, Resident and Fellow,
Rheumatology at Duke University. Dr. Kingsmore received his M.B. and his Ch.B.
from Queen's University, Belfast, United Kingdom.
Vincent T. DeVita, Jr., M.D. has served as a Director of the Company since
September 1995. Currently, he is Director of the Yale University Comprehensive
Cancer Center, a position he has held since July 1993. From September 1988 to
July 1993, Dr. DeVita served as Physician-in-Chief of the Memorial Sloane-
Kettering Cancer Center. Prior to that, he served as Director of the National
Cancer Institute from July 1980 to August 1988. Dr. DeVita received his B.S.
from the College of William and Mary and his M.D. from the George Washington
University School of Medicine.
The Board of Directors of the Company is divided into three classes as
nearly equal in number as possible. Each year the stockholders will elect the
members of one of the three classes to a three-year term of office. Dr. DeVita
serves in the class whose term expires in 1998; Dr. Went serves in the class
whose term expires in 1999; and Dr. Rothberg serves in the class whose term
expires in 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish a Compensation Committee and an Audit
Committee in October 1997. The Audit Committee will oversee the engagement of
the Company's independent accountants, review the annual financial statements
and the scope of annual audits and consider matters relating to accounting
policy and internal controls. The Compensation Committee will review, approve
and make recommendations to the Board of Directors concerning the Company's
compensation policies, practices and procedures for its executive officers.
The Compensation Committee will also administer the Company's 1997 Employee,
Director and Consultant Stock Plan (the "1997 Stock Plan") and the 1993 Stock
Option and Incentive Award Plan (the "1993 Stock Plan"). See "--Stock Option
Plans."
SCIENTIFIC ADVISORY BOARD
In 1995, the Company established a Scientific Advisory Board to assist the
Company in its research and development activities. The Scientific Advisory
Board is comprised of several distinguished scientists from outside the
Company who have significant accomplishments in areas of science and
technology that are important to the Company's future. The following
individuals are the current members of the Scientific Advisory Board:
MEDICAL/MOLECULAR BIOLOGY
Richard P. Lifton, M.D., Ph.D. serves as Chairman of the Company's
Scientific Advisory Board. Dr. Lifton is Professor of Medicine, Genetics,
Molecular Biophysics and Biochemistry at the Yale University School of
Medicine where he also serves as Director of the Programs in Molecular
Genetics and Cardiovascular Genetics. He also serves as Director of the Yale
University Specialized Center of Research in Hypertension and as investigator
of the Howard Hughes Medical Institute. Dr. Lifton received his B.A. from
Dartmouth College and his M.D. and Ph.D. from Stanford University.
Jose Costa, M.D. is Director of Anatomical Pathology and Vice-Chairman of
Pathology at the Yale University School of Medicine, Deputy Director of the
Yale University Comprehensive Cancer Center and Chief of Yale University's
Program for Critical Technologies in Breast Oncology. Dr. Costa received his
B.A. from Lycee Francais College International, Barcelona, Spain and his M.D.
from the University of Barcelona Medical School.
Pietro De Camilli, M.D. is Professor and former Director of Medical Studies
in the Department of Cell Biology at the Yale University School of Medicine
where he also serves as a member of the Executive Committee of the Yale
University Diabetes Endocrinology Research Center. He is an investigator of
the Howard Hughes Medical Institute and is a member of the National Advisory
Committee of the Pew Scholars Program in
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the BioMedical Sciences. Dr. De Camilli received his M.D. from the University
of Milano, Italy and carried out postdoctoral studies at the Yale University
School of Medicine.
BIOINFORMATICS
Daniel Seligson, Ph.D. has held various senior management positions in the
Technology and Manufacturing Group at Intel Corporation and currently serves
at Intel as Manager of 300mm Process Equipment Development. Dr. Seligson
received his B.S. from the Massachusetts Institute of Technology and his Ph.D.
from the University of California, Berkeley.
Lincoln D. Stein, M.D., Ph.D. has served as Director of Information Systems
of the Company since September 1997. From December 1995 to July 1997, Dr.
Stein was Director of Informatics Core at the Massachusetts Institute of
Technology Whitehead Institute. Dr. Stein received his B.A. from The Johns
Hopkins University and his M.D. and Ph.D. from Harvard Medical School.
TECHNOLOGY AND AUTOMATION
Harold G. Craighead, Ph.D. is Professor of Applied and Engineering Physics
at Cornell University. From January 1988 to June 1995, he served as Director
of the Cornell University Nanofabrication Facility. Dr. Craighead received his
B.S. from the University of Maryland and his Ph.D. from Cornell University.
Lynn W. Jelinski, Ph.D. is Director of both the Office of Economic
Development and the Center for Advanced Technology in Biotechnology as well as
a Professor of Engineering at Cornell University. Dr. Jelinski received her
B.S. from Duke University and her Ph.D. from the University of Hawaii.
Other than Dr. Stein, each of the Scientific Advisory Board members is
employed by an employer other than the Company or is self-employed and may
have commitments to, or consulting or advisory contracts with, other entities
that may conflict or compete with his or her obligations to the Company.
Generally, members of the Scientific Advisory Board are not expected to devote
a substantial portion of their time to Company matters.
COMPENSATION OF DIRECTORS AND SCIENTIFIC ADVISORS
Non-employee directors receive no directors' fees but are eligible to
receive automatic grants of non-qualified stock options under the 1997 Stock
Plan. Each non-employee director, upon first being elected or appointed to the
Board of Directors, will receive an option to purchase shares of Common
Stock, which will vest as equally as possible over three years of service on
the Board of Directors. Additionally, the 1997 Stock Plan provides for a grant
to each non-employee director on the date of his or her reelection (provided
that the director has served as a director since his or her initial election)
of an option to purchase shares of Common Stock, which will vest as
equally as possible over three years of service on the Board of Directors. All
automatic option grants to non-employee directors will have a term of ten
years and an exercise price equal to the fair market value of the Common Stock
on the date of grant. In addition, non-employee directors are reimbursed for
travel costs and other out-of-pocket expenses incurred in attending each
directors' meeting and committee meeting. See "--Stock Option Plans."
Each member of the Scientific Advisory Board is paid a stipend of $1,000 per
day, plus expenses for each day of service. In addition, members have received
options to purchase shares of the Common Stock. These options were granted at
various exercise prices and are exercisable at various dates through May 2007.
Members of the Scientific Advisory Board may receive additional option grants
from time to time.
In May 1997, the Company entered into a Scientific Advisory Board Agreement
with Richard P. Lifton, M.D. Ph.D. (the "SAB Agreement"). The SAB Agreement
provides for Dr. Lifton to be retained as chairman of the Company's Scientific
Advisory Board and as a consultant to the Company in the field of genomics.
Dr. Lifton will not be required to spend more than 24 days each year providing
services pursuant to the SAB Agreement. The initial term of the SAB Agreement
is for a period of three years and can be extended for
52
<PAGE>
one-year periods. Either party may, however, terminate the SAB Agreement, with
or without cause, by giving at least thirty days prior written notice to the
other party.
During the term of the SAB Agreement, and for a period of six months
following the termination of the SAB Agreement, Dr. Lifton will not directly
or indirectly be a founder of, serve as a member of the scientific board of,
or act as an officer or employee of, or, without written permission of the
Company, consult for any entity that provides biotechnology services or
products or otherwise assists an entity or person in developing, producing,
marketing or selling any biotechnology product or service. Dr. Lifton, may,
however, continue to perform services and research on behalf of the Howard
Hughes Medical Institute or Yale University School of Medicine. If the Company
terminates the SAB Agreement without cause, the foregoing restrictions do not
apply.
Pursuant to the SAB Agreement, Dr. Lifton will receive a consulting fee of
$1,000 for each day of services provided to the Company, as well as
reimbursement for all reasonable and necessary expenses incurred in connection
with his consulting services. Dr. Lifton has also received a stock option to
purchase 86,250 shares of Common Stock at an exercise price of $4.10 per
share.
EXECUTIVE COMPENSATION
Summary Compensation. The following table presents certain information
concerning compensation paid or accrued for services rendered to the Company
in all capacities during the year ended December 31, 1996, for the chief
executive officer and the other most highly compensated executive officers of
the Company earning greater than $100,000 in the year ended December 31, 1996
(the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
Jonathan M. Rothberg, Ph.D. ..................... $125,000(1) $-- $--
Chief Executive Officer
</TABLE>
- --------
(1) From the Company's inception through September 30, 1996, Dr. Rothberg
indefinitely deferred the payment of his salary on an interest-free basis.
Accordingly, $93,750 of Dr. Rothberg's salary for the year ended December
31, 1996 has been deferred and $308,125 of Dr. Rothberg's salary has been
deferred in the aggregate.
Option Grants. There were no options granted by the Company during the year
ended December 31, 1996 to the Named Executive Officer.
Option Exercises and Year-End Option Values. The Named Executive Officer did
not exercise any options during 1996 and did not hold any stock options at
December 31, 1996.
EMPLOYMENT ARRANGEMENTS
The Company has entered into letter agreements (collectively, the
"Employment Letters") with the following executive officers: Dr. Went, Mr.
Wurzer, Dr. Fuller and Dr. Kingsmore in February 1997, July 1997, August 1997,
and August 1997, respectively. The Employment Letters do not specify a term of
employment. Pursuant to the Employment Letters, Drs. Went and Kingsmore and
Mr. Wurzer receive base salaries of $125,000 and Dr. Fuller receives a base
salary of $115,000. Each Employment Letter also provides for a bonus, which
the Board of Directors may, in its discretion, award from time to time. The
Company has agreed that, upon the closing of this Offering, the Board of
Directors will review Dr. Went's, Mr. Wurzer's, Dr. Fuller's and Dr.
Kingsmore's compensation and provide an enhanced compensation package to each
employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company will serve as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
53
<PAGE>
STOCK OPTION PLANS
1997 Stock Plan. The Company's 1997 Stock Plan was approved by the Company's
Board of Directors and stockholders in October 1997. The 1997 Stock Plan
provides for the issuance of stock options and stock grants ("Stock Rights")
to employees, directors and consultants of the Company. A total of shares
of Common Stock have been reserved for issuance under the 1997 Stock Plan. No
Stock Rights have been granted under the 1997 Stock Plan. The 1997 Stock Plan
will be administered by the Compensation Committee of the Board of Directors.
The Compensation Committee will have the authority to administer the
provisions of the 1997 Stock Plan and to determine the persons to whom Stock
Rights will be granted, the number of shares to be covered by each Stock Right
and the terms and conditions upon which a Stock Right may be granted.
Stock grants under the 1997 Stock Plan will be subject to such terms and
conditions as the Compensation Committee deems to be appropriate and in the
best interest of the Company. These terms may include conditions relating to
the right of the Company to reacquire the shares subject to the Stock grant,
including the time and events upon which such rights shall accrue, and the
purchase price of the shares.
Options granted under the 1997 Stock Plan may be either (i) options intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified stock
options. The exercise price of options granted under the 1997 Stock Plan will
be determined by the Compensation Committee, provided that, in the case of
incentive stock options, the price will not be less than 100% of the fair
market value of the Common Stock on the date of grant, or not less than 110%
of the fair market value of the Common Stock on the date of grant if the
optionee holds 10% or more of the voting stock of the Company. The 1997 Stock
Plan also provides for the automatic grant of non-qualified options to non-
employee directors of the Company. See "--Compensation of Directors and
Scientific Advisors." An incentive stock option granted under the 1997 Stock
Plan may be exercised after the termination of the optionholder's employment
with the Company (other than by reason of death, disability or termination for
"cause" as defined in the 1997 Stock Plan), to the extent exercisable on the
date of termination, at any time prior to the earlier of the option's
specified expiration date or 90 days after such termination. The Compensation
Committee may specify the termination or cancellation provisions applicable to
a non-qualified stock option. In the event of the optionholder's death or
disability, both incentive stock options and non-qualified stock options
generally may be exercised, to the extent exercisable on the date of death or
disability, by the optionholder or the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or one year
from the date of death or disability. Generally, in the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.
If the Company is to be consolidated with or acquired by another entity in a
merger, sale of all or substantially all of the Company's assets or otherwise
(an "Acquisition"), the Compensation Committee or the board of directors of
any entity assuming the obligations of the Company under the Plan shall, as to
outstanding options under the plan, either (i) make appropriate provision for
the continuation of such options by substituting, on an equitable basis, for
the shares then subject to such options, the consideration payable with
respect to the outstanding shares of Common Stock in connection with an
Acquisition or securities of the successor or acquiring entity; or (ii) upon
written notice to the optionholders, provide that all options must be
exercised (either to the extent then exercisable or, at the discretion of the
Compensation Committee, all options being made fully exercisable for purposes
of such transaction) within a specified number of days of the date of such
notice, at the end of which period the options shall terminate; or (iii)
terminate all options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to each such option (either to the
extent then exercisable or, at the discretion of the Compensation Committee,
all options being made fully exercisable for purposes of such transaction)
over the exercise price thereof.
1993 Stock Plan. The Company's 1993 Stock Plan was approved by the Company's
Board of Directors and stockholders in December 1993 and subsequently amended
by the Board of Directors in May 1997. The 1993 Stock Plan provides for the
issuance of stock options and stock awards to employees and consultants of the
Company and members of the Company's Board of Directors and Scientific
Advisory Board. Of the 1,500,000
54
<PAGE>
shares of Common Stock which were reserved for issuance under the 1993 Stock
Plan, options to purchase 1,053,800 shares have been granted and are
outstanding. The Company does not intend to grant any additional options or
awards under the 1993 Stock Plan.
Upon termination of service to the Company (other than by reason of death,
disability or termination for "cause" as defined in the 1993 Stock Plan) an
option granted under the 1993 Stock Plan is generally exercisable, to the
extent exercisable on the date of termination, for up to three months
following termination. In the event of the optionholder's death or disability,
options generally may be exercised, to the extent exercisable on the date of
death or disability, by the optionholder or the optionholder's survivors for
up to one year from the date of death or disability. In the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.
If the Company is to be consolidated with or merged into another entity
(such that the Company is not the surviving entity), or upon a sale of all or
substantially all of the Company's assets or otherwise (a "Change in
Control"), the Compensation Committee or the board of directors of any entity
assuming the obligations of the Company under the plan shall, as to
outstanding options, either (i) make appropriate provision for the
continuation of such options by substituting, on an equitable basis, the
shares then subject to such options for the consideration payable with respect
to the outstanding shares of Common Stock in connection with a Change in
Control or securities of the successor or acquiring entity; or (ii) upon
written notice to the optionholders, provide that all options must be
exercised (to the extent then exercisable) within a specified number of days
of the date of such notice, at the end of which period the options shall
terminate; or (iii) terminate all options in exchange for a cash payment equal
to the excess of the fair market value of the shares subject to each such
option (to the extent then exercisable) over the exercise price thereof.
Additional Options. In addition to the options granted under the 1993 Stock
Plan, the Company has granted options to purchase an aggregate of 570,000
shares of Common Stock pursuant to individual agreements with Company
employees and consultants. These options incorporate the provisions of the
1993 Stock Plan to the extent such provisions are not inconsistent with the
terms of those options.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Restated
Certificate limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. See
"Description of Capital Stock--Delaware Law and Certain Charter and Bylaw
Provisions."
The Restated Certificate provides mandatory indemnification rights to any
officer or director of the Company who, by reason of the fact that he or she
is an officer or director of the Company, is involved in a legal proceeding of
any nature. Such indemnification rights include reimbursement for expenses
incurred by such officer or director in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification by the Company will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
55
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1994, there has not been nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeded or exceeds $60,000 and
in which any director, executive officer, holder of more than 5% of the Common
Stock of the Company or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest
other than the transactions described below.
In 1993, seven members of Dr. Rothberg's family, including Henry M. Rothberg
and Lillian R. Rothberg, who are Dr. Rothberg's parents and five percent
beneficial stockholders of the Company, and Michael J. Rothberg who is Dr.
Rothberg's brother and a five percent beneficial stockholder of the Company,
loaned $898,000 to the Company. On December 30, 1993, the notes evidencing
these loans were canceled in exchange for 898,000 shares of Common Stock and
two-year warrants to purchase 1,122,500 shares of Common Stock at an exercise
price of $1.00 per share. In 1995, the Company modified these warrants to
extend their terms from two years to seven years.
In March 1997, the Company raised gross proceeds of approximately $1,750,000
by completing a private placement of 175,000 shares of Series B Preferred
Stock with five investors at a price of $10.00 per share. In connection with
this private placement, the Company issued five-year warrants to purchase
358,361 shares of Common Stock at an exercise price of $5.86 per share. Henry
and Lillian Rothberg purchased 60,000 shares of such Series B Preferred Stock
and were issued warrants to purchase 122,866 shares of Common Stock. Hemroc II
Trust, a trust of which Michael J. Rothberg is a co-trustee, purchased 10,000
shares of Series B Preferred Stock and was issued warrants to purchase 20,478
shares of Common Stock. Gianpiero Molinari, the brother-in-law of Dr. Rothberg
and Michael J. Rothberg and the son-in-law of Henry and Lillian Rothberg,
purchased 5,000 shares of the Series B Preferred Stock and was issued warrants
to purchase 10,239 shares of Common Stock.
In March 1997, the Company raised gross proceeds of $11,787,202 by
completing a private placement of 2,011,468 shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") with eleven investors at a
price of $5.86 per share. In connection with this private placement, the
Company also issued three-year warrants to purchase 366,894 shares of Common
Stock at an exercise price of $9.00 per share to two investors who purchased
1,706,485 and 127,986 shares of Series C Preferred Stock, respectively. Henry
and Lillian Rothberg purchased 34,130 shares of the Series C Preferred Stock.
Quantum Industrial Partners LDC, a five percent beneficial stockholder of the
Company, purchased 1,706,485 shares of the Series C Preferred Stock and was
issued warrants to purchase 341,297 shares of Common Stock.
In May 1997, Pioneer became a five percent beneficial stockholder of the
Company, through the purchase of 1,000,000 shares of Series D Convertible
Preferred Stock (the "Series D Preferred Stock") at a price of $7.50 per
share. The Company and Pioneer also entered into a Collaborative Research and
License Agreement related to the discovery and development of genes associated
with plant growth and development. See "Business--Research Collaborations" for
a description of this Agreement.
Upon the closing of the Offering, all of the Company's 175,000 outstanding
shares of Series B Preferred Stock will be redeemed by the Company. In
addition, upon the closing of the Offering, as part of the Automatic
Conversion, all of the Series C Preferred Stock and Series D Preferred Stock
will convert into Common Stock on a one for one basis. The holders of the
Series C Preferred Stock and the Series D Preferred Stock have been granted
registration rights. See "Description of Capital Stock--Registration Rights"
for a description of these rights.
56
<PAGE>
From September 1993 to July 1997, Michael J. Rothberg arranged a number of
capital leases and purchases of equipment and supplies on behalf of the
Company. The Company believes that these capital leases and purchases were on
terms at least as favorable as would have been available from a third party.
As compensation for these services, the Company granted stock options to
Michael J. Rothberg as follows: in November 1994, an immediately exercisable
stock option to purchase 15,000 shares of Common Stock at a price of $2.23 per
share; and in March 1996, a stock option to purchase 35,800 shares of Common
Stock at a price of $3.00 per share, which vests over a six-year period from
the date of grant. Both options expire ten years from the date of grant.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of Common Stock as of October 1, 1997 and
as adjusted to reflect the sale of the shares offered hereby, by (i) each
person known to the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer named in the Summary Compensation Table and (iv) all
directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)(2)
------------------------
NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED THE OFFERING THE OFFERING
---------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Jonathan M. Rothberg,
Ph.D.(3).................. 3,592,000 40.5% %
c/o CuraGen Corporation
555 Long Wharf Drive, 11th
Floor
New Haven, CT 06511
Quantum Industrial
Partners, LDC (4)......... 2,047,782 22.2% %
888 7th Avenue, 33rd Floor
New York, NY 10106
Pioneer Hi-Bred
International, Inc........ 1,000,000 11.3% %
700 Capital Square
400 Locust Street
Des Moines, IA 50309
Henry M. Rothberg (5)...... 944,496 10.3% %
c/o Law Offices of Marshal
D. Gibson, P.C.
152 Temple Street
New Haven, CT 06510
Lillian R. Rothberg (6).... 944,496 10.3% %
c/o Law Offices of Marshal
D. Gibson, P.C.
152 Temple Street
New Haven, CT 06510
Michael J. Rothberg (7).... 538,388 5.9% %
c/o Law Offices of Marshal
D. Gibson, P.C.
152 Temple Street
New Haven, CT 06510
Gregory T. Went, Ph.D.
(8)....................... 189,500 2.1% %
Vincent T. DeVita, Jr.,
M.D. (9).................. 15,000 * %
All directors and executive
officers as a group (7
persons) (10)............. 3,865,000 42.3% %
</TABLE>
- --------
*Less than 1%.
(1) Shares of Common Stock that an individual or group has the right to
acquire within 60 days of October 1, 1997 pursuant to the exercise of
options or warrants are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(2) Percentage of ownership is based on 8,871,987 shares of Common Stock
outstanding on October 1, 1997.
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<PAGE>
(3) Includes 500,000 shares of Common Stock held by a limited partnership of
which Dr. Rothberg is the sole general partner.
(4) Includes 341,297 shares of Common Stock subject to currently exercisable
warrants.
(5) Includes (i) 61,433 shares of Common Stock subject to currently
exercisable warrants, (ii) 350,000 shares of Common Stock and 187,500
shares of Common Stock subject to currently exercisable warrants held
jointly with his wife, Lillian R. Rothberg, and (iii) 142,065 shares of
Common Stock and 61,433 shares of Common Stock subject to currently
exercisable warrants held by his wife, Lillian R. Rothberg. Mr. Rothberg
disclaims beneficial ownership of the shares of Common Stock held by or
which may be acquired by his wife.
(6) Includes (i) 61,433 shares of Common Stock subject to currently
exercisable warrants, (ii) 350,000 shares of Common Stock and 187,500
shares of Common Stock subject to currently exercisable warrants held
jointly with her husband, Henry M. Rothberg, and (iii) 142,065 shares of
Common Stock and 61,433 shares of Common Stock subject to currently
exercisable warrants held by her husband, Henry M. Rothberg. Mrs.
Rothberg disclaims beneficial ownership of the shares of Common Stock
held by or which may be acquired by her husband.
(7) Includes (i) 108,750 shares of Common Stock subject to currently
exercisable warrants, (ii) 22,160 shares of Common Stock subject to
currently exercisable options, and (iii) 100,000 shares of Common Stock
and 145,478 shares of Common Stock subject to currently exercisable
warrants all held by Hemroc Trust II of which Michael J. Rothberg is a
co-trustee with his sister, Celia Rothberg Meadow.
(8) Consists of 189,500 shares of Common Stock subject to currently
exercisable options of which 10,500 shares are held by trusts for the
benefit of Dr. Went's wife and children. Dr. Went's wife is a co-trustee
of the trusts, and Dr. Went disclaims beneficial ownership of such 10,500
shares. Does not include an additional 220,500 shares subject to options
which are not currently exercisable.
(9) Consists of 15,000 shares of Common Stock subject to currently
exercisable options.
(10) Includes 10,000 shares of Common Stock subject to currently exercisable
options held by Peter A. Fuller, 20,000 shares of Common Stock subject to
currently exercisable options held by Stephen F. Kingsmore, 18,500 shares
of Common Stock subject to currently exercisable options held by
Elizabeth A. Whayland, and 20,000 shares of Common Stock subject to
currently exercisable options held by David M. Wurzer. See also footnotes
7 and 8 above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value of $.01 per share ("Common Stock"), and 3,000,000
shares of preferred stock, par value of $.01 per share ("Preferred Stock").
Upon completion of the Offering, there will be shares of Common Stock and
no shares of Preferred Stock outstanding. As of September 30, 1997, there were
8,871,987 shares of Common Stock outstanding, held of record by 31
stockholders. In addition, as of September 30, 1997, there were outstanding
options to purchase 1,623,800 shares of Common Stock and warrants to purchase
1,583,866 shares of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the
rights and preferences of the holders of any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends as are
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution or winding
up of the Company, holders of Common Stock have the right to a ratable portion
of assets remaining after the payment of all debts and other liabilities,
subject to the liquidation preferences of the holders of any outstanding
Preferred Stock. Holders of Common Stock have neither preemptive rights nor
rights to convert their Common Stock into any other securities and are not
subject to future calls or assessments by the Company. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and the shares offered hereby upon issuance and
sale will be, fully paid and non-assessable. The rights, preferences and
privileges of the holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of Preferred Stock that the
Company may designate and issue in the future.
Upon the closing of the Offering, certain redemption rights relating to
394,031 shares of Redeemable Common Stock will terminate. See Note 6 of Notes
to Financial Statements for a description of the Redeemable Common Stock.
PREFERRED STOCK
Upon the closing of the Offering, all of the outstanding shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), Series D Convertible Preferred Stock (the "Series D Preferred Stock")
and Series E Convertible Preferred Stock (the "Series E Preferred Stock") will
be converted into 3,418,635 shares of Common Stock pursuant to the Automatic
Conversion. In addition, all of the outstanding shares of Series B Preferred
Stock will be redeemed. The Preferred Stock so converted and redeemed will be
retired and may not be reissued. See Notes 5 and 6 of Notes to Financial
Statements for a description of the Preferred Stock. The Board of Directors is
authorized, subject to certain limitations prescribed by Delaware law, without
further action by the stockholders, to issue shares of Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series. The Company
believes that the power to issue Preferred Stock will provide flexibility in
connection with possible corporate transactions. The issuance of Preferred
Stock, however, could adversely affect the voting power of holders of Common
Stock and restrict their rights to receive payments upon liquidation. It could
also have the effect of delaying, deferring or preventing a change in control
of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
REGISTRATION RIGHTS
Following this Offering, the holders of 3,610,510 shares of Common Stock,
including 3,318,635 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, Series C Preferred Stock and Series D
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<PAGE>
Preferred Stock, and holders of warrants to purchase a total of 366,894 shares
of Common Stock will have certain rights to cause the Company to register
those shares under the Securities Act at any time after the first anniversary
of the closing date of this Offering (except that 291,875 shares of Common
Stock can be registered immediately after the closing of this Offering).
Thereafter, the Company may be required to effect up to two registrations
requested by the former holders of the Series A Preferred Stock, two
registrations requested by the persons who formerly held the Series C
Preferred Stock and who hold the warrants to purchase 366,894 shares of Common
Stock, two registrations requested by the former holder of the Series D
Preferred Stock and one registration requested by the holder of 291,875 shares
of Common Stock. In addition, following this Offering, the foregoing holders,
along with the former holder of 100,000 shares of Common Stock issuable upon
conversion of the Series E Preferred Stock, will have certain rights to cause
the Company to register their shares on Form S-3 under the Securities Act at
any time after the first anniversary of the closing date of this Offering.
There is no limit to the number of Form S-3 registrations that the Company may
be required to effect. Stockholders not part of the initial registration
demand are entitled to notice of such registration and are entitled to include
shares of Common Stock therein. These registration rights are subject to
certain conditions and limitations, including (i) the right, under certain
circumstances, of the underwriters of an offering to limit the number of
shares included in such registration and (ii) the right of the Company to
delay the filing of a registration statement for not more than 180 days after
receiving the registration demand.
In addition, if the Company proposes to register any of its equity
securities under the Securities Act, whether or not for sale for its own
account, other than in connection with a Company employee benefit plan, the
foregoing holders of 3,710,510 shares of Common Stock and warrants to purchase
366,894 shares of Common Stock, along with the holder of warrants to purchase
21,111 shares of Common Stock, are entitled to notice of such registration and
are entitled to include their Common Stock therein. These rights are subject
to certain conditions and limitations, including the right of the underwriters
of an offering to limit the number of shares included in such registration
under certain circumstances and the right of the Company to delay or withdraw
any such registration.
All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions and stock transfer fees or expenses)
and the fees and expenses of a single counsel to the selling stockholders will
be borne by the Company. The right of any holder to demand or be included in
any registration terminates on the date on which such holder may sell all
shares of Common Stock held by such holder under Rule 144 of the Securities
Act (except that the demand rights with respect to the 291,875 shares of
Common Stock held by one holder will only terminate when such shares are sold
to the public).
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Upon the consummation of the Offering made hereby, the Company will be
subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In
general, Section 203 prohibits a publicly-held 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, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes
of Section 203, a "business combination" is defined broadly to include a
merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years prior, did own) 15% or more of the corporation's voting
stock.
The Board of Directors of the Company is divided into three classes as
nearly equal in number as possible. Each year the stockholders will elect the
members of one of the three classes to a three year term of office. Dr. DeVita
serves in the class whose term expires in 1998; Dr. Went serves in the class
whose term expires in 1999; and Dr. Rothberg serves in the class whose term
expires in 2000. All directors elected to the Company's classified Board of
Directors will serve until the election and qualification of their successors
or their earlier resignation or removal. The Board of Directors is authorized
to create new directorships and to fill such positions
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<PAGE>
so created and is permitted to specify the class to which such new position is
assigned, and the person filling such position would serve for the term
applicable to that class. The Board of Directors (or its remaining members,
even though less than a quorum) is also empowered to fill vacancies on the
Board of Directors occurring for any reason for the remainder of the term of
the class of Directors in which the vacancy occurred. Members of the Board of
Directors may only be removed for cause. These provisions are likely to
increase the time required for stockholders to change the composition of the
Board of Directors. For example, in general, at least two annual meetings will
be necessary for stockholders to effect a change in a majority of the members
of the Board of Directors.
The Company's Amended and Restated Bylaws (the "Restated Bylaws"), provide
that, for nominations to the Board of Directors or for other business to be
properly brought by a stockholder before a meeting of stockholders, the
stockholder must first have given timely notice thereof in writing to the
Secretary of the Company. To be timely, a stockholder's notice generally must
be delivered not less than sixty days nor more than ninety days prior to the
annual meeting. If the meeting is not an annual meeting, the notice must
generally be delivered not more than ninety days prior to the special meeting
and not later than the later of sixty days prior to the special meeting or ten
days following the day on which public announcement of the meeting is first
made by the Company. Only such business shall be conducted at a special
meeting of stockholders as is brought before the meeting pursuant to the
Company's notice of meeting. The notice by a stockholder must contain, among
other things, certain information about the stockholder delivering the notice
and, as applicable, background information about the nominee or a description
of the proposed business to be brought before the meeting.
The Restated Certificate also requires that any action required or permitted
to be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of stockholders and may not be effected by a consent
in writing. Special meetings may be called only by the Board of Directors of
the Company pursuant to a resolution adopted by a majority of the total number
of directors authorized.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless the corporation's certificate
of incorporation or bylaws, as the case may be, requires a greater percentage.
The Restated Certificate requires the affirmative vote of the holders of at
least 70% of the outstanding voting stock of the Company to amend or repeal
any of the provisions discussed in this section entitled "Delaware Law and
Certain Charter and Bylaw Provisions" or to reduce the number of authorized
shares of Common Stock and Preferred Stock. Such 70% vote is also required for
any amendment to or repeal of the Restated Bylaws by the stockholders. The
Restated Bylaws may also be amended or repealed by a majority vote of the
Board of Directors. Such 70% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any Preferred Stock that might then be outstanding.
The provisions of the Restated Certificate and Restated Bylaws discussed
above could make more difficult or discourage a proxy contest or other change
in the management of the Company or the acquisition or attempted acquisition
of control by a holder of a substantial block of the Company's stock. It is
possible that such provisions could make it more difficult to accomplish, or
could deter, transactions which stockholders may otherwise consider to be in
their best interests.
As permitted by the DGCL, the Restated Certificate provides that Directors
of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of their fiduciary duties as
Directors, except for liability (i) for any breach of their duty of loyalty to
the Company and its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 or successor provisions of the DGCL or
(iv) for any transaction from which the Director derives an improper personal
benefit.
The Restated Certificate and Restated Bylaws provide that the Company shall
indemnify its Directors and officers to the fullest extent permitted by
Delaware law (except in some circumstances, with respect to suits
62
<PAGE>
initiated by the Director or officer) and advance expenses to such Directors
or officers to defend any action for which rights of indemnification are
provided. In addition, the Restated Certificate and Restated Bylaws also
permit the Company to grant such rights to its employees and agents. The
Restated Bylaws also provide that the Company may enter into indemnification
agreements with its Directors and officers and purchase insurance on behalf of
any person whom it is required or permitted to indemnify. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as Directors, officers and employees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be American Stock
Transfer & Trust Company. The transfer agent's telephone number is (212) 936-
5100.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales
may occur, could adversely affect prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."
Upon completion of the Offering, the Company expects to have shares of
Common Stock outstanding (excluding 1,623,800 and 1,583,866 shares reserved
for issuance upon the exercise of outstanding stock options and warrants,
respectively) ( shares of Common Stock outstanding if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares
offered hereby will be freely tradable without restrictions or further
registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act, which will be subject to the resale limitations imposed by
Rule 144, as described below.
All of the remaining 8,871,987 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 and may not be resold
in the absence of registration under the Securities Act, or pursuant to
exemptions from such registration including, among others, the exemption
provided by Rule 144 under the Securities Act. Of the restricted securities,
567,731 shares are eligible for sale in the public market immediately after
the Offering pursuant to Rule 144(k) under the Securities Act. A total of
1,269,167 additional restricted securities will be eligible for sale in the
public market in accordance with Rule 144 under the Securities Act beginning
90 days after the date of this Prospectus. Taking into consideration the
effect of the lock-up agreements described below and the provisions of Rules
144 and 144(k), restricted shares will be eligible for sale in the public
market immediately after the Offering, restricted shares (excluding
and shares issuable upon the exercise of outstanding stock options and
warrants, respectively) will be eligible for sale beginning 90 days after the
date of this Prospectus, and the remaining restricted shares will be eligible
for sale upon the expiration of the lock-up agreements 180 days after the date
of this Prospectus, subject to the provisions of Rule 144 under the Securities
Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an "affiliate" of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately shares after the Offering) or (ii)
the average weekly trading volume in the Company's Common Stock in the four
calendar weeks immediately preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. A person who is
not an affiliate of the issuer, has not been an affiliate within three months
prior to the sale and has owned the restricted securities for at least two
years is entitled to sell such shares under Rule 144(k) without regard to any
of the limitations described above.
Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon the exercise of options granted by the Company prior to the
date of this Prospectus will also be eligible for sale in the public market
pursuant to Rule 701 under the Securities Act. In general, Rule 701 permits
resales of shares issued pursuant to certain compensatory benefit plans and
contracts, commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, in
reliance upon Rule 144, but without compliance with certain restrictions of
Rule 144, including the holding period requirements. As of September 30, 1997,
the Company has granted options covering 1,623,800 shares of Common Stock
which have not been exercised and which become exercisable at various times in
the future. Any shares of Common Stock issued upon the exercise of these
options will be eligible for sale pursuant to Rule 701.
The executive officers and directors and certain other existing stockholders
of the Company, who beneficially own in the aggregate shares of Common
Stock and options to purchase shares of
64
<PAGE>
Common Stock, have agreed that they will not, without the prior written
consent of Morgan Stanley & Co. Incorporated (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
the Prospectus.
Upon completion of this Offering, the holders of 3,710,000 shares of Common
Stock and warrants to purchase 388,005 shares of Common Stock are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock--Registration Rights."
Registration of such shares under the Securities Act would result in such
shares becoming freely tradeable without restriction under the Securities Act
(except for shares purchased by affiliates) immediately upon the effectiveness
of such registration. All of the Company's executive officers and directors
and certain other existing stockholders who beneficially own in the aggregate
shares of Common Stock and options to purchase shares of Common Stock
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated, they will not, for a period of 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security exercisable for
Common Stock.
65
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters"), for whom Morgan Stanley & Co. Incorporated, Lehman
Brothers Inc. and Bear, Stearns & Co. Inc. are serving as Representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell to the Underwriters, severally, the respective number of shares
of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Lehman Brothers Inc. ...........................................
Bear, Stearns & Co. Inc.........................................
---
Total.........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all the shares of Common Stock offered hereby (other than
those covered by the overallotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price
and other selling terms may from time to time be varied by the Underwriters.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of the Prospectus, to purchase up to additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise
such option to purchase solely for the purpose of covering overallotments, if
any, made in connection with the offering of the shares of Common Stock
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered by the Underwriters hereby.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all of the Company's executive officers and directors
and certain other existing stockholders have agreed not to sell or otherwise
dispose of Common Stock or convertible securities of the Company for up to 180
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. The Company has agreed in the Underwriting
Agreement that it will not, directly or indirectly, without the prior written
consent of Morgan Stanley & Co. Incorporated, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus, except under certain circumstances.
In March 1997, Frederick Frank, Vice Chairman of Lehman Brothers, purchased
100,000 shares of Series B Preferred Stock for a purchase price of $10.00 per
share, or an aggregate of $1,000,000. Upon the closing of the Offering, all of
Mr. Frank's 100,000 shares of Series B Preferred Stock will be redeemed by the
Company. In addition, Mr. Frank received a warrant to purchase 204,778 shares
of Common Stock at $5.86 per share.
66
<PAGE>
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price up to shares offered hereby for
officers, directors, employees and certain other persons associated with the
Company. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the total number of
shares of Common Stock offered hereby to accounts over which they exercise
discretionary authority.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Application has been made to list the Common Stock for quotation on the
Nasdaq National Market under the symbol "CRGN."
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover overallotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may cease any of these activities at any time.
PRICE OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiations between the Company and the Representatives of the Underwriters.
Among the factors considered in determining the initial public offering price
will be the future prospects of the Company and its industry in general; net
revenue, earnings and certain other financial and operating information of the
Company in recent periods; and certain ratios, market prices of securities and
certain financial operating information of companies engaged in activities
similar to those of the Company. 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 or other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, Boston, Massachusetts 02111 and for the Underwriters by Ropes & Gray,
One International Place, Boston, Massachusetts 02110. Members of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C. own an aggregate of 20,486 shares of
Common Stock and warrants to purchase 15,000 shares of Common Stock.
EXPERTS
The financial statements of CuraGen Corporation included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein. These financial statements have been included
herein in reliance upon the report of said firm given upon their authority as
experts in accounting and auditing.
67
<PAGE>
The statements in this Prospectus under the captions "Risk Factors--Patents
and Proprietary Rights; Third-Party Rights" and "Business--Intellectual
Property" relating to United States patent matters have been passed upon by
Pennie & Edmonds LLP, 1155 Avenue of the Americas, New York, New York 10036,
patent counsel to the Company. Members of Pennie & Edmonds LLP own an
aggregate of 42,673 shares of Common Stock.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act,
with respect to the Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the Common Stock, reference is made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance where a
copy of the document has been filed as an exhibit to the Registration
Statement, reference is made to the exhibit so filed. The Registration
Statement may be inspected without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the Registration
Statement may be obtained from the Commission at prescribed rates from the
Public Reference Section of the Commission at such address, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, registration statements and
certain other filings made with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
68
<PAGE>
GLOSSARY
Base The four chemical building blocks, represented
by the letters A, C, G and T, that compose DNA.
Bioinformatics Computer software to assist in the acquisition
and analysis of information relating to genes,
proteins, biological pathways and drugs.
Chromosome
The physical structures in cells containing
large stretches of DNA (hundreds of millions of
bases) and the information for thousands of
genes.
DNA The molecule that encodes genetic information
through the sequence of four constituent bases.
DNA Sequence
The precise order of bases for a DNA fragment,
a gene, a chromosome or an entire genome.
Fluorescent Label A molecule attached to a gene fragment that
emits light when stimulated by a laser. The
emitted light is detected to measure the
quantity of labeled gene fragments.
Gel Electrophoresis
A laboratory process using a gel matrix and an
electric field to determine the size (in number
of bases) of a DNA molecule.
Gene The fundamental unit of heredity. A gene is a
specific sequence of bases (usually thousands
to tens of thousands of bases) located in a
specific location on a particular chromosome.
Genes are transcribed to produce multiple
molecules of mRNA which are then translated to
produce multiple copies of a specific protein.
Gene Expression
The process used by a cell to determine which
proteins to produce. The number of copies of a
particular protein produced by a cell is
determined primarily by the number of copies of
the mRNA which encodes it.
Gene Expression Analysis The process of correlating the expression
levels of individual genes (in terms of the
number of copies of mRNA present for a gene)
with cellular behavior as a cause or result of
disease, in response to drug treatment, or over
time.
Gene Fragment
A physical piece of a gene (in a test tube or
electrophoresis gel) containing on the order of
50 to 500 bases.
Gene Mapping Determining the position of a gene (or gene
fragment) on a chromosome.
Genome All the bases in all the genes on all the
chromosomes of a species. The human genome
contains over 3 billion bases.
Genomics
The comprehensive study of all genes and their
function in biological pathways.
69
<PAGE>
Hybridization
Determining the sequence of bases in a gene
fragment by measuring its ability to pair with
trial complementary gene fragments.
mRNA A messenger molecule that serves as the
intermediate between the stretch of DNA that
contains a gene and the final protein that the
gene encodes.
Mutation A change (usually deleterious, but in some
cases protective) in the DNA of a gene.
Mutations can be inherited.
Pathways Networks of protein interactions used to carry
out biological functions including metabolism
and signal transduction.
Pharmacogenomics The study of genes and biological pathways to
predict the efficacy and safety of drug
candidates, review the performance and safety
of marketed drugs and identify appropriate
patient populations.
Protein A molecule composed of amino acids arranged in
a sequence determined by a gene. The types and
numbers of proteins produced by a cell are
determined by the expression levels of
individual genes. Proteins are required for the
structure, function and regulation of the
body's cells, tissues, and organs. Each protein
has a unique function and can act in biological
pathways.
Quantitative Expression CuraGen's technology that accurately and
Analysis precisely measures the expression levels of the
different mRNA molecules present in a cell.
Sequencing The process of determining the identity and
precise order of all the bases in a piece (or
fragment) of DNA.
Signal Transduction One of the processes through which cells
communicate. In a typical signal transduction
pathway, a signal in the form of a protein is
secreted from one cell and binds to a cell-
surface receptor on another cell. The signal is
transduced by downstream pathways in the second
cell to affect its gene expression and the
activities of its biological pathways.
Subsequence A small number of bases (4 to 8) of fixed
sequence used to tag longer stretches of DNA
that constitute a gene. ATCGATC is an example
of a subsequence of 7 bases.
Subsequence Pair A pair of sub-sequences that are used to tag
genes. The existence of both subsequences
within a gene, together with the distance in
bases between the pair, serves in GeneCalling
like an area code plus a phone number to
identify a gene uniquely.
70
<PAGE>
CURAGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets, December 31, 1995 and 1996 and June 30, 1997 (unaudited).. F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996
and for the Six Months Ended June 30, 1996 and 1997 (unaudited).......... F-4
Statements of Changes in Stockholders' Equity (Deficiency) for the Years
Ended
December 31, 1994, 1995 and 1996 and for the Six Months Ended June 30,
1997 (unaudited)......................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996
and for the Six Months Ended June 30, 1996 and 1997 (unaudited).......... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
CuraGen Corporation
New Haven, Connecticut
We have audited the accompanying balance sheets of CuraGen Corporation (the
"Company") as of December 31, 1995 and 1996, and the related statements of
operations, changes in stockholders' equity (deficiency) and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The Company was in the development stage at December 31, 1995; during the
year ended December 31, 1996, the Company completed its development activities,
with the signing of its first collaborative research agreement, and commenced
its planned principal operations.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
September 12, 1997
F-2
<PAGE>
CURAGEN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 9,129 $ 3,298,642 $21,271,408
Grants receivable............................... 205,456 466,089 1,218,643
Accounts receivable............................. -- 200,000 100,000
Stock subscriptions receivable.................. 100,000 100,000 --
Other current assets............................ 15,086 13,031 2,000
Prepaid expenses................................ 12,483 22,951 78,003
----------- ----------- -----------
Total current assets.......................... 342,154 4,100,713 22,670,054
----------- ----------- -----------
Property and equipment, net...................... 635,172 1,471,496 3,493,446
----------- ----------- -----------
Other assets:
Note receivable--related party.................. -- -- 50,000
Deferred real estate commissions, net........... -- -- 65,951
Deferred financing costs, net................... 14,526 11,670 --
Organization costs, net......................... 4,000 2,000 1,000
Deposits........................................ 10,964 67,512 121,004
----------- ----------- -----------
Total other assets............................ 29,490 81,182 237,955
----------- ----------- -----------
Total assets................................ $ 1,006,816 $ 5,653,391 $26,401,455
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................ $ 40,540 $ 351,997 $ 718,025
Accrued payroll--related party.................. 214,375 308,125 308,125
Accrued expenses................................ 300,293 574,630 248,501
Deferred revenue................................ 265,079 -- 565,000
Current portion of obligations under capital
leases......................................... 129,636 391,923 686,182
Deferred rent................................... 17,246 -- --
----------- ----------- -----------
Total current liabilities..................... 967,169 1,626,675 2,525,833
----------- ----------- -----------
Long-term liabilities:
Deferred rent................................... -- -- 119,767
Note payable.................................... 487,242 509,425 --
Interest payable................................ 145,183 221,014 21,000
Obligations under capital leases, net of current
portion........................................ 265,266 752,162 1,443,847
----------- ----------- -----------
Total long-term liabilities................... 897,691 1,482,601 1,584,614
----------- ----------- -----------
Commitments and contingencies
Redeemable common stock.......................... 914,063 1,142,579 1,536,722
----------- ----------- -----------
Stockholders' equity (deficiency):
Preferred stock:
Series A Preferred.............................. -- 1,800,000 --
Series B Preferred.............................. -- 1,390,772 1,424,984
Common stock; $.01 par value, issued and
outstanding shares 4,919,575 at December 31,
1995, 5,019,575 at December 31, 1996, and
8,477,956 at June 30, 1997 (unaudited)......... 49,196 50,196 84,779
Additional paid-in capital...................... 645,237 1,023,267 23,760,412
Accumulated deficit............................. (2,466,540) (2,862,699) (4,515,889)
----------- ----------- -----------
Total stockholders' equity (deficiency)....... (1,772,107) 1,401,536 20,754,286
----------- ----------- -----------
Total liabilities and stockholders' equity
(deficiency)............................... $ 1,006,816 $ 5,653,391 $26,401,455
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CURAGEN CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Grant revenue.......... $ 257,536 $1,581,175 $4,047,947 $1,428,595 $ 1,891,049
Collaboration revenue.. -- -- 375,000 -- 988,583
---------- ---------- ---------- ---------- -----------
Total revenue.......... 257,536 1,581,175 4,422,947 1,428,595 2,879,632
---------- ---------- ---------- ---------- -----------
Operating expenses:
Research and
development........... 647,640 1,466,375 3,516,035 1,143,947 3,640,767
General and
administrative........ 525,671 961,815 1,140,325 405,340 980,566
---------- ---------- ---------- ---------- -----------
Total operating
expenses.............. 1,173,311 2,428,190 4,656,360 1,549,287 4,621,333
---------- ---------- ---------- ---------- -----------
Loss from operations.... (915,775) (847,015) (233,413) (120,692) (1,741,701)
---------- ---------- ---------- ---------- -----------
Other income (expenses):
Interest income........ 20,544 12,306 20,848 271 237,826
Interest expense....... (60,798) (106,035) (183,594) (72,823) (149,315)
---------- ---------- ---------- ---------- -----------
Total other income
(expenses)............ (40,254) (93,729) (162,746) (72,552) 88,511
---------- ---------- ---------- ---------- -----------
Net loss................ (956,029) (940,744) (396,159) (193,244) (1,653,190)
Preferred dividends..... -- -- (17,106) -- (34,212)
---------- ---------- ---------- ---------- -----------
Net loss attributable to
common stockholders.... $ (956,029) $ (940,744) $ (413,265) $ (193,244) $(1,687,402)
========== ========== ========== ========== ===========
Net loss per share
attributable to common
stockholders........... $ (0.17) $ (0.16) $ (0.07) $ (0.03) $ (0.22)
========== ========== ========== ========== ===========
Weighted average number
of shares of common
stock outstanding...... 5,474,287 5,708,117 5,890,104 5,864,485 7,674,324
========== ========== ========== ========== ===========
Pro forma net loss per
share attributable to
common stockholders.... $ (0.07) $ (0.22)
========== ===========
Pro forma weighted
average number of
shares of common stock
outstanding............ 5,892,629 7,674,324
========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CURAGEN CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996 AND THE SIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
COMMON
NUMBER STOCK NUMBER ADDITIONAL
OF ($.01 PAR OF PREFERRED PAID-IN ACCUMULATED
SHARES VALUE) SHARES STOCK CAPITAL DEFICIT TOTAL
--------- --------- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1994....................... 4,590,000 $45,900 -- -- $ 1,052,100 $ (569,767) $ 528,233
Exercise of common stock warrants..... 210,000 2,100 -- -- 207,900 -- 210,000
Adjustment of redeemable common
stock................................ -- -- -- -- (575,973) -- (575,973)
Net loss.............................. -- -- -- -- -- (956,)029) (956,029)
--------- ------- ---------- ------------ ----------- ----------- -----------
DECEMBER 31, 1994..................... 4,800,000 48,000 -- -- 684,027 (1,525,796) (793,769)
Issuance of common stock.............. 19,575 196 -- -- 45,023 -- 45,219
Exercise of common stock warrants..... 100,000 1,000 -- -- 99,000 -- 100,000
Adjustment of redeemable common
stock................................ -- -- -- -- (182,813) -- (182,813)
Net loss.............................. -- -- -- -- -- (940,744) (940,744)
--------- ------- ---------- ------------ ----------- ----------- -----------
DECEMBER 31, 1995..................... 4,919,575 49,196 -- -- 645,237 (2,466,540) (1,772,107)
Exercise of common stock warrants..... 100,000 1,000 -- -- 151,000 -- 152,000
Issuance of preferred stock--
Series A............................. -- -- 307,167 $ 1,800,000 -- -- 1,800,000
Issuance of preferred stock with
warrants--Series B................... -- -- 175,000 1,373,666 376,334 -- 1,750,000
Issuance of options to non-employees.. -- -- -- -- 96,318 -- 96,318
Preferred stock dividends............. -- -- -- 17,106 (17,106) -- --
Adjustment of redeemable common
stock................................ -- -- -- -- (228,516) -- (228,516)
Net loss.............................. -- -- -- -- -- (396,159) (396,159)
--------- ------- ---------- ------------ ----------- ----------- -----------
DECEMBER 31, 1996..................... 5,019,575 50,196 482,167 3,190,772 1,023,267 (2,862,699) 1,401,536
Unaudited:
Issuance of common stock............. 39,746 397 -- -- 162,561 -- 162,958
Issuance of preferred stock with
warrants--Series C.................. -- -- 2,011,468 11,787,202 -- -- 11,787,202
Issuance of preferred stock--
Series D............................ -- -- 1,000,000 7,500,000 -- -- 7,500,000
Issuance of preferred stock--
Series E............................ -- -- 100,000 1,000,001 -- -- 1,000,001
Issuance of options to non-employees.. -- -- -- -- 116,989 -- 116,989
Issuance of warrants--capital lease
obligations......................... -- -- -- -- 10,486 -- 10,486
Preferred stock dividends............ -- -- -- 34,212 (34,212) -- --
Adjustment of redeemable common
stock............................... -- -- -- -- 428,304 -- 428,304
Adjustment to reflect automatic
conversion of preferred stock....... 3,418,635 34,186 (3,418,635) (22,087,203) 22,053,017 -- --
Net loss............................. -- -- -- -- -- (1,653,190) (1,653,190)
--------- ------- ---------- ------------ ----------- ----------- -----------
JUNE 30, 1997 (UNAUDITED)............. 8,477,956 $84,779 175,000 $ 1,424,984 $23,760,412 $(4,515,889) $20,754,286
========= ======= ========== ============ =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CURAGEN CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(956,029) $(940,744) $ (396,159) $(193,244) $(1,653,190)
Adjustments to
reconcile net loss to
net cash (used in)
provided by operating
activities:
Depreciation and
amortization......... 127,632 223,626 366,283 133,903 537,651
Non-monetary
compensation to non-
employees............ -- -- 96,318 32,879 116,989
Changes in assets and
liabilities:
Grants receivable.... -- (205,456) (260,633) (130,796) (752,554)
Accounts receivable.. -- -- (200,000) -- 100,000
Other current
assets.............. -- (15,086) 2,055 (1,000) 11,031
Prepaid expenses..... 100 (8,448) (10,468) 15,827 (55,052)
Payment of deferred
real estate
commissions......... -- -- -- -- (68,948)
Deposits............. 99 (6,082) (56,548) (8,615) (53,492)
Accounts payable..... (9,679) 24,727 311,457 90,747 528,986
Accrued payroll--
related party....... 75,000 105,000 93,750 62,500 --
Accrued expenses..... 2,156 300,293 274,337 80,707 (326,129)
Deferred revenue..... -- 265,079 (265,079) (240,079) 565,000
Deferred rent........ 35,497 (37,204) (17,246) (17,246) 119,767
Interest payable..... 51,917 72,266 75,831 32,766 22,433
--------- --------- ---------- --------- -----------
Net cash (used in)
provided by
operating
activities......... (673,307) (222,029) 13,898 (141,651) (907,508)
--------- --------- ---------- --------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of
property and
equipment............ (77,148) (170,471) (248,033) (8,369) (1,165,526)
Loan to related
party................ -- -- -- -- (50,000)
--------- --------- ---------- --------- -----------
Net cash used in
investing
activities......... (77,148) (170,471) (248,033) (8,369) (1,215,526)
--------- --------- ---------- --------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of deferred
financing costs...... (20,000) -- -- -- --
Payments on capital
lease obligations.... (21,113) (85,261) (178,352) (83,222) (291,403)
Proceeds from issuance
of notes/loan
payable.............. 600,000 -- 175,000 175,000 --
Payment of loan
payable.............. -- -- (175,000) -- --
Proceeds from issuance
of common stock...... 100,000 210,000 252,000 100,000 --
Proceeds from issuance
of preferred stock... -- -- 3,450,000 -- 20,387,203
--------- --------- ---------- --------- -----------
Net cash provided by
financing
activities......... 658,887 124,739 3,523,648 191,778 20,095,800
--------- --------- ---------- --------- -----------
Net (decrease) increase
in cash and cash
equivalents........... (91,568) (267,761) 3,289,513 41,758 17,972,766
Cash and cash
equivalents, beginning
of year............... 368,458 276,890 9,129 9,129 3,298,642
--------- --------- ---------- --------- -----------
Cash and cash
equivalents, end of
period................ $ 276,890 $ 9,129 $3,298,642 $ 50,887 $21,271,408
========= ========= ========== ========= ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid......... $ 8,881 $ 33,770 $ 107,763 $ 39,611 $ 125,600
NONCASH FINANCING
TRANSACTIONS:
Reduction of note and
related interest
payable upon exercise
of common stock
warrants............. $ -- $ -- $ -- $ -- $ 822,447
Reduction of accrued
expenses upon
issuance of common
stock................ -- 45,219 -- -- 162,958
Obligations under
capital leases....... 64,180 385,314 979,096 192,066 1,287,833
Common stock
subscription
receivable........... 210,000 100,000 -- 152,000 --
Preferred stock
subscription
receivable........... -- -- 100,000 -- --
Adjustment of
redeemable common
stock................ 575,973 182,813 228,516 111,328 394,143
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--CuraGen Corporation ("CuraGen" or the "Company") is a
biotechnology company focusing on the application of genomics to systematic
discovery of genes, biological pathways and drug candidates in order to
accelerate the discovery and development of the next generation of
therapeutic, diagnostic and agricultural products. The Company was
incorporated in November 1991 and, until March 1993 (inception), was engaged
principally in organizational activities, grant and patent preparation and
obtaining financing. In March 1993, the Company began construction of
approximately 8,000 square feet of custom laboratory and office space in a
leased facility in Branford, Connecticut, and opened its laboratories in July
1993. In March 1997, the Company expanded its custom laboratory and office
space into a 26,000 square foot leased facility in New Haven, Connecticut (see
Note 3).
The Company was in the development stage at December 31, 1995; during the
year ended December 31, 1996, the Company completed its development
activities, with the signing of its first collaborative research agreement,
and commenced its planned principal operations.
Interim Financial Statements--The unaudited financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 and related note
information have been prepared on a basis consistent with the audited
financial statements, and in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the results of the interim periods. The results for the
six months ended June 30, 1997 are not necessarily indicative of the results
to be expected for the entire year.
Revenue Recognition--The Company has entered into collaborative research
agreements which provide for the partial or complete funding of specified
projects in exchange for access to and certain rights in the resultant data
discovered under the related project. Revenue is recognized based upon work
performed or upon the attainment of certain benchmarks specified in the
related agreements (see Note 5). Grant revenue is recognized as related costs
qualifying under the terms of the grants are incurred. Grant revenue is
derived solely from federal and Connecticut agencies (see Note 8). Deferred
revenue arising from payments received from grants and collaborative
agreements is recognized as income when earned.
Cash and Cash Equivalents--The Company considers investments readily
convertible to cash and amounts with a maturity of three months or less at the
date of purchase to be cash equivalents.
Property and Equipment--Property and equipment are recorded at cost.
Equipment under capital leases is recorded at the lower of the net present
value of the minimum lease payments required over the term of the lease or the
fair value of the assets at the inception of the lease. Additions, renewals
and betterments that significantly extend the life of an asset are
capitalized. Minor replacements, maintenance and repairs are charged to
operations as incurred. Equipment is depreciated over the estimated useful
lives of the related assets, ranging from three to seven years, using the
straight-line method. Equipment under capital leases is amortized over the
shorter of the estimated useful life or the terms of the lease, using the
straight-line method. Leasehold improvements are amortized over the term of
the lease, using the straight-line method. When assets are retired or
otherwise disposed of, the assets and related accumulated depreciation or
amortization are eliminated from the accounts and any resulting gain or loss
is reflected in income. For income tax purposes, depreciation is computed
using various accelerated methods and, in some cases, different useful lives
than those used for financial reporting purposes.
Deferred Real Estate Commissions--Deferred real estate commissions were paid
in January 1997 in connection with the signing of the operating lease in New
Haven, Connecticut (see Note 3). These costs are
F-7
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amortized over the remaining life of the lease as of the date of occupancy,
sixty-nine months, using the straight-line method. Accumulated amortization
aggregated $2,997 as of June 30, 1997 (unaudited).
Deferred Financing Costs--Deferred financing costs are amortized over the
life of the loan, eighty-four months, using the straight-line method.
Accumulated amortization aggregated $5,474, $8,330 and $0 as of December 31,
1995 and 1996 and June 30, 1997 (unaudited), respectively. Related
amortization expense was $2,618 for 1994 and $ 2,856 for 1995 and 1996.
In April 1997, the Company's note payable was converted into common stock
(see Notes 4 and 6) and as a result the related deferred financing costs were
written off. Amortization expense for the six months ended June 30, 1996 and
1997 (unaudited) was $1,428 and $11,670, respectively.
Organization Costs--Organization costs are amortized over sixty months,
using the straight-line method. Accumulated amortization was $6,000, $8,000
and $9,000 as of December 31, 1995 and 1996 and June 30, 1997 (unaudited),
respectively. Related amortization expense was $2,000 for 1994, 1995 and 1996
and $1,000 for the six months ended June 30, 1996 and 1997 (unaudited).
Patent Application Costs--Costs incurred in filing for patents are charged
to operations, until such time as it is determined that the filing will be
successful. When it becomes evident with reasonable certainty that an
application will be successful, the costs incurred in filing for patents will
begin to be capitalized. Capitalized costs related to successful patent
applications will be amortized over a period not to exceed twenty years or the
remaining life of the patent, whichever is shorter, using the straight-line
method. As of December 31, 1994, 1995 and 1996 and June 30, 1997 (unaudited),
since all patent applications remain in process and no patents have been
issued, all patent application costs have been charged to operations.
Research and Development Costs--Research and development costs are charged
to operations as incurred.
Stock-Based Compensation--In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective
for the Company beginning January 1, 1996. SFAS 123 requires expanded
disclosures of stock-based compensation arrangements with employees and non-
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instruments awarded to
employees. Companies are permitted to continue to apply Accounting Principles
Board ("APB") No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instruments awarded. The Company will continue
to apply APB No. 25 to its stock-based compensation awards to employees. For
equity instruments awarded to non-employees, the Company records the
transactions based upon the consideration received for such awards or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The Company recorded stock-based compensation expense attributable to non-
employees totaling $96,318, $32,879 and $116,989 for the year ended December
31, 1996 and the six months ended June 30, 1996 and 1997 (unaudited),
respectively.
Income Taxes--Income taxes are provided for as required under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This Statement requires the use of the asset and liability method in
determining the tax effect on future years of the "temporary differences"
between the tax basis of assets and liabilities and their financial reporting
amounts.
Fair Value of Financial Instruments--Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS 107"), requires the disclosure of fair value information for certain
assets and liabilities, whether or not recorded in the balance sheets, for
which it is practicable to estimate
F-8
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
that value. The Company has the following financial instruments: cash,
receivables, accounts payable and accrued expenses, and certain long-term
liabilities. Additionally, the Company has redeemable common stock (see Note
6). The Company considers the carrying amount of these items, excluding the
note payable and the redeemable common stock, to approximate fair value. In
addition, it was not practicable to estimate the fair value of the note
payable due to a lack of availability of similar instruments for comparative
purposes.
Net Loss Per Share Attributable to Common Stockholders--Net loss per share
attributable to common stockholders is based on the weighted average number of
shares outstanding for each of the periods presented using the treasury stock
method. Pursuant to the rules of the Securities and Exchange Commission, all
options and warrants granted at prices less than the initial public offering
price during the twelve months preceding the offering date have been included
as common stock equivalents in the calculation of weighted average shares
outstanding for all periods presented.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), was issued in February 1997, and is effective for periods ending
after December 15, 1997. Earlier application is not permitted. SFAS 128
simplifies the standards for computing earnings per share ("EPS") and makes
them comparable to international standards for computing EPS. When effective,
this statement will replace the presentation of primary EPS with the
presentation of basic EPS and will require a dual presentation of basic EPS
and diluted EPS on the face of the Statements of Operations. For the Company,
basic and diluted EPS under SFAS 128 would have equaled the reported EPS for
the years ended December 31, 1994, 1995 and 1996 and for the six month periods
ended June 30, 1996 and 1997 (unaudited).
Pro Forma Net Loss Per Share Attributable to Common Stockholders--At
December 31, 1996 and June 30, 1997 (unaudited), pro forma net loss per share
attributable to common stockholders and the pro forma weighted average number
of shares of common stock outstanding have been presented in the statement of
operations assuming the Series A, Series C, Series D, and Series E Preferred
Stock (see Note 6) was converted to common stock upon issuance.
Conversion of Preferred Stock--At June 30, 1997 (unaudited), stockholders'
equity has been presented in the balance sheet as if the Series A, Series C,
Series D, and Series E Preferred Stock had been converted into common stock on
a 1 for 1 basis due to its automatic conversion upon completion of an initial
public offering.
Recently Enacted Pronouncements--Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), were issued in June 1997.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. It requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as the
other financial statements. Comprehensive income is defined as "the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources." It includes all changes in
equity during a period, except those resulting from investments by owners and
distributions to owners. This statement is effective for fiscal years
beginning after December 15, 1997.
SFAS 131 establishes the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997.
F-9
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As the Company does not have changes in equity other than from investments by
owners and distributions to owners and operates in a single segment the
implementation of both of these standards is not expected to have a material
effect on the Company.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment....................... $169,589 $ 351,251 $ 627,290
Leased equipment........................... 505,246 1,432,780 2,720,613
Leasehold improvements..................... 169,706 205,998 1,003,264
Office equipment........................... 141,423 171,501 263,723
-------- ---------- ----------
Total property and equipment............. 985,964 2,161,530 4,614,890
Less accumulated depreciation and
amortization.............................. 350,792 690,034 1,121,444
-------- ---------- ----------
Total property and equipment, net........ $635,172 $1,471,496 $3,493,446
======== ========== ==========
</TABLE>
3. LEASES
Capital Leases
In April 1997, the Company signed a lease-financing commitment to receive
$4,000,000 to purchase equipment and expand its facilities. The lease
commitment, which expires on March 15, 1998, provides for a payment term of 48
months per individual lease schedule. In addition, the commitment provides for
the issuance to the lessor of two warrants (the "First Warrant" and the "Second
Warrant") to purchase shares of the Company's common stock. The First Warrant
was issued in April 1997 and entitles the lessor to purchase 11,111 shares of
common stock at an exercise price of $9.00 per share. The Second Warrant will
be issued when the Company's aggregate equipment cost under the agreement
exceeds $2,000,000. The aggregate exercise price for the shares represented by
the Second Warrant will be $100,000, and the per share exercise price will be
the same price at which the shares of the Company's common stock were sold in
the then most recent arm's length equity financing (see Note 10).
The Company has also entered into other capital lease agreements to finance
the purchase of equipment. Leased equipment under all such agreements consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leased equipment............................. $505,246 $1,432,780 $2,720,613
Less accumulated amortization................ 116,827 338,879 640,172
-------- ---------- ----------
Leased equipment, net........................ $388,419 $1,093,901 $2,080,441
======== ========== ==========
</TABLE>
F-10
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company financed assets with costs of $64,180, $385,314, and $979,096 for
the years ended December 31, 1994, 1995, and 1996, respectively, and $192,066
and $1,287,833 for the six months ended June 30, 1996 and 1997 (unaudited).
These arrangements have terms of three to five years with interest rates
ranging primarily from 8% to 22%. At the end of the respective lease terms, the
Company has the right to either return the equipment to the lessor or purchase
the equipment at between $1 and 10% of the fair market value of the equipment.
The future minimum lease payments under capital lease obligations were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Within 1 year..................................... $ 547,296 $ 947,449
Within 1 to 2 years............................... 502,137 793,559
Within 2 to 3 years............................... 245,971 478,449
Within 3 to 4 years............................... 96,933 423,123
Within 4 to 5 years............................... 53,946 69,245
---------- ----------
Total minimum lease payments...................... 1,446,283 2,711,825
Less amounts representing interest................ 302,198 581,796
---------- ----------
Present value of future minimum lease payments.... 1,144,085 2,130,029
Less current portion of obligations............... 391,923 686,182
---------- ----------
Obligations under capital leases, net of current
portion.......................................... $ 752,162 $1,443,847
========== ==========
</TABLE>
Operating Leases
On December 27, 1996, the Company entered into a six-year lease agreement for
26,000 square feet to house its principal administrative and research
facilities at 555 Long Wharf Drive, New Haven, Connecticut. The lease allows
for two five-year extensions and an option to lease an additional 26,000 square
feet.
The future minimum rental payments for the operating lease are as follows as
of December 31, 1996:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997.............................................................. $ 131,330
1998.............................................................. 469,505
1999.............................................................. 538,453
2000.............................................................. 538,453
2001.............................................................. 538,453
2002.............................................................. 538,453
----------
Total........................................................... $2,754,647
==========
</TABLE>
The Company also leases its research facilities in Branford, Connecticut,
under a lease agreement expiring in May 1998. During 1996, the Company
exercised an option to extend the term of the operating lease for one
additional two-year term expiring in May 1998. In addition, the Company has an
option to extend the term of the operating lease for one subsequent one-year
term. The future minimum rental payments for the operating lease as of December
31, 1996 are $100,914 and $42,048 due in fiscal years 1997 and 1998,
respectively. Total rent expense under all operating leases for 1994, 1995 and
1996 was approximately $35,500, $44,000 and
F-11
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$77,200, respectively. In addition, rent expense for the six months ended June
30, 1996 and 1997 (unaudited) totaled $26,745 and $170,524, respectively.
There were no significant operating leases entered into during the six months
ended June 30, 1997 (unaudited).
4. NOTE PAYABLE
In February 1994, the Company borrowed $600,000 (the "CII Note") from
Connecticut Innovations, Incorporated ("CII"), a Connecticut state agency. The
CII Note bears interest at the rate of 10% per annum, and is secured by
certain technology and intellectual property of the Company. The principal
balance is payable on January 10, 2001. In connection with the CII Note, the
Company issued 102,156 shares of common stock to CII (the "CII Stock") and a
stock subscription warrant (the "CII Warrant") to purchase 291,875 shares of
common stock at an aggregate price equal to CII's Note's original principal
balance ($600,000) plus unpaid interest. Both the CII Stock and the CII
Warrants were valued at $155,277 and were recorded as original issue discount.
Such discount was being amortized over eighty-four months, the term of the
loan. The discount was fully amortized upon repayment of the note as discussed
below. In April 1997, the CII Warrant was exercised and CII received 291,875
shares of common stock of the Company for consideration of $822,447, which
represented full payment of the CII Note totaling $600,000 and unpaid interest
of $222,447.
5. COLLABORATIONS
Genentech, Inc.
In June 1996, the Company entered into a Pilot Research Services and
Evaluation Agreement with Genentech, Inc. pursuant to which the Company
performed certain research services for a $200,000 fee. The pilot
collaboration was superseded by the Evaluation Agreement, signed December 27,
1996, pursuant to which the Company is performing additional research services
during 1997 for a minimum research fee. In connection with the execution of
this agreement Genentech made an equity investment of $1,800,000 in the form
of 307,167 shares of Series A Convertible Preferred Stock (see Note 6). The
Company has recorded revenue of $500,250, which represents 17% of total
revenue, under the Evaluation Agreement for the six months ended June 30, 1997
(unaudited). In addition, the entire accounts receivable balance at December
31, 1996 was due from Genentech.
Pioneer Hi-Bred International, Inc.
Effective June 1, 1997, the Company entered into a Collaborative Research
and License Agreement with Pioneer Hi-Bred whereby the Company is to perform
research which will be funded by Pioneer Hi-Bred. In conjunction with the
execution of this agreement Pioneer Hi-Bred made an equity investment of
$7,500,000 in the form of 1,000,000 shares of Series D Convertible Preferred
Stock (see Note 6). In addition, Pioneer Hi-Bred will pay the Company a
minimum research fee per year over the term of the agreement which expires in
five years. This fee is based upon an established number of CuraGen employees
whom will be devoted to the Pioneer Hi-Bred research. Under certain
circumstances, as defined in the agreement, Pioneer Hi-Bred can elect to
terminate the agreement upon payment of certain termination fees to the
Company, as early as November 1998. For the six months ended June 30, 1997
(unaudited), the Company has recorded revenue of $208,333 related to this
agreement. In addition, in May 1997, $520,000 (unaudited) was received from
Pioneer Hi-Bred for which the related services have not been performed and,
therefore, such amount is recorded as deferred revenue at June 30, 1997.
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
Authorized Capital Stock and Stock Split
In December 1993, the Board of Directors of the Company (i) increased the
authorized shares of common stock of the Company to 20,000,000 shares, (ii)
authorized a class of 3,000,000 shares of serial preferred stock,
F-12
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and (iii) approved a 34,820 for 1 common stock split. In June 1997, the Board
of Directors of the Company, upon stockholder approval, increased the
authorized shares of common stock of the Company to 25,000,000 and increased
the authorized number of shares of serial preferred stock to 7,500,000.
At December 31, 1996, the Company had reserved 1,329,375 shares of common
stock for issuance pursuant to the 1993 Warrants, the Incentive Warrant and
the CII Warrant and 1,500,000 shares of common stock for issuance pursuant to
the Stock Option and Incentive Award Plan discussed below. At June 30, 1997
(unaudited), the Company has reserved 1,568,866 shares of common stock
pursuant to outstanding warrants and 1,500,000 shares of common stock for
issuance pursuant to the Stock Option and Incentive Award Plan.
Common Stock and Warrants to Purchase Common Stock
During 1993, eight persons advanced an aggregate of $1,008,000 (the "1993
Debt") to the Company to fund certain start-up expenses incurred by, and to
provide certain working capital for, the Company. On December 30, 1993, the
Company converted the 1993 Debt into 1,008,000 shares of common stock, and
issued warrants (the "1993 Warrants") to such persons to purchase an aggregate
of 1,122,500 shares of common stock, at an exercise price of $1.00 per share.
The 1993 Warrants expire on various dates through December 1, 2000. In
December 1994, four 1993 Warrants to purchase an aggregate of 210,000 shares
of common stock were exercised for consideration of $210,000. In December
1995, two 1993 Warrants to purchase an aggregate of 100,000 shares of common
stock were exercised for $100,000. The proceeds were received in January 1996.
In December 1993, the Company entered into an agreement, concluded in March
1994, with a scientific advisor to issue for consideration of $100,000 (i)
100,000 shares of common stock, and (ii) a warrant (the "Investor Warrant") to
purchase 125,000 shares of common stock, at an exercise price of $1.52 per
share. In March 1996, the Investor Warrant to purchase 100,000 shares of
common stock was exercised for consideration of $152,000. The remainder of the
Investor Warrant expired in March 1996.
During February 1994, in connection with the CII Note (see Note 4), the
Company issued 102,156 shares of common stock to CII (the "CII Stock") and a
stock subscription warrant (the "CII Warrant") to purchase 291,875 shares of
common stock at an aggregate price equal to the CII Note's original principal
balance ($600,000) plus any unpaid interest. Both the CII Stock and CII
Warrants were valued at $155,277. In April 1997, the CII Warrant was exercised
and CII received 291,875 shares of common stock of the Company for
consideration of $822,447, which represented full payment of the CII note
totaling $600,000 and unpaid interest of $222,447. The Company has the right
to purchase (the "Call Right") the CII Stock and the CII Warrant from CII (i)
after June 30, 1996, for the greater of (a) the fair market value of the CII
Stock and the CII Warrant or (b) $600,000 plus a compounded annual rate of
return of 30%, if certain levels of capital are raised, or (ii) after February
10, 1999, for the greater of (a) the fair market value of the CII Stock and
the CII Warrant, or (b) $600,000, plus a compounded annual rate of return from
the date of the note of 25%. Further, CII has the right to sell (the "Put
Right") the CII Stock and the CII Warrant to the Company (i) at any time until
February 10, 2004, in the event that the Company failed to maintain a
Connecticut presence, for the greater of (a) the fair market or book value of
the CII Stock and the CII Warrant, or (b) $600,000, plus a compounded annual
rate of return from the date of the note of 40%, or (ii) at any time in the
event that the Company violates certain covenants or a default occurs under
the CII documents, or at any time after February 10, 1999, for the greater of
(a) the fair market value of the CII Stock and the CII Warrant or (b)
$600,000, plus a compounded annual rate of return from the date of the note of
25%. Given the redemption features in place, the Company has classified the
stock as redeemable common stock in the balance sheet. The carrying value of
the redeemable common stock has been adjusted through charges to additional
paid-in capital to amounts approximating the redemption value pursuant to the
Put Right.
In March 1997, the Company also issued shares of 17,073 and 22,673 for a
total value of $70,000 and $92,958, respectively, for the settlement of
outstanding accrued expense balances with two separate entities.
F-13
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Options
In December 1993, the Company adopted a Stock Option and Incentive Award Plan
(the "Option Plan"), which enables the Company to grant non-qualified and
incentive stock options to purchase up to 1,500,000 shares of common stock to
officers, directors, advisors, employees, and affiliates of the Company. At
December 31, 1996, under the Option Plan, the Company had 541,550 options
outstanding and an additional 958,450 available for grant. At June 30, 1997
(unaudited), the Company had 720,800 options outstanding under the Option Plan
and an additional 779,200 available for grant. In addition to the stock options
granted under the Option Plan, the Company has granted 456,000 and 570,000 non-
qualified stock options at December 31, 1996 and June 30, 1997 (unaudited),
respectively, which are not part of a specific plan. No stock options have been
exercised.
A summary of all stock option activity during the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited) is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding January 1, 1994........................ 223,000 $1.00
Granted.......................................... 107,500 1.68
Canceled or lapsed............................... (9,000) 1.52
---------
Outstanding December 31, 1994...................... 321,500 1.21
Granted.......................................... 452,000 2.00
Canceled or lapsed............................... (32,500) 1.00
---------
Outstanding December 31, 1995...................... 741,000 1.70
Granted.......................................... 269,550 3.16
Canceled or lapsed............................... (13,000) 3.00
---------
Outstanding December 31, 1996...................... 997,550 2.08
Granted (unaudited).............................. 298,250 4.53
Canceled or lapsed (unaudited)................... (5,000) 2.20
---------
Outstanding June 30, 1997 (unaudited).............. 1,290,800 2.66
=========
Exercisable December 31, 1994...................... 193,083 1.19
=========
Exercisable December 31, 1995...................... 282,450 1.30
=========
Exercisable December 31, 1996...................... 408,832 1.58
=========
Exercisable June 30, 1997 (unaudited).............. 527,408 1.76
=========
</TABLE>
F-14
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options at December
31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE WEIGHTED
RANGE OF OPTIONS CONTRACTUAL AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE
--------------- ----------- -------------- --------------
<S> <C> <C> <C>
$1.00--$2.50 736,000 8 years $1.70
3.00--4.10 261,550 9.5 years 3.16
-------
997,550 8.5 years 2.08
=======
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
RANGE OF OPTIONS OF OPTIONS
EXERCISE PRICES EXERCISABLE EXERCISABLE
--------------- ----------- --------------
<S> <C> <C> <C>
$1.00--$2.50 406,166 $1.58
3.00--4.10 2,666 3.00
-------
408,832 1.58
=======
</TABLE>
Had compensation cost for the Company's stock option plans been determined in
accordance with the minimum value method for non-public companies as prescribed
under SFAS 123, the Company's net loss attributable to common stockholders and
net loss per share attributable to common stockholders would have approximated
the pro forma amounts shown below for each of the years ended December 31, 1995
and 1996 and six months ended June 30, 1997 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- ---------------------
1995 1996 1997
------------------ ------------------ ---------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net loss attributable to
common stockholders.... $940,744 $974,239 $413,265 $492,540 $1,687,402 $1,754,206
Net loss per share
attributable to common
stockholders........... $ 0.16 $ 0.17 $ 0.07 $ 0.08 $ 0.22 $ 0.23
</TABLE>
The assumptions utilized by the Company in deriving the pro forma amounts are
as follows: 1) 0% dividend yield, 2) .1% expected volatility, 3) risk-free
interest rate of approximately 6%, and 4) expected life of the options of 10
years. The weighted average grant date fair value of options granted during the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997
(unaudited) was approximately $0.58 per share, $1.16 per share, and $1.36 per
share, respectively.
Preferred Stock
The Company received aggregate consideration of $1,750,000 from five persons
as subscriptions for the purchase of 175,000 shares of Series B Redeemable
Preferred Stock. In September 1996, October 1996 and January 1997, the Company
received proceeds of $1,600,000, $50,000 and $100,000, respectively. The Series
B Preferred Stock is non-convertible and accrues dividends at the prime rate.
Dividends are payable when declared by the board of directors. Dividends in
arrears at December 31, 1996 and June 30, 1997 (unaudited) were $36,094 and
$109,375, respectively. At any time the Company may redeem the Series B
Preferred Stock for an aggregate purchase price of $1,750,000 plus accrued
dividends and dividends in arrears. If the Company
F-15
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
enters into certain qualified equity financings subsequent to the Series B
issuance, as defined in the agreement, the Company will be required, if
requested by all of the holders of the Series B Preferred Stock, to redeem
such shares at an aggregate redemption price of $1,750,000 plus accrued
dividends and dividends in arrears. Such terms have not been met at June 30,
1997 (unaudited). In addition, holders of the Series B Preferred Stock
received 5 year warrants to purchase an aggregate of 358,361 shares of Common
Stock at $5.86 per share, which warrants expire on March 27, 2002. Such
warrants were valued at $376,334. The value of such warrants is being accreted
over the warrant period and such accretion is classified as preferred
dividends. For the year ended December 31, 1996 and six months ended June 30,
1997 (unaudited) such accretion amounted to $17,106 and $34,212, respectively.
At June 30, 1997 (unaudited) the Series B Preferred Stock has a liquidation
preference of $1,859,375.
In December 1996, in connection with the Genentech Evaluation Agreement (see
Note 5), Genentech, Inc. purchased 307,167 shares of Series A Preferred Stock
for $1,800,000, or $5.86 per share. At any time the holders of such stock may
convert their shares to common stock on a 1 for 1 basis. The Series A
Preferred Stock is automatically convertible to common stock on a 1 for 1
basis upon the closing of a firm commitment underwritten public offering of
the Company's common stock subject to the offering price being at least $12.00
per share and net proceeds raised of at least $10,000,000. The Series A
Preferred Stock has a liquidation preference of $1,800,000.
In March 1997, the Company issued 2,011,468 shares of convertible Series C
Preferred Stock for an aggregate purchase price of $11,787,202. At any time
the holders of such stock may convert their shares to common stock on a 1 for
1 basis. The Series C Preferred Stock is automatically convertible to common
stock on a 1 for 1 basis upon the closing of a firm commitment underwritten
public offering of the Company's common stock subject to the offering price
being at least $12.00 per share and net proceeds raised of at least
$10,000,000. In addition, three year warrants were issued to certain
purchasers of the Series C Preferred Stock to purchase an aggregate of 366,894
shares of Common Stock at an exercise price of $9.00 per share. Such warrants
were valued at $0 upon issuance. The Series C Preferred Stock has a
liquidation preference of $11,787,202.
In May 1997, as a result of the Pioneer Hi-Bred Agreement (see Note 5), the
Company issued 1,000,000 shares of Series D Convertible Preferred Stock, for
an aggregate purchase price of $7,500,000 (unaudited). At any time the holders
of such stock may convert their shares to common stock on a 1 for 1 basis. The
Series D Preferred Stock is automatically convertible to common stock on a 1
for 1 basis upon the closing of a firm commitment underwritten public offering
of the Company's common stock subject to the offering price being at least
$12.00 per share and net proceeds raised of at least $10,000,000. The Series D
Preferred Stock has a liquidation preference of $7,500,000 (unaudited).
In June 1997, the Company issued 100,000 shares of Series E Convertible
Preferred Stock for an aggregate purchase price of $1,000,001 (unaudited). At
any time the holders of such stock may convert their shares to common stock on
a 1 for 1 basis. The Series E Preferred Stock is automatically convertible to
common stock on a 1 for 1 basis upon the closing of a firm commitment
underwritten public offering of the Company's common stock subject to the
offering price being at least $12.00 per share and net proceeds raised of at
least $10,000,000. The Series E Preferred Stock has a liquidation preference
of $1,000,001 (unaudited).
F-16
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The net deferred tax assets consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Total deferred tax assets............. $ 1,229,000 $ 1,689,000 $ 2,910,000
Valuation allowance................... (1,229,000) (1,689,000) (2,910,000)
----------- ----------- -----------
Total............................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The deferred tax assets are primarily a result of the federal and Connecticut
net operating loss carryforwards and timing differences relating to accrued
payroll and depreciation and amortization. As the Company has no prior earnings
history, a valuation allowance has been established due to the Company's
uncertainty in its ability to benefit from the federal and Connecticut net
operating loss carryforwards. The change in the valuation allowance was
$375,000, $623,000, $460,000, and $1,221,000 for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited),
respectively.
At December 31, 1996 and June 30, 1997 (unaudited), the Company has federal
and Connecticut net operating loss carryforwards for income tax purposes of
approximately $2,299,000 and $4,043,000, respectively. federal and Connecticut
net operating loss carryforwards expire beginning in 2008 and 1998,
respectively. The Company also has federal and Connecticut research and
development tax credit carryforwards of approximately $191,000 and $387,000,
respectively at December 31, 1996 and $330,000 and $760,000, respectively at
June 30, 1997 (unaudited).
8. GRANTS
The Company has received federal grants for specific purposes that are
subject to review and audit by the grantor agencies. Such audits could lead to
requests for reimbursement by the grantor agency for any expenditures
disallowed under the terms of the grant. Additionally, any noncompliance with
the terms of the grant could lead to loss of current or future awards.
During 1995, the Company received two grants from CII in the amounts of
$450,000 and $237,500. Under certain circumstances, such as if the Company were
to cease to have a Connecticut presence, the Company could be required to repay
up to 200% of these amounts.
In March 1997, the Company was awarded by the Advanced Technology Program
("ATP") of the U.S. Department of Commerce's National Institute of Standards
and Technology a grant in the amount of $2,000,000, payable over a period of
two years, through March 1999. This is the Company's third such grant from the
ATP.
9. RELATED PARTIES
The Chief Executive Officer of the Company has elected to defer payment of a
portion of his salary to future periods on an interest free basis. This amount
has been recorded as accrued payroll--related party as of December 31, 1995 and
1996, and June 30, 1997 (unaudited).
In March 1997, the Company loaned one of its officers $50,000 (unaudited).
The term of the note receivable--related party is 4 years and the note bears
interest at 8% per annum. The note will automatically be forgiven upon
consummation of an initial public offering if certain net proceed amounts are
received by the Company, as defined in the agreement.
F-17
<PAGE>
CURAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. SUBSEQUENT EVENTS
In September 1997, the Second Warrant (see Note 3) was issued. The aggregate
exercise price for the shares represented by the Second Warrant is $100,000
(unaudited); 10,000 shares at an exercise price of $10.00 per share.
In September 1997, the Company agreed to loan one of its officers $50,000
(unaudited) with a term of 17 months bearing interest at 8% per annum. If this
officer remains an employee through the maturity date, the loan will be
extended contingent upon continued employment. This note will be forgiven if
such officer remains an employee through September 2001.
In October 1997, the Company entered into an agreement with CII whereby,
among other things, the Call Right and Put Right with respect to the CII
Stock, as defined in Note 6, will be terminated when the Company's Form S-1
Registration Statement becomes effective.
* * * * * *
F-18
<PAGE>
[ADD COMPANY'S LOGO FOR OUTSIDE BACK COVER PAGE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Stock being registered. All amounts are estimated except the
registration fee.
<TABLE>
<S> <C>
Commission Registration Fee........................................ $
NASD filing fee....................................................
Nasdaq National Market listing fee.................................
Printing and engraving expenses....................................
Legal fees and expenses............................................
Accounting fees and expenses.......................................
Blue sky fees and expenses (including legal fees)..................
Transfer agent and registrar fees and expenses.....................
Miscellaneous......................................................
-----
TOTAL............................................................ $
=====
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The amendment and restatement of the Company's Certificate of Incorporation
(the "Restated Certificate") provides that the Company shall indemnify to the
fullest extent authorized by the Delaware General Corporation Law ("DGCL"),
each person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Company or is or was serving as
an officer or director of another entity at the request of the Company,
against all expense, loss or liability reasonably incurred or suffered in
connection therewith. The Restated Certificate provides that the right to
indemnification includes the right to be paid expenses incurred in defending
any proceeding in advance of its final disposition; provided, however, that
such advance payment will only be made upon delivery to the Company of an
undertaking, by or on behalf of the director or officer, to repay all amounts
so advanced if it is ultimately determined that such director is not entitled
to indemnification. If the Company does not pay a proper claim for
indemnification in full within 60 days after a written claim for such
indemnification is received by the Company, the Restated Certificate and
Restated Bylaws authorize the claimant to bring an action against the Company
and prescribe what constitutes a defense to such action.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason
of the fact that such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reason to believe his or her conduct was unlawful. In a derivative
action, (i.e., one brought by or on behalf of the corporation),
indemnification may be made only for expenses, actually and reasonably
incurred by any director or officer in connection with the defense or
settlement of such an action or suit, if such person acted in good faith and
in a manner that he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action or suit was brought
shall determine that the defendant is fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, Article Tenth of the Restated
Certificate eliminates the liability of a director or the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (i) from any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing
II-1
<PAGE>
violation of law, (iii) under Section 174 of the DGCL, or (iv) from any
transaction from which the director derived an improper personal benefit.
The Company has obtained primary and excess insurance policies insuring the
directors and officers of the Company against certain liabilities that they
may incur in their capacity as directors and officers. Under such policies,
the insurers, on behalf of the Company, may also pay amounts for which the
Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement
and persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act.
(a) Issuances of Capital Stock.
On February 14, 1995, the Company sold an aggregate of 260,000 shares of its
Common Stock to five investors at $1.00 per share in exchange for payments of
an aggregate of $260,000 by such investors upon the exercise of warrants to
purchase Common Stock.
On May 9, 1995, the Company issued an aggregate of 19,575 shares of its
Common Stock to two investors in exchange for financial advisory services
rendered by such investors to the Company having a value of $45,218.75.
On December 29, 1995, the Company sold an aggregate of 100,000 shares of its
Common Stock to two investors at $1.00 per share in exchange for payments of
an aggregate of $100,000 by such investors upon the exercise of warrants to
purchase Common Stock.
On March 30, 1996, the Company sold 100,000 shares of its Common Stock to
one investor at $1.52 per share in exchange for payment of $152,000 by such
investor upon the exercise of a warrant to purchase Common Stock.
On December 27, 1996, the Company sold 307,167 shares of its Series A
Convertible Preferred Stock at a purchase price of $5.86 per share to
Genentech, Inc. in a private placement for $1,800,000.
In March 1997, the Company issued 17,073 and 22,673 shares of its Common
Stock to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and Pennie &
Edmonds LLP, respectively, at $4.10 per share in exchange for legal services
rendered on behalf of the Company and having an aggregate value of
$162,958.60.
On March 27, 1997, the Company sold an aggregate of 175,000 shares of its
Series B Redeemable Preferred Stock at a purchase price of $10.00 per share to
five investors in a private placement for $1,750,000 in cash. In connection
with this private placement, the Company issued five-year warrants to purchase
358,361 shares of Common Stock at an exercise price of $5.86 per share.
On March 27, 1997, the Company sold an aggregate of 2,011,468 shares of its
Series C Convertible Preferred Stock at a purchase price of $5.86 per share to
eleven investors in a private placement for $11,787,202.48. In connection with
this private placement, the Company also issued three-year warrants to
purchase 366,894 shares of Common Stock at an exercise price of $9.00 per
share to two investors who each purchased 1,706,485 and 127,986 shares of
Series C Convertible Preferred Stock, respectively.
On April 10, 1997, the Company sold 291,875 shares of its Common Stock to
Connecticut Innovations Incorporated in exchange for the cancellation of a
$600,000 principal amount promissory note (plus accrued interest thereon) upon
the exercise of a warrant to purchase Common Stock.
II-2
<PAGE>
On May 16, 1997, the Company sold 1,000,000 shares of its Series D
Convertible Preferred Stock at a purchase price of $7.50 per share to Pioneer
Hi-Bred International, Inc. in a private placement for $7,500,000.
On June 25, 1997, the Company sold 100,000 shares of its Series E
Convertible Preferred Stock at a purchase price of $10.00 per share to Biogen,
Inc. in a private placement for $1,000,000.
(b) Certain Grants and Exercises of Stock Options.
Pursuant to the 1993 Stock Option and Incentive Award Plan (the "1993 Stock
Plan"), the Company has granted options to purchase an aggregate of 1,053,800
shares of Common Stock, of which options to purchase an aggregate of 339,461
shares of Common Stock are exercisable at a weighted average exercise price of
$3.23 per share. As of October 1, 1997, no options pursuant to the foregoing
have been exercised.
In addition to the options granted under the 1993 Stock Plan the Company has
issued options to purchase an aggregate of 570,000 shares of Common Stock
pursuant to individual agreements with Company employees and consultants, of
which options to purchase an aggregate of 345,750 shares of Common Stock are
exercisable at a weighted average exercise price of $1.31 per share. As of
October 1, 1997, no options pursuant to the foregoing have been exercised.
No underwriters were involved in the foregoing offers and sales of
securities. Such offers and sales were made in reliance upon an exemption from
the registration provisions of the Securities Act set forth in Section 4(2)
thereof relative to sales by an issuer not involving any public offering or
the rules and regulations thereunder, or, in the case of options to purchase
Common Stock, Rule 701 under the Securities Act. All of the foregoing
securities are deemed restricted securities for purposes of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.3 Amended and Restated Bylaws of the Registrant
*3.4 Form of Amended and Restated Bylaws of the Registrant
4.1 Article Fourth of the Amended and Restated Certificate of
Incorporation of the Registrant (see Exhibit 3.1)
*4.2 Form of Common Stock Certificate
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of the securities being registered
10.1 Lease Agreement (New Haven), dated December 23, 1996, between the
Registrant and Fusco Harbour Associates, LLC
10.2 Standard Form of Office Lease, as amended (Branford), dated February
11, 1993 and April 26, 1996, between the Registrant and Branford
Office Venture
10.3 Sid Martin Biotechnology Development Institute Incubator License
Agreement, dated July 15, 1997, between the Registrant and the
University of Florida Research Foundation, Inc.
*10.4 1997 Employee, Director and Consultant Stock Plan
10.5 1993 Stock Option and Incentive Award Plan
10.6 Amendment to 1993 Stock Option and Incentive Plan, dated May 12, 1997
10.7 Employment Letter, dated February 20, 1997, between the Registrant and
Gregory T. Went, Ph.D.
10.8 Employment Letter, dated July 18, 1997, between the Registrant and
David M. Wurzer
10.9 Employment Letter, dated August 21, 1997, between the Registrant and
Peter A. Fuller, Ph.D.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 Employment Letter, dated August 22, 1997, between the Registrant and
Stephen F. Kingsmore, M.B., Ch.B.
+10.11 Option and Exclusive License Agreement, dated October 4, 1996, between
the Registrant and Wisconsin Alumni Research Foundation
+10.12 Standard Non-Exclusive License Agreement--Brumley, dated July 1, 1996,
between the Registrant and Wisconsin Alumni Research Foundation
+10.13 Collaborative Research and License Agreement, dated May 16, 1997,
between the Registrant and Pioneer Hi-Bred International, Inc.
11.1 Schedule of Computation of Net Loss Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1)
23.3 Consent of Pennie & Edmonds LLP
#24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
# As filed in Part II of this Registration Statement
(b) Financial Statement Schedules
All schedules are omitted because they are not required, are not applicable
or the information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned 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 the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purposes 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.
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.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
MASSACHUSETTS ON THIS 15TH DAY OF OCTOBER, 1997.
CuraGen Corporation (Registrant)
/s/ Jonathan M. Rothberg
By: _________________________________
JONATHAN M. ROTHBERGCHIEF
EXECUTIVE OFFICER, PRESIDENT
ANDCHAIRMAN OF THE BOARD
Each person whose signature appears below constitutes and appoints Jonathan
M. Rothberg and Gregory T. Went, and each of them (with full power to each of
them to act alone), his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution in each of them for him and in
his name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement (or any other Registration Statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Jonathan M. Rothberg Chief Executive October 15,
- ------------------------------------- Officer, President 1997
JONATHAN M. ROTHBERG and Chairman of the
Board (principal
executive officer)
/s/ Gregory T. Went Executive Vice October 15,
- ------------------------------------- President and a 1997
GREGORY T. WENT Director
/s/ David M. Wurzer Executive Vice October 15,
- ------------------------------------- President, 1997
DAVID M. WURZER Treasurer and Chief
Financial Officer
(principal
financial and
accounting officer)
/s/ Vincent T. DeVita, M.D. Director October 15,
- ------------------------------------- 1997
VINCENT T. DEVITA, M.D.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.3 Amended and Restated Bylaws of the Registrant
*3.4 Form of Amended and Restated Bylaws of the Registrant
4.1 Article Fourth of the Amended and Restated Certificate of
Incorporation of the Registrant (see Exhibit 3.1)
*4.2 Form of Common Stock Certificate
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
with respect to the legality of the securities being registered
10.1 Lease Agreement (New Haven), dated December 23, 1996, between the
Registrant and Fusco Harbour Associates, LLC
10.2 Standard Form of Office Lease, as amended (Branford), dated
February 11, 1993 and April 26, 1996, between the Registrant and
Branford Office Venture
10.3 Sid Martin Biotechnology Development Institute Incubator License
Agreement, dated July 15, 1997, between the Registrant and the
University of Florida Research Foundation, Inc.
*10.4 1997 Employee, Director and Consultant Stock Plan
10.5 1993 Stock Option and Incentive Award Plan
10.6 Amendment to 1993 Stock Option and Incentive Plan, dated May 12,
1997
10.7 Employment Letter, dated February 20, 1997, between the Registrant
and Gregory T. Went, Ph.D.
10.8 Employment Letter, dated July 18, 1997, between the Registrant and
David M. Wurzer
10.9 Employment Letter, dated August 21, 1997, between the Registrant
and Peter A. Fuller, Ph.D.
10.10 Employment Letter, dated August 22, 1997, between the Registrant
and Stephen F. Kingsmore, M.B., Ch.B.
+10.11 Option and Exclusive License Agreement, dated October 4, 1996,
between the Registrant and Wisconsin Alumni Research Foundation
+10.12 Standard Non-Exclusive License Agreement--Brumley, dated July 1,
1996, between the Registrant and Wisconsin Alumni Research
Foundation
+10.13 Collaborative Research and License Agreement, dated May 16, 1997,
between the Registrant and Pioneer Hi-Bred International, Inc.
11.1 Schedule of Computation of Net Loss Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1)
23.3 Consent of Pennie & Edmonds LLP
#24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
# As filed in Part II of this Registration Statement
<PAGE>
Exhibit 3.1
-----------
RESTATED CERTIFICATE OF INCORPORATION
OF
CURAGEN CORPORATION
Under Sections 242 and 245
of the
Delaware General Corporation Law
I, Jonathan M. Rothberg, President of CuraGen Corporation, a corporation
organized and exiting under the laws of the State of Delaware, do hereby certify
as follows:
FIRST: The name of the Corporation is CuraGen Corporation.
SECOND: The Certificate of Incorporation of the Corporation was
originally filed with the Secretary of the State of Delaware on
November 22, 1991 and was amended and restated on December 23,
1993.
THIRD: This Restated Certificate of Incorporation restates, integrates
and further amends the Amended and Restated Certificate of
Incorporation of the Corporation and was duly adopted pursuant to
resolutions adopted by the Board of Directors and the
Stockholders of the Corporation in accordance with Sections 242
and 245 of the Delaware General Corporation Law, notice of such
adoption by the required percentages of each class of capital
stock having been given in accordance with Section 228(d) to each
Stockholder who did not execute a written consent to such
adoption.
FOURTH: The text of the Second Amended and Restated Certificate of
Incorporation, as amended or supplemented heretofore, is further
amended hereby to read as herein set forth in full.
IN WITNESS WHEREOF, CuraGen Corporation, Inc. has caused this certificate
to be signed by Jonathan M. Rothberg, its President, this 24th day of June,
1997.
CURAGEN CORPORATION
By /s/ Jonathan M. Rothberg
---------------------------------
Jonathan M. Rothberg
Its President
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CURAGEN CORPORATION
ARTICLE I
NAME OF CORPORATION
The name of the corporation is CuraGen Corporation (hereinafter the
"Corporation").
ARTICLE II
INITIAL ADDRESS OF REGISTERED AGENT
The address of the initial registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle;
and the name of the registered agent of the Corporation in the State of Delaware
is The Prentice-Hall Corporation System, Inc.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
AUTHORIZED CAPITAL
IV.1 Authorized Capital Stock. The aggregate number of shares which the
------------------------
Corporation shall have authority to issue is Thirty-two million five-hundred
thousand (32,500,000) shares, consisting of (a) 25,000,000 Shares of Common
Stock, par value $.01 per share; and (b) 7,500,000 shares of Serial Preferred
Stock, par value $.01 per share.
IV.2 Common Stock. All shares of Common Stock shall be identical in all
------------
respects and shall have equal rights and privileges.
1. Voting Rights. The holders of shares of Common Stock shall be
-------------
entitled to one vote for each share so held with respect to all
matters voted on by the shareholders of the Corporation.
2. Liquidation Rights. Upon any voluntary or involuntary
------------------
liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of Common Stock shall be entitled to
receive that portion of the remaining funds to be distributed
after the liquidation has been completed. Such funds shall be
paid to the holders of Common Stock on the basis of the number of
shares of Common Stock held by each of them.
<PAGE>
3. Dividends. Dividends may be paid on the Common Stock as and when
---------
declared by the Board of Directors of the Corporation (the "Board
of Directors") in accordance with applicable law.
IV.3 Serial Preferred Stock. The Board of Directors is authorized at any
----------------------
time, and from time to time, to provide for the issuance of shares of Serial
Preferred Stock in one or more series, and to determine the designations,
preferences, limitations and relative or other rights of the Serial Preferred
Stock or any series thereof. For each series, the Board of Directors shall
determine, by resolution or resolutions adopted prior to the issuance of any
shares thereof, the designations, preferences, limitations and relative or other
rights thereof, including but not limited to the following relative rights and
preferences, as to which there may be variations among different series:
1. The rate and manner of payment of dividends, if any;
2. Whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
3. The amount payable for shares in the event of liquidation,
dissolution or other winding up of the Corporation;
4. Sinking fund provisions, if any, for the redemption or purchase
of shares;
5. The terms and conditions, if any, on which shares may be
converted or exchanged;
6. Voting rights, if any; and
7. Any other rights and preferences of such shares, to the full
extent now or hereafter permitted by the laws of the State of
Delaware.
The Board of Directors shall have the authority to determine the number of
shares that will comprise each series.
Prior to the issuance of any shares of a series, but after adoption by the
Board of Directors of the resolution establishing such series, the appropriate
officers of the Corporation shall file such documents with the State of Delaware
as may be required by law.
8. Series A Preferred. The designation and the number of shares, and
-------------------
the powers, preferences and relative, participating, optional or other rights,
and qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock shall be as set forth on Exhibit A hereto.
9. Series B Preferred. The designation and the number of shares, and
-------------------
the powers, preferences and relative, participating, optional or other rights,
and qualifications, limitations and restrictions of the Series B Convertible
Preferred Stock shall be as set forth on Exhibit B hereto.
10. Series C Preferred. The designation and the number of shares,
-------------------
and the powers, preferences and relative, participating, optional or other
rights, and qualifications, limitations and
2
<PAGE>
restrictions of the Series C Convertible Preferred Stock shall be as set forth
on Exhibit C hereto.
11. Series D Preferred. The designation and the number of shares,
-------------------
and the powers, preferences and relative, participating, optional or other
rights, and qualifications, limitations and restrictions of the Series D
Convertible Preferred Stock shall be as set forth on Exhibit D hereto.
ARTICLE V
PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI
INDEMNIFICATION
The Corporation shall have all of the indemnification and other powers now
or hereafter set forth in Section 145 of the Delaware Corporation Law.
The indemnification and advancement of expenses provided by or granted
pursuant to such indemnification laws shall not be deemed exclusive of any other
rights to which those seeking indemnification and advancement of expenses may be
entitled under any bylaw, 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 such office. The indemnification and
advancement of expenses provided by or granted pursuant hereto and to such
indemnification laws, unless otherwise provided, authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
The Corporation shall also have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under such indemnification laws.
In addition, to the full extent permitted by law, notwithstanding any other
provision hereof, no director of the Corporation shall have any personal
liability to the Corporation or its stockholders for monetary damages for breach
of his fiduciary duty as a director, provided that this provision shall not
eliminate or limit the liability of a director (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 General Corporation Law
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
3
<PAGE>
ARTICLE VII
AUTHORIZED POWERS
The Corporation and its Board of Directors shall have all of the powers and
rights provided for in the Delaware Corporation Law.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Elections of Directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE IX
AMENDMENTS OF CERTIFICATE OF INCORPORATION
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 law, and all rights and powers conferred herein on
stockholders and directors are subject to this reserved power.
The Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
4
<PAGE>
EXHIBIT A
DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock. The powers, preferences, and relative,
- ------------------------------------
participating, optional or other rights, and qualifications, limitations and
restrictions thereof, with respect to the Company's Series A Convertible
Preferred Stock, par value $.01 per share, are as follows:
1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Convertible Preferred Stock" (hereinafter, the "Series A
Preferred Stock"), and the number of shares constituting the Series A Preferred
Stock shall be Three Hundred and Seven Thousand One Hundred Sixty-Seven
(307,167).
2. Dividends. The holders of the outstanding shares of Series A
---------
Preferred Stock shall be entitled to receive dividends if, as and when declared
by the Board of Directors out of funds legally available for such purpose.
Dividends (other than those payable solely in shares of Common Stock) may be
paid, or declared and set aside for payment, upon shares of Common Stock in any
calendar year only if dividends of an equal or greater amount per share shall
have been paid, or declared and set aside for payment, on account of all
outstanding shares of the Series A Preferred Stock. For purposes of the
comparison required by the preceding sentence, the Series A Preferred Stock
shall be treated as having been converted into Common Stock immediately prior to
the declaration of such dividends.
3. Voting Rights.
-------------
Except as otherwise set forth herein or required by law, in all matters
submitted to a vote of the stockholders of the Company, the holders of shares of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting and to vote together with all other classes and series of stock of the
Company as one class. In all such votes each share of Series A Preferred Stock
shall entitle the holder thereof to such number of votes per share on each
matter put before the stockholders of the Company as equals the number of shares
of Common Stock into which such share of Series A Preferred Stock is convertible
on the record date for determining stockholders eligible to vote on such matter
or, if no such record date is established, the date immediately preceding the
date such vote is taken or any written consent of stockholders is solicited. On
any matter as to which holders of Series A Preferred Stock are entitled to vote
separately as a class under Delaware law, each share of Series A Preferred Stock
shall be entitled to one vote.
A-1
<PAGE>
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or in the event of its insolvency,
before any distribution or payment is made to any holders of any shares of the
Common Stock or any other class or series of capital stock of the corporation
designated to be junior to the Series A Preferred Stock, and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated to be senior to, or on parity with, the Series A Preferred Stock, the
holders of outstanding Series A Preferred Stock shall be entitled to have set
apart for them, or to be paid first out of the assets of the Company available
for distribution to holders of the Company's capital stock of all classes, an
amount in cash equal to $5.86 per share of Series A Preferred Stock (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares). If, upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the assets of the Company available for distribution to stockholders
shall be insufficient to set aside for or to pay such amounts to the holders of
shares of Series A Preferred Stock, the total amount of the Company's assets
which is available to be paid to stockholders of the Company shall be
distributed pro rata among the holders of the Series A Preferred Stock, subject
to the liquidation rights and preferences of any class or series of Preferred
Stock designated to be senior to, or on a parity with, the Series A Preferred
Stock, and no distribution shall be made to or set apart for the holders of
Common Stock or any other class or series of capital stock of the Company which
at such time is junior to the Series A Preferred Stock as to liquidation rights
and preferences. If the assets of the Company available for distribution to
stockholders exceed such amounts, the balance of such assets shall be paid to or
set aside for payment ratably among the holders of Common Stock and the holders
of any class or series of Preferred Stock designated to be junior to the Series
A Preferred Stock, in accordance with their relative rights and preferences.
(b) The merger or consolidation of the Company into or with
another corporation, or the sale or other conveyance of all or substantially all
of the assets of the Company to another entity, shall be deemed, at the holder
of any shares of Series A Preferred Stock's option, a liquidation, dissolution
or winding up of the Company for purposes of this Section 4.
A-2
<PAGE>
5. Conversion.
----------
(a) Optional Conversion.
-------------------
Subject to the terms and conditions of this Section 5, at any time after
the issuance of the Series A Preferred Stock, the holder of each share of Series
A Preferred Stock shall have the right, at such holder's option, to convert any
such share of Series A Preferred Stock into fully paid and non-assessable shares
of Common Stock at the Conversion Rate (as hereinafter defined) in effect at the
time of conversion. The number of shares of Common Stock into which each share
of Series A Preferred Stock may be converted is referred to as the "Conversion
Rate." The Conversion Rate shall be one (1) and shall be subject to adjustment
as provided in Section 5(c). Any adjustment of the Conversion Rate shall also
cause an appropriate adjustment of the Conversion Price (as hereinafter
defined). The amount obtained by dividing $5.86 by the Conversion Rate shall be
called the "Conversion Price."
Such option to convert shares of Series A Preferred Stock into shares of
Common Stock may be exercised as to all or any portion of such shares of Series
A Preferred Stock by, and only by, giving written notice to the Company at its
principal office that the holder elects to convert a stated number of shares of
Series A Preferred Stock into Common Stock and by surrendering for such purpose
to the Company at its principal office the certificate representing such shares
of Series A Preferred Stock, duly endorsed or accompanied by proper instruments
to evidence the conversion election. At the time of such surrender, the persons
exercising such option to convert shall be deemed to be the holders of the
shares of Common Stock issuable upon such conversion, notwithstanding that the
stock transfer books of the Company may then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
such person. All rights with respect to the Series A Preferred Stock so
converted (other than the right to receive declared but unpaid dividends),
including but not limited to the right to vote shares of Series A Preferred
Stock, will then terminate.
As promptly as practicable after the receipt of the written notice
referred to in the preceding paragraph and surrender of the certificate or
certificates for the share or shares of Series A Preferred Stock to be
converted, the Company shall issue and deliver, or cause to be issued and
delivered, to the holder of the shares being converted, a certificate or
certificates registered in the holder's name or designee, for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series A Preferred Stock. In case the number of shares of Series A
Preferred Stock represented by the certificate or certificates surrendered for
conversion pursuant to this Section 5 exceeds the number of shares converted,
the Company shall, upon such conversion, execute and deliver to the holder at
the expense of the Company a new certificate or certificates for the number of
shares of Series A Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted.
(b) Automatic Conversion.
--------------------
All outstanding shares of Series A Preferred Stock shall be deemed
automatically converted
A-3
<PAGE>
into such number of shares of Common Stock as are determined in accordance with
Section 5(a) hereof immediately upon the closing of a firm commitment
underwritten public offering of the Common Stock of the Company pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, other than a
registration statement relating solely to a transaction under Rule 145 under
such Act (or any successor thereto), or an employee benefit plan of the Company,
at a public offering price (prior to underwriting discounts and expenses) of
$12.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares), in which the aggregate
proceeds to the Company shall be at least $10,000,000 (after deductions for
underwriting discounts and expenses relating to issuances, including without
limitation, fees of the Company's counsel), without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent.
Upon such conversion, the holders of certificates representing shares of
Series A Preferred Stock shall, upon notice from the Company, surrender such
certificates at the principal office of the Company or its transfer agent for
the Common Stock. As soon as practicable thereafter, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Common Stock into which the shares of Series A Preferred Stock represented by
the certificate so surrendered were converted. The Company shall not be
obligated to issue such certificates unless certificates evidencing the shares
of Series A Preferred Stock so converted are either delivered to the Company or
any such transfer agent, or the holder notifies the Company that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. All rights with respect to the Series A Preferred
Stock so converted (other than the right to receive declared but unpaid
dividends), including but not limited to the right to vote shares of Series A
Preferred Stock, will terminate as of the date of their automatic conversion.
(c) Adjustment.
----------
The number of shares of Common Stock into which each share of Series A
Preferred Stock may be converted shall be subject to the following adjustments:
(i) Changes in Common Stock; Capital Reorganization or
--------------------------------------------------
Reclassification. If the Company shall subdivide the outstanding shares of
- ----------------
Common Stock into a greater number of shares of Common Stock or combine the
outstanding shares of Common Stock into a lesser number of shares, or issue
additional shares of Common Stock as a dividend or other distribution on its
Common Stock or reorganize or reclassify its shares of Common Stock into any
other securities of the Company, then the Conversion Rate shall be adjusted so
that the holder of shares of Series A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive for each share of Series A Preferred
Stock the number of shares of Common Stock which such holder would have owned or
been entitled to receive after the happening of any of the events described
above if such holder's Series A Preferred Stock had been converted immediately
prior to the happening of such event, such adjustment to become effective
concurrently with effectiveness of such event.
A-4
<PAGE>
(ii) Adjustment of Conversion Rate for Certain Issuances of
------------------------------------------------------
Common Stock and Common Stock Equivalents. The Conversion Rate shall be subject
- -----------------------------------------
to the following adjustment, in addition to those set forth above in Section
5(c)(i). If, in connection with the first Significant Equity Financing following
the first date of issuance of any Series A Preferred Stock, the Company sells or
issues any Common Stock or Common Stock Equivalents at a Per Share Consideration
that is less than the Conversion Price, then the Conversion Rate shall be
adjusted as provided in Subsections (A), (B) and (C) of this Section 5(c)(ii).
As used herein, the following terms have the following meanings:
"Significant Equity Financing" means the issuance by the Company of
Common Stock or Common Stock Equivalents to any person or entity or group of
persons or entities in a single transaction in which the aggregate Per Share
Consideration received by the Company upon the sale or issuance of such Common
Stock and Common Stock Equivalents exceeds $250,000.
"Per Share Consideration" means, with respect to the sale or issuance of
Common Stock, the price per share received by the Company, prior to the payment
of any expenses, commissions, discounts and other applicable costs. With
respect to the sale or issuance of Common Stock Equivalents which are
exchangeable into or exchangeable for Common Stock without further
consideration, the Per Share Consideration shall be determined by dividing the
maximum number of shares of Common Stock issuable with respect to such Common
Stock Equivalents (as set forth in the instrument relating thereto without
regard to any provisions contained therein for subsequent adjustment of such
number) into the aggregate consideration received by the Company upon the sale
or issuance of such Common Stock Equivalents, prior to the payment of any
expenses, commissions, discounts and other applicable costs. With respect to
the issuance of other Common Stock Equivalents, the Per Share Consideration
shall be determined by dividing the maximum number of shares of Common Stock
issuable with respect to such Common Stock Equivalents into the total aggregate
consideration received by the Company upon the sale or issuance of such Common
Stock Equivalents plus the minimum aggregate amount of additional consideration
receivable by the Company upon the exchange or exercise of such Common Stock
Equivalents, prior to the payment of any expenses, commissions, discounts and
other applicable costs. The issuance of Common Stock or Common Stock
Equivalents for no consideration shall be deemed to be an issuance at a Per
Share Consideration of $.00. In connection with the sale or issuance of Common
Stock and/or Common Stock Equivalents for non-cash consideration, the fair
market value of such consideration shall be determined by the board of directors
of the Company acting in good faith.
"Common Stock Equivalents" means securities or rights exchangeable into
or entitling the holder thereof to receive shares of Common Stock.
"Additional Shares of Common Stock" shall mean either shares of Common
Stock issued in connection with the first Significant Equity Financing following
the first date of issuance of any Series A Preferred Stock or, with respect to
the issuance of Common Stock Equivalents in
A-5
<PAGE>
connection with such first Significant Equity Financing, the maximum number of
shares of Common Stock issuable in exchange for, upon exchange of, or upon
exercise of such Common Stock Equivalents (as set forth in the instrument
relating thereto without regard to any provisions contained therein for
subsequent adjustment of such number).
(A) Subject to Subsections (B) and (C) below, upon the issuance
of Additional Shares of Common Stock in connection with the first Significant
Equity Financing following the first date of issuance of any Series A Preferred
Stock for a Per Share Consideration that is less than the Conversion Price in
effect on the date of such issuance, the Conversion Rate in effect on such date
will be adjusted by multiplying it by a fraction, the numerator of which is the
Conversion Price then in effect and the denominator of which is the Per Share
Consideration received by the Company for such Additional Shares of Common
Stock.
(B) Upon the issuance of Common Stock Equivalents, exchangeable
without further consideration into Common Stock in connection with the first
Significant Equity Financing following the first date of issuance of any Series
A Preferred Stock for a Per Share Consideration that is less than the Conversion
Price in effect on the date of such issuance, the Conversion Rate in effect on
such date will be adjusted as in Subsection (A) above on the basis that the
related Additional Shares of Common Stock are to be treated as having been
issued on the date of issuance of the Common Stock Equivalents, and the
aggregate consideration received by the Company for such Common Stock
Equivalents shall be deemed to have been received for such Additional Shares of
Common Stock.
(C) Upon the issuance of Common Stock Equivalents in connection
with the first Significant Equity Financing following the first date of issuance
of any Series A Preferred Stock other than those described in Subsection (B)
above, for a Per Share Consideration less than the Conversion Price in effect on
the date of such issuance, the Conversion Rate in effect on such date will be
adjusted as in Subsection (A) above on the basis that the related Additional
Shares of Common Stock are to be treated as having been issued on the date of
issuance of such Common Stock Equivalents, and the aggregate consideration
received and the minimum amount receivable by the Company on conversion or
exercise of such Common Stock Equivalents shall be deemed to have been received
for such Additional Shares of Common Stock.
(D) On the expiration of any Common Stock Equivalents on
account of which an adjustment in the Conversion Rate and Conversion Price have
been made previously pursuant to Section 5(c)(ii), the Conversion Rate and
Conversion Price shall forthwith be readjusted to such Conversion Rate and
Conversion Price as would have obtained had the adjustment made upon the
issuance of such Common Stock Equivalents been made upon the basis of the
issuance of only the unexpired Common Stock Equivalents.
(iii) Notice of Adjustments. Upon any adjustment under this
---------------------
Section 5, then in each such case the Company shall give written notice thereof
within thirty (30) days of the occurrence of the adjustment, addressed to each
registered holder of Series A Preferred Stock at the address of such holder as
shown on the records of the Company. Such notice shall describe the
A-6
<PAGE>
adjustment in reasonable detail, as well as the method of calculation and the
facts upon which such calculation is based.
(d) Certain Provisions Regarding Conversion.
---------------------------------------
(i) No Fractional Shares. The number of shares of Common
--------------------
Stock issuable upon conversion of any shares of Series A Preferred Stock shall
be rounded to the nearest whole number, and no fractional shares of Common
Stock, and no payment in lieu thereof, shall be issued upon any such conversion.
(ii) Common Stock Reserved. The Company shall at all times
---------------------
reserve and keep available out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the conversion of all
then outstanding shares of Series A Preferred Stock.
(iii) Status of Converted or Unissued Series A Preferred
--------------------------------------------------
Stock. Shares of Series A Preferred Stock that have been issued and reacquired
- -----
in any manner, including upon conversion of such shares, shall (upon compliance
with any applicable provisions of the laws of the State of Delaware) have the
status of authorized and unissued shares of the Company's Preferred Stock, par
value $.01 per share, undesignated as to series and may be redesignated and
reissued as part of any series of the Preferred Stock.
(iv) No Impairment. The Company will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization, 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 Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(v) Certificate as to Adjustments. Upon the occurrence of
-----------------------------
each adjustment or readjustment of the number of shares receivable pursuant to
this Section 5, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A 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 Company shall, upon the written request
at any time of any holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, and (ii) 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 each series of Series A Preferred Stock.
(vi) Certain Amendments to the Company's Certificate of
--------------------------------------------------
Incorporation. So long as shares of Series A Preferred Stock shall be
- -------------
outstanding, the Company shall not, without first obtaining the affirmative vote
or written consent of the holders of a majority of the outstanding
A-7
<PAGE>
shares of the Series A Preferred Stock voting separately as a class, amend or
repeal any provision of, or add any provision to, the Company's Certificate of
Incorporation, including any amendment, repeal or addition to the Company's
Certificate of Incorporation effected through a merger, if such action would
adversely alter or change the preferences, rights, privileges or powers of the
Series A Preferred Stock, or increase or decrease (other than by conversion) the
total number of authorized shares of Series A Preferred Stock.
A-8
<PAGE>
EXHIBIT B
DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES B REDEEMABLE PREFERRED STOCK
Series B Redeemable Preferred Stock. The powers, preferences, and
-----------------------------------
relative, participating, optional or other rights, and qualifications,
limitations and restrictions thereof, with respect to the Company's Series B
Redeemable Preferred Stock, par value $.01 per share, are as follows:
1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series B Redeemable Preferred Stock" (the "Series B Preferred"),
and the number of shares constituting the Series B Preferred shall be one
hundred and seventy five thousand (175,000).
2. Dividends. Subject to the provisions of law and this Certificate of
---------
Incorporation, the holders of the outstanding shares of Series B Preferred, in
preference to the holders of Common Stock, Series A Convertible Preferred Stock
(the "Series A Preferred") and any other capital stock of the Company ranking
junior to the Series B Preferred as to payment of dividends, shall be entitled
to receive out of funds legally available therefore, when and as declared by the
Board of Directors, out of any assets at the time legally available therefor, or
upon redemption of the Series B Preferred pursuant to Section 5 hereof, or upon
liquidation of the Company as provided in Section 4 hereof, cumulative cash
dividends at an annual rate equal to the prime rate as reported in the Wall
Street Journal from time to time (such dividend being subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or similar event). Dividends
on the Series B Preferred shall be cumulative and shall accrue daily on and
after the original issuance date of each share of the Series B Preferred.
3. Voting Rights. Except as otherwise set forth herein or required by
-------------
law, the holders of shares of Series B Preferred shall not be entitled to notice
of any stockholders' meeting and shall not be entitled to vote on any matter put
before the stockholders of the Company. In voting on any matters on which the
holders of shares of Series B Preferred are entitled to vote, each share of
Series B Preferred shall be entitled to one vote.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or in the event of its insolvency,
before any distribution or payment is made to any holders of any shares of the
Common Stock or any other class or series of capital stock of the Company
designated to be junior to the Series A Preferred and the Series B Preferred,
and subject to the liquidation rights and preferences of any class or series of
capital stock of the Company designated to be senior to, or on parity with, the
Series A Preferred and the Series B Preferred, the holders of outstanding Series
A Preferred and Series B Preferred shall be entitled to have set apart
B-1
<PAGE>
for them, or to be paid first out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, an amount
in cash equal to (i) $5.86 per share of Series A Preferred plus all declared but
unpaid dividends, and (ii) $10.00 per share of Series B Preferred plus all
accrued but unpaid dividends, whether or not declared, on the Series B Preferred
(and in both instances specified in (i) and (ii), subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or similar event affecting
such shares). If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company available for distribution
to stockholders shall be insufficient to set aside for or to pay such amounts to
the holders of shares of Series A Preferred and Series B Preferred, the total
amount of the Company's assets which is available to be paid to stockholders of
the Company shall be distributed ratably among the holders of the Series A
Preferred and the Series B Preferred in proportion to their preferential
liquidation amounts as specified above, subject to the liquidation rights and
preferences of any class or series of capital stock of the Company designated to
be senior to, or on a parity with, the Series A Preferred and the Series B
Preferred, and no distribution shall be made to or set apart for the holders of
Common Stock, or any other class or series of capital stock of the Company which
at such time is junior to the Series A Preferred and the Series B Preferred as
to liquidation rights and preferences. If the assets of the Company available
for distribution to stockholders exceed such amounts, the balance of such assets
shall be paid to or set aside for payment ratably among the holders of any class
or series of capital stock of the Company designated to be junior to the Series
A Preferred and the Series B Preferred, in accordance with their relative rights
and preferences, and thereafter, to the holders of Common Stock.
(b) The merger or consolidation of the Company into or with another
corporation, or the sale or other conveyance of all or substantially all of the
assets of the Company to another entity, shall be deemed, at the option of any
holder of shares of Series B Preferred, a liquidation, dissolution or winding up
of the Company for purposes of this Section 4.
5. Redemption
----------
(a) Put by Holders of Series B Preferred.
------------------------------------
(i) At any time following the date on which the Company has
received aggregate net cash proceeds from Qualified Equity Financings (as
hereinafter defined) of in excess of ten million dollars ($10,000,000) in
a transaction or a series of transactions, at the option and the written
election of holders of all of the outstanding shares of Series B
Preferred, the Company shall redeem all, but not less than all, of the
outstanding shares of Series B Preferred (the "Put"). For the purposes of
this Subsection 5, a "Qualified Equity Financing" shall mean the sale or
issuance, after the date of issuance of the Series B Preferred Stock, of
shares of Common Stock or securities or rights exchangeable into or
entitling the holder thereof to receive shares of Common Stock, but shall
exclude the sale by the Company of up to 2,100,000 shares of Preferred
Stock.
(ii) If the holders of shares of Series B Preferred elect to have
the Company redeem the shares of Series B Preferred as set forth in this
Subsection 5(a), notice to that
B-2
<PAGE>
effect shall be given by such holders to the Company (the "Put Notice").
Promptly following the delivery of the Put Notice, each holder of shares of
Series B Preferred shall deliver the certificate(s) representing such
shares to the Company at its principal office and thereupon the Series B
Redemption Price (as defined in Subsection 5(c) below) for such shares
shall be paid to the order of the person whose name appears on such
certificate(s) and each such surrendered certificate shall be canceled and
retired.
(iii) Insufficient Funds for Redemption. If the funds of the Company
---------------------------------
legally available for redemption of shares of Series B Preferred are
inadequate to redeem all of the outstanding shares of Series B Preferred,
the holders of shares of Series B Preferred shall share ratably in any
funds legally available for redemption of such shares according to the
respective amounts which would be payable to them if all of the outstanding
shares of Series B Preferred were redeemed. The shares of Series B
Preferred not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter when additional
funds of the Company are legally available for the redemption of such
shares of Series B Preferred such funds will be used to redeem all or a
portion of the balance of such shares ratably as set forth herein. The
rights of redemption of shares of Series B Preferred are subject to the
rights and preferences of any class or series of capital stock of the
Company designated to be senior to or on a parity with the Series B
Preferred with respect to rights of redemption.
(b) Call by Company. At any time, by written notice to the holders of
---------------
shares of Series B Preferred (the "Call Notice"), the Company may elect to
redeem all, but not less than all, of the shares of the Series B Preferred from
such holders. Promptly following the delivery of the Call Notice, each holder of
shares of Series B Preferred shall deliver the certificate(s) representing such
shares to the Company at its principal office and thereupon the Series B
Redemption Price for such shares shall be paid to the order of the person whose
name appears on such certificate(s) and each surrendered certificate shall be
canceled and retired.
(c) Series B Redemption Price. The redemption price for each share of
-------------------------
Series B Preferred redeemed pursuant to this Section 5 shall be $10.00 per share
(subject to equitable adjustment in the event of any stock delivered, stock
split, combination, reorganization, recapitalization, reclassification or
similar event affecting such shares) plus all accrued but unpaid dividends,
whether or not declared, on the Series B Preferred.
6. Status of Redeemed or Unissued Series B Preferred. Shares of Series B
-------------------------------------------------
Preferred which have been issued and reacquired in any manner shall (upon
compliance with any applicable provisions of the laws of the State of Delaware)
have the status of authorized and unissued shares of the Company's Preferred
Stock, par value $.01 per share, undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock.
B-3
<PAGE>
EXHIBIT C
DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES C CONVERTIBLE PREFERRED STOCK
Series C Preferred The powers, preferences, and relative, participating,
-------------------
optional or other rights, and qualifications, limitations and restrictions
thereof, with respect to the Series C Preferred, par value $.01 per share, are
as follows:
1. Designation and Amount. The shares of such series shall be designated as
----------------------
"Series C Convertible Preferred Stock" (the "Series C Preferred"), and the
number of shares constituting the Series C Preferred shall be two million eleven
thousand four hundred and sixty-eight (2,011,468).
2. Dividends. Subject to the provisions of law and this Certificate of
---------
Incorporation and the rights and preferences of the holders of shares of the
Series B Redeemable Preferred Stock (the "Series B Preferred") and any other
class or series of the capital stock of the Company ranking senior to, or on a
parity with, the Series A Convertible Preferred Stock (the "Series A Preferred")
and the Series C Preferred, the holders of the outstanding shares of Series A
Preferred and Series C Preferred, in preference to the holders of shares of the
Common Stock and any other class or series of the capital stock of the Company
ranking junior to the Series A Preferred and the Series C Preferred, shall be
entitled to receive dividends if, as and when declared by the Board of Directors
out of funds legally available for such purpose. The Series A Preferred and the
Series C Preferred shall be on a parity with respect to dividends. Dividends
(other than those payable solely in shares of Common Stock) may be paid, or
declared and set aside for payment, upon shares of Common Stock in any calendar
year only if dividends of an equal or greater amount per share shall have been
paid, or declared and set aside for payment, on account of all outstanding
shares of the Series A Preferred, the Series C Preferred and any other class or
series of the capital stock of the Company designated to be on a parity with the
Series C Preferred. For purposes of the comparison required by the preceding
sentence, the Series A Preferred, the Series C Preferred and any other class or
series of the capital stock of the Company designated to be on a parity with the
Series A Preferred and the Series C Preferred shall be treated as having been
converted into Common Stock immediately prior to the declaration of such
dividends.
3. Voting Rights. Except as otherwise set forth herein or required by law,
-------------
in all matters submitted to a vote of the stockholders of the Company, the
holders of shares of Series C Preferred shall be entitled to notice of any
stockholders' meeting and to vote together with all other classes and series of
stock of the Company as one class. In all such votes each share of Series C
Preferred shall entitle the holder thereof to such number of votes per share on
each matter put before the stockholders of the Company as equals the number of
shares of Common Stock into which such share of Series C Preferred are
convertible on the record date for determining stockholders eligible to vote on
such matter or, if no such record date is established, the date
C-1
<PAGE>
immediately preceding the date such vote is taken or any written consent of
stockholders is solicited. On any matter as to which holders of Series C
Preferred are entitled to vote separately as a class under Delaware law, each
share of Series C Preferred shall be entitled to one vote.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or in the event of its insolvency, before any
distribution or payment is made to any holders of any shares of the Common Stock
or any other class or series of capital stock of the Company designated to be
junior to the Series A Preferred, the Series B Preferred and the Series C
Preferred, and subject to the liquidation rights and preferences of any class or
series of capital stock of the Company designated to be senior to, or on parity
with, the Series A Preferred, the Series B Preferred and the Series C Preferred,
the holders of outstanding shares of the Series A Preferred, the Series B
Preferred and the Series C Preferred shall be entitled to have set apart for
them, or to be paid first out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, an amount
in cash equal to (i) $5.86 per share of Series A Preferred and Series C
Preferred plus all declared and unpaid dividends, and (ii) $10.00 per share of
Series B Preferred plus all accrued but unpaid dividends, whether or not
declared, on the Series B Preferred (and in both instances specified in (i) and
(ii), subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization or other similar event
affecting such shares). If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company available
for distribution to stockholders shall be insufficient to set aside for or to
pay such amounts to the holders of shares of Series A Preferred, Series B
Preferred and Series C Preferred, the total amount of the Company's assets which
is available to be paid to stockholders of the Company shall be distributed
ratably among the holders of the Series A Preferred, the Series B Preferred and
the Series C Preferred in proportion to their preferential liquidation amounts
as specified above, subject to the liquidation rights and preferences of any
other class or series of capital stock of the Company designated to be senior
to, or on a parity with, the Series A Preferred, the Series B Preferred and the
Series C Preferred, and no distribution shall be made to or set apart for the
holders of Common Stock or any other class or series of capital stock of the
Company which at such time is junior to the Series A Preferred, the Series B
Preferred and the Series C Preferred as to liquidation rights and preferences.
If the assets of the Company available for distribution to stockholders exceed
such amounts, the balance of such assets shall be paid to or set aside for
payment ratably among the holders of any class or series of capital stock of the
Company designated to be junior to the Series A Preferred, the Series B
Preferred and the Series C Preferred, in accordance with their relative rights
and preferences, and thereafter, to the holders of Common Stock.
(b) The merger or consolidation of the Company into or with another
corporation, or the sale or other conveyance of all or substantially all of the
assets of the Company to another entity, shall be deemed, at the option of any
holder of shares of Series C Preferred, a liquidation, dissolution or winding up
of the Company for purposes of this Section 4 as to such holder.
C-2
<PAGE>
5. Conversion.
----------
(a) Optional Conversion. Subject to the terms and conditions of this Section
-------------------
5, at any time after the issuance of the Series C Preferred, the holder of each
share of Series C Preferred shall have the right, at such holder's option, to
convert any such shares of Series C Preferred into fully paid and non-assessable
shares of Common Stock at the Conversion Rate (as hereinafter defined) in effect
at the time of conversion. The number of shares of Common Stock into which each
share of Series C Preferred may be converted is referred to as the "Conversion
Rate." The Conversion Rate shall be one (1) and shall be subject to adjustment
as provided in Section 5(c). Any adjustment of the Conversion Rate shall also
cause an appropriate adjustment of the Conversion Price (as hereinafter
defined). The amount obtained by dividing $5.86 by the Conversion Rate shall be
called the "Conversion Price." Such option to convert shares of Series C
Preferred into shares of Common Stock may be exercised as to all or any portion
of such shares of Series C Preferred by, and only by, giving written notice to
the Company at its principal office that the holder elects to convert a stated
number of shares of Series C Preferred into Common Stock and by surrendering for
such purpose to the Company at its principal office the certificate representing
such shares of Series C Preferred, duly endorsed or accompanied by proper
instruments to evidence the conversion election. At the time of such surrender,
the persons exercising such option to convert shall be deemed to be the holders
of the shares of Common Stock issuable upon such conversion, notwithstanding
that the stock transfer books of the Company may then be closed or that
certificates representing such shares of Common Stock shall not then be actually
delivered to such person. All rights with respect to the Series C Preferred so
converted (other than the right to receive declared but unpaid dividends),
including, but not limited to, the right to vote such shares of Series C
Preferred, will then terminate. As promptly as practicable after the receipt of
the written notice referred to in the preceding paragraph and surrender of the
certificate or certificates for the share or shares of Series C Preferred to be
converted, the Company shall issue and deliver, or cause to be issued and
delivered, to the holder of the shares being converted, a certificate or
certificates registered in the holder's name or designee, for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series C Preferred. In case the number of shares of Series C Preferred
represented by the certificate or certificates surrendered for conversion
pursuant to this Section 5 exceeds the number of shares converted, the Company
shall, upon such conversion, execute and deliver to the holder at the expense of
the Company a new certificate or certificates for the number of shares of Series
C Preferred represented by the certificate or certificates surrendered which are
not to be converted.
(b) Automatic Conversion. All outstanding shares of Series C Preferred shall
--------------------
be deemed automatically converted into such number of shares of Common Stock as
are determined in accordance with Section 5(a) hereof immediately upon the
closing of a firm commitment underwritten public offering of the Common Stock of
the Company pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended, other than a registration statement relating solely to a
transaction under Rule 145 under such Act (or any successor thereto), or an
employee benefit plan of the Company, at a public offering price (prior to
underwriting discounts and expenses) of $12.00 per share of Common Stock (as
adjusted for any stock dividends, combinations or splits with
C-3
<PAGE>
respect to such shares), in which the aggregate proceeds to the Company shall be
at least $10,000,000 (after deductions for underwriting discounts, other related
compensation and expenses relating to issuances, including, without limitation,
fees of the Company's counsel), without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent. Upon such conversion, the
holders of certificates representing shares of Series C Preferred shall, upon
notice from the Company, surrender such certificates at the principal office of
the Company or its transfer agent for the Common Stock. As soon as practicable
thereafter, there shall be issued and delivered to such holder a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series C Preferred represented by the certificate so surrendered were converted.
The Company shall not be obligated to issue such certificates unless
certificates evidencing the shares of Series C Preferred so converted are either
delivered to the Company or any such transfer agent, or the holder notifies the
Company that such certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. All rights with respect to the Series C
Preferred so converted (other than the right to receive declared but unpaid
dividends), including, but not limited to, the right to vote shares of Series C
Preferred, will terminate as of the date of their automatic conversion.
(c) Adjustment. The number of shares of Common Stock into which each share
----------
of Series C Preferred may be converted shall be subject to the following
adjustments:
(i) Changes in Common Stock; Capital Reorganization or Reclassification. If
-------------------------------------------------------------------
the Company shall subdivide the outstanding shares of Common Stock into a
greater number of shares of Common Stock or combine the outstanding shares of
Common Stock into a lesser number of shares, or issue additional shares of
Common Stock as a dividend or other distribution on its Common Stock, reorganize
or reclassify its shares of Common Stock into any other securities of the
Company, or do any other similar act affecting such shares, then the Conversion
Rate shall be subject to equitable adjustment, including without limitation,
adjustment so that the holder of shares of Series C Preferred thereafter
surrendered for conversion shall be entitled to receive for each share of Series
C Preferred the number of shares of Common Stock which such holder would have
owned or been entitled to receive after the happening of any of the events
described above if such holder's Series C Preferred had been converted
immediately prior to the happening of such event, such adjustment to become
effective concurrently with the effectiveness of such event.
(ii) Adjustment of Conversion Rate for Certain Issuances of Common Stock and
-----------------------------------------------------------------------
Common Stock Equivalents. The Conversion Rate shall be subject to the following
adjustment, in addition to those set forth above in Section 5(c)(i). If, in
connection with the issuance of Common Stock or Common Stock Equivalents (other
than issuances to any employee, consultant, advisor or other person providing
services to the Company) following the first date of issuance of any Series C
Preferred and prior to a Termination Event, the Company sells or issues any
Common Stock or Common Stock Equivalents at a Per Share Consideration that is
less than the Conversion Price then in effect, then the Conversion Rate shall be
adjusted as provided in Subsections (A), (B) and (C) of this Section 5(c)(ii).
C-4
<PAGE>
As used herein, the following terms have the following meanings:
"Termination Event" means the completion by the Company of two unrelated
Significant Equity Financings.
"Significant Equity Financing" means the issuance by the Company of Common
Stock or Common Stock Equivalents to any person or entity or group of persons or
entities in a single transaction or related group of transactions in which the
Per Share Consideration equals or exceeds $5.86 and the aggregate Per Share
Consideration received by the Company upon the sale or issuance of such Common
Stock and Common Stock Equivalents exceeds $3,000,000.
"Per Share Consideration" means, with respect to the sale or issuance of
Common Stock, the price per share received by the Company, prior to the payment
of any expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents which are exchangeable into or exchangeable for Common Stock without
further consideration, the Per Share Consideration shall be determined by
dividing the maximum number of shares of Common Stock issuable with respect to
such Common Stock Equivalents (as set forth in the instrument relating thereto
without regard to any provisions contained therein for subsequent adjustment of
such number) into the aggregate consideration received by the Company upon the
sale or issuance of such Common Stock Equivalents, prior to the payment of any
expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the issuance of other Common Stock
Equivalents, the Per Share Consideration shall be determined by dividing the
maximum number of shares of Common Stock issuable with respect to such Common
Stock Equivalents into the total aggregate consideration received by the Company
upon the sale or issuance of such Common Stock Equivalents plus the minimum
aggregate amount of additional consideration receivable by the Company upon the
exchange or exercise of such Common Stock Equivalents, prior to the payment of
any expenses, commissions, discounts and other applicable costs. The issuance
of Common Stock or Common Stock Equivalents for no consideration shall be deemed
to be an issuance at a Per Share Consideration of $.00. In connection with the
sale or issuance of Common Stock and/or Common Stock Equivalents for non-cash
consideration, the fair market value of such consideration shall be determined
by the board of directors of the Company acting in good faith.
"Common Stock Equivalents" means securities or rights exchangeable into or
entitling the holder thereof to receive shares of Common Stock.
"Additional Shares of Common Stock" shall mean either shares of Common
Stock issued following the first date of issuance of any Series C Preferred and
prior to a Termination Event or, with respect to the issuance of Common Stock
Equivalents during such period, the maximum number of shares of Common Stock
issuable in exchange for, upon exchange of, or upon exercise of such Common
Stock Equivalents (as set forth in the instrument relating thereto without
regard to any provisions contained therein for subsequent adjustment of such
number).
C-5
<PAGE>
(A) Subject to Subsections (B) and (C) below, upon the issuance of
Additional Shares of Common Stock following the first date of issuance of any
Series C Preferred and prior to a Termination Event for a Per Share
Consideration that is less than the Conversion Price in effect on the date of
such issuance, the Conversion Rate in effect on such date will be adjusted by
multiplying it by a fraction,
(x) the numerator of which is the number of shares of Common Stock issuable
upon conversion of Preferred Stock and exercise of warrants to purchase Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock, plus the number of shares of Common Stock outstanding immediately
prior to the issuance of such Additional Shares of Common Stock, plus the number
of such Additional Shares of Common Stock so issued, and
(y) the denominator of which shall be the number of shares of Common Stock
issuable upon conversion of Preferred Stock and exercise of warrants to purchase
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock, plus the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares of Common Stock,
plus the number of such Additional Shares of Common Stock which the aggregate
net consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued would purchase at the Conversion
Price which is then in effect.
(B) Upon the issuance of Common Stock Equivalents, exchangeable without
further consideration into Common Stock following the first date of issuance of
any Series C Preferred and prior to a Termination Event for a Per Share
Consideration that is less than the Conversion Price in effect on the date of
such issuance, the Conversion Rate in effect on such date will be adjusted as in
Subsection (A) above on the basis that the related Additional Shares of Common
Stock are to be treated as having been issued on the date of issuance of the
Common Stock Equivalents, and the aggregate consideration received by the
Company for such Common Stock Equivalents shall be deemed to have been received
for such Additional Shares of Common Stock.
(C) Upon the issuance of Common Stock Equivalents following the first date
of issuance of any Series C Preferred and prior to a Termination Event other
than those described in Subsection (B) above, for a Per Share Consideration less
than the Conversion Price in effect on the date of such issuance, the Conversion
Rate in effect on such date will be adjusted as in Subsection (A) above on the
basis that the related Additional Shares of Common Stock are to be treated as
having been issued on the date of issuance of such Common Stock Equivalents, and
the aggregate consideration received and the minimum amount receivable by the
Company on conversion or exercise of such Common Stock Equivalents shall be
deemed to have been received for such Additional Shares of Common Stock.
(D) On the expiration of any Common Stock Equivalents on account of which
an adjustment in the Conversion Rate and Conversion Price have been made
previously pursuant to this Section 5(c)(ii), the Conversion Rate and Conversion
Price shall forthwith be readjusted to such Conversion Rate and Conversion Price
as would have obtained had the adjustment made upon
C-6
<PAGE>
the issuance of such Common Stock Equivalents been made upon the basis of the
issuance of only the unexpired Common Stock Equivalents.
(iii) Notice of Adjustments. Upon any adjustment under this Section 5,
---------------------
then in each such case the Company shall give written notice thereof within
thirty (30) days of the occurrence of the adjustment, addressed to each
registered holder of Series C Preferred at the address of such holder as shown
on the records of the Company. Such notice shall describe the adjustment in
reasonable detail, as well as the method of calculation and the facts upon which
such calculation is based.
(d) Certain Provisions Regarding Conversion.
---------------------------------------
(i) No Fractional Shares. The number of shares of Common Stock issuable
--------------------
upon conversion of any shares of Series C Preferred shall be rounded to the
nearest whole number, and no fractional shares of Common Stock, and no payment
in lieu thereof, shall be issued upon any such conversion.
(ii) Common Stock Reserved. The Company shall at all times reserve and
---------------------
keep available out of its authorized but unissued Common Stock the full number
of shares of Common Stock deliverable upon the conversion of all then
outstanding shares of Series C Preferred.
(iii) Status of Converted or Unissued Series C Preferred. Shares of Series
--------------------------------------------------
C Preferred that have been issued and reacquired in any manner, including upon
conversion of such shares, shall (upon compliance with any applicable provisions
of the laws of the State of Delaware) have the status of authorized and unissued
shares of the Company's Preferred Stock, par value $.01 per share, undesignated
as to series and may be redesignated and reissued as part of any series of the
Preferred Stock.
(iv) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the number of shares receivable pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any holder of
Series C Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, and (ii) 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 each series of Series C
Preferred.
C-7
<PAGE>
EXHIBIT D
CERTIFICATE OF DESIGNATION, PREFERENCES, AND RIGHTS OF
SERIES D CONVERTIBLE PREFERRED STOCK
Series D Preferred. The powers, preferences, and relative, participating,
------------------
optional or other rights, and qualifications, limitations and restrictions
thereof, with respect to the Series D Preferred, par value $.01 per share, are
as follows:
1. Designation and Amount. The shares of such series shall be designated as
----------------------
"Series D Convertible Preferred Stock" (the "Series D Preferred"), and the
number of shares constituting the Series D Preferred shall be one million
(1,000,000).
2. Dividends. Subject to the provisions of law and this Certificate of
---------
Incorporation and the rights and preferences of the holders of shares of the
Series B Redeemable Preferred Stock (the "Series B Preferred") and any other
class or series of the capital stock of the Company ranking senior to, or on a
parity with, the Series A Convertible Preferred Stock (the "Series A
Preferred"), the Series C Convertible Preferred Stock (the "Series C Preferred")
and the Series D Preferred, the holders of the outstanding shares of Series A
Preferred, Series C Preferred and Series D Preferred, in preference to the
holders of shares of the Common Stock and any other class or series of the
capital stock of the Company ranking junior to the Series A Preferred, the
Series C Preferred and the Series D Preferred, shall be entitled to receive
dividends if, as and when declared by the Board of Directors out of funds
legally available for such purpose. The Series A Preferred, the Series C
Preferred and the Series D Preferred shall be on a parity with respect to
dividends. Dividends (other than those payable solely in shares of Common
Stock) may be paid, or declared and set aside for payment, upon shares of Common
Stock in any calendar year only if dividends of an equal or greater amount per
share shall have been paid, or declared and set aside for payment, on account of
all outstanding shares of the Series A Preferred, the Series C Preferred, the
Series D Preferred and any other class or series of the capital stock of the
Company designated to be on a parity with the Series D Preferred. For purposes
of the comparison required by the preceding sentence, the Series A Preferred,
the Series C Preferred, and the Series D Preferred and any other class or series
of the capital stock of the Company designated to be on a parity with the Series
A Preferred, the Series C Preferred and Series D preferred shall be treated as
having been converted into Common Stock immediately prior to the declaration of
such dividends.
3. Voting Rights. Except as otherwise set forth herein or required by law,
-------------
in all matters submitted to a vote of the stockholders of the Company, the
holders of shares of Series D Preferred shall be entitled to notice of any
stockholders' meeting and to vote together with all other classes and series of
stock of the Company as one class. In all such votes each share of Series D
Preferred shall entitle the holder thereof to such number of votes per share on
each matter put before the stockholders of the Company as equals the number of
shares of Common Stock into which such share of Series D Preferred are
convertible on the record date for determining
D-1
<PAGE>
stockholders eligible to vote on such matter or, if no such record date is
established, the date immediately preceding the date such vote is taken or any
written consent of stockholders is solicited. On any matter as to which holders
of Series D Preferred are entitled to vote separately as a class under Delaware
law, each share of Series D Preferred shall be entitled to one vote.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or in the event of its insolvency, before any
distribution or payment is made to any holders of any shares of the Common Stock
or any other class or series of capital stock of the Company designated to be
junior to the Series A Preferred, the Series B Preferred, the Series C Preferred
and the Series D Preferred, and subject to the liquidation rights and
preferences of any class or series of capital stock of the Company designated to
be senior to, or on parity with, the Series A Preferred, the Series B Preferred,
the Series C Preferred and the Series D Preferred, the holders of outstanding
shares of the Series A Preferred, the Series B Preferred, the Series C Preferred
and the Series D Preferred shall be entitled to have set apart for them, or to
be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, an amount in cash equal
to (i) $5.86 per share of Series A Preferred and Series C Preferred, plus all
declared but unpaid dividends, (ii) $10.00 per share of Series B Preferred, plus
all accrued but unpaid dividends, whether or not declared, on the Series B
Preferred, and (iii) $7.50 per share of Series D Preferred, plus all declared
but unpaid dividends, (and in all instances specified in (i). (ii) and (iii),
subject to equitable adjustment in the event of any stock dividend, stock split,
combination reorganization, recapitalization or other similar event affecting
such shares). If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company available for distribution
to stockholders shall be insufficient to set aside for or to pay such amounts to
the holders of shares of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred, the total amount of the Company's assets which
is available to be paid to stockholders of the Company shall be distributed
ratably among the holders of the Series A Preferred, the Series B Preferred, the
Series C Preferred and Series D Preferred in proportion to their preferential
liquidation amounts as specified above, subject to the liquidation rights and
preferences of any other class or series of capital stock of the Company
designated to be senior to, or on a parity with, the Series A Preferred, the
Series B Preferred, the Series C Preferred and Series D Preferred, and no
distribution shall be made to or set apart for the holders of Common Stock or
any other class or series of capital stock of the Company which at such time is
junior to the Series A Preferred, the Series B Preferred, the Series C Preferred
and Series D Preferred as to liquidation rights and preferences. If the assets
of the Company available for distribution to stockholders exceed such amounts,
the balance of such assets shall be paid to or set aside for payment ratably
among the holders of any class or series of capital stock of the Company
designated to be junior to the Series A Preferred, the Series B Preferred, the
Series C Preferred and the Series D Preferred, in accordance with their relative
rights and preferences, and thereafter, to the holders of Common Stock.
(b) The merger or consolidation of the Company into or with another
corporation, or the sale or other conveyance of all or substantially all of the
assets of the Company to another
D-2
<PAGE>
entity, shall be deemed, at the option of any holder of shares of Series D
Preferred, a liquidation, dissolution or winding up of the Company for purposes
of this Section 4 as to such holder.
5. Conversion. (a) Optional Conversion. Subject to the terms and
---------- -------------------
conditions of this Section 5, at any time after the issuance of the Series D
Preferred, the holder of each share of Series D Preferred shall have the right,
at such holder's option, to convert any such shares of Series D Preferred into
fully paid and non-assessable shares of Common Stock at the Conversion Rate (as
hereinafter defined) in effect at the time of conversion with no additional
consideration. The number of shares of Common Stock into which each share of
Series D Preferred may be converted is referred to as the "Conversion Rate."
The Conversion Rate shall be one (1) and shall be subject to adjustment as
provided in Section 5(c). Any adjustment of the Conversion Rate shall also
cause an appropriate adjustment of the Conversion Price (as hereinafter
defined). The amount obtained by dividing $7.50 by the Conversion Rate shall be
called the "Conversion Price." Such option to convert shares of Series D
Preferred into shares of Common Stock may be exercised as to all or any portion
of such shares of Series D Preferred by, and only by, giving written notice to
the Company at its principal office that the holder elects to convert a stated
number of shares of Series D Preferred into Common Stock and by surrendering for
such purpose to the Company at its principal office the certificate representing
such shares of Series D Preferred, duly endorsed or accompanied by proper
instruments to evidence the conversion election. At the time of such surrender,
the persons exercising such option to convert shall be deemed to be the holders
of the shares of Common Stock issuable upon such conversion, notwithstanding
that the stock transfer books of the Company may then be closed or that
certificates representing such shares of Common Stock shall not then be actually
delivered to such person. All rights with respect to the Series D Preferred so
converted (other than the right to receive declared but unpaid dividends),
including, but not limited to, the right to vote such shares of Series D
Preferred, will then terminate. As promptly as practicable after the receipt of
the written notice referred to in the preceding paragraph and surrender of the
certificate or certificates for the share or shares of Series D Preferred to be
converted, the Company shall issue and deliver, or cause to be issued and
delivered, to the holder of the shares being converted, a certificate or
certificates registered in the holder's name or designee, for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series D Preferred. In case the number of shares of Series D
Preferred represented by the certificate or certificates surrendered for
conversion pursuant to this Section 5 exceeds the number of shares converted,
the Company shall, upon such conversion, execute and deliver to the holder at
the expense of the Company a new certificate or certificates for the number of
shares of Series D Preferred represented by the certificate or certificates
surrendered which are not to be converted.
(b) Automatic Conversion. All outstanding shares of Series D Preferred shall
--------------------
be deemed automatically converted into such number of shares of Common Stock as
are determined in accordance with Section 5(a) hereof immediately upon the
closing of a firm commitment underwritten public offering of the Common Stock of
the Company pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended, other than a registration statement relating solely to a
transaction under Rule 145 under such Act (or any successor thereto), or an
employee benefit plan of the Company, at a public offering price (prior to
underwriting discounts and expenses) of $12.00
D-3
<PAGE>
per share of Common Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares), in which the aggregate proceeds to the
Company shall be at least $10,000,000 (after deductions for underwriting
discounts, other related compensation and expenses relating to issuances,
including, without limitation, fees of the Company's counsel), without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent.
Upon such conversion, the holders of certificates representing shares of Series
D Preferred shall, upon notice from the Company, surrender such certificates at
the principal office of the Company or its transfer agent for the Common Stock.
As soon as practicable thereafter, there shall be issued and delivered to such
holder a certificate or certificates for the number of shares of Common Stock
into which the shares of Series D Preferred represented by the certificate so
surrendered were converted. The Company shall not be obligated to issue such
certificates unless certificates evidencing the shares of Series D Preferred so
converted are either delivered to the Company or any such transfer agent, or the
holder notifies the Company that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. All rights with
respect to the Series D Preferred so converted (other than the right to receive
declared but unpaid dividends), including, but not limited to, the right to vote
shares of Series D Preferred, will terminate as of the date of their automatic
conversion.
(c) Adjustment. The number of shares of Common Stock into which each share of
----------
Series D Preferred may be converted shall be subject to the following
adjustments:
(i) Changes in Common Stock; Capital Reorganization or Reclassification. If
-------------------------------------------------------------------
the Company shall subdivide the outstanding shares of Common Stock into a
greater number of shares of Common Stock or combine the outstanding shares of
Common Stock into a lesser number of shares, or issue additional shares of
Common Stock as a dividend or other distribution on its Common Stock, reorganize
or reclassify its shares of Common Stock into any other securities of the
Company, or do any other similar act affecting such shares, then the Conversion
Rate shall be subject to equitable adjustment, including without limitation,
adjustment so that the holder of shares of Series D Preferred thereafter
surrendered for conversion shall be entitled to receive for each share of Series
D Preferred the number of shares of Common Stock which such holder would have
owned or been entitled to receive after the happening of any of the events
described above if such holder's Series D Preferred had been converted
immediately prior to the happening of such event, such adjustment to become
effective concurrently with the effectiveness of such event.
(ii) Adjustment of Conversion Rate for Certain Issuances of Common Stock and
-----------------------------------------------------------------------
Common Stock Equivalents. The Conversion Rate shall be subject to the following
- -------------------------
adjustment, in addition to those set forth above in Section 5(c)(i). If, in
connection with the first Significant Equity Financing following the first date
of issuance of any Series D Preferred, the Company sells or issues any Common
Stock or Common Stock Equivalents at a Per Share Consideration that is less than
the Conversion Price then in effect, then the Conversion Rate shall be adjusted
as provided in Subsections (A), (B) and (C) of this Section 5(c)(ii).
As used herein, the following terms have the following meanings:
D-4
<PAGE>
"Significant Equity Financing" means the issuance by the Company of Common
Stock or Common Stock Equivalents to any person or entity or group of persons or
entities in a single transaction or related group of transactions in which the
aggregate Per Share Consideration received by the Company upon the sale or
issuance of such Common Stock and Common Stock Equivalents exceeds $1,000,000.
"Per Share Consideration" means, with respect to the sale or issuance of
Common Stock, the price per share received by the Company, prior to the payment
of any expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents which are exchangeable into or exchangeable for Common Stock without
further consideration, the Per Share Consideration shall be determined by
dividing the maximum number of shares of Common Stock issuable with respect to
such Common Stock Equivalents (as set forth in the instrument relating thereto
without regard to any provisions contained therein for subsequent adjustment of
such number) into the aggregate consideration received by the Company upon the
sale or issuance of such Common Stock Equivalents, prior to the payment of any
expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the issuance of other Common Stock
Equivalents, the Per Share Consideration shall be determined by dividing the
maximum number of shares of Common Stock issuable with respect to such Common
Stock Equivalents into the total aggregate consideration received by the Company
upon the sale or issuance of such Common Stock Equivalents plus the minimum
aggregate amount of additional consideration receivable by the Company upon the
exchange or exercise of such Common Stock Equivalents, prior to the payment of
any expenses, commissions, discounts, other related compensation and other
applicable costs. The issuance of Common Stock or Common Stock Equivalents for
no consideration shall be deemed to be an issuance at a Per Share Consideration
of $.00. In connection with the sale or issuance of Common Stock and/or Common
Stock Equivalents for non-cash consideration, the fair market value of such
consideration shall be determined by the board of directors of the Company
acting in good faith.
"Common Stock Equivalents" means securities or rights exchangeable into or
entitling the holder thereof to receive shares of Common Stock.
"Additional Shares of Common Stock" shall mean either shares of Common Stock
issued in connection with the first Significant Equity Financing following the
first date of issuance of any Series D Preferred or, with respect to the
issuance of Common Stock Equivalents in connection with such first Significant
Equity Financing, the maximum number of shares of Common Stock issuable in
exchange for, upon exchange of, or upon exercise of such Common Stock
Equivalents (as set forth in the instrument relating thereto without regard to
any provisions contained therein for subsequent adjustment of such number).
(A) Subject to Subsections (B) and (C) below, upon the issuance of Additional
Shares of Common Stock in connection with the first Significant Equity Financing
following the first date of issuance of any Series D Preferred for a Per Share
Consideration that is less than the Conversion
D-5
<PAGE>
Price in effect on the date of such issuance, the Conversion Rate in effect on
such date will be adjusted by multiplying it by a fraction,
(x) the numerator of which is the number of shares of Common Stock issuable
upon conversion of Preferred Stock and exercise of warrants to purchase Common
Stock of the Company outstanding immediately prior to the issuance of such
Additional Shares of Common Stock, plus the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock, plus the number of such Additional Shares of Common Stock so
issued, and
(y) the denominator of which shall be the number of shares of Common Stock
issuable upon conversion of Preferred Stock and exercise of warrants to purchase
Common Stock of the Company outstanding immediately prior to the issuance of
such Additional Shares of Common Stock, plus the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock, plus the number of such Additional Shares of Common Stock which
the aggregate net consideration received by the Company for the total number of
such Additional Shares of Common Stock so issued would purchase at the
Conversion Price which is then in effect.
(B) Upon the issuance of Common Stock Equivalents, exchangeable without
further consideration into Common Stock in connection with the first Significant
Equity Financing following the first date of issuance of any Series D Preferred
for a Per Share Consideration that is less than the Conversion Price in effect
on the date of such issuance, the Conversion Rate in effect on such date will be
adjusted as in Subsection (A) above on the basis that the related Additional
Shares of Common Stock are to be treated as having been issued on the date of
issuance of the Common Stock Equivalents, and the aggregate consideration
received by the Company for such Common Stock Equivalents shall be deemed to
have been received for such Additional Shares of Common Stock.
(C) Upon the issuance of Common Stock Equivalents in connection with the
first Significant Equity Financing following the first date of issuance of any
Series D Preferred other than those described in Subsection (B) above, for a Per
Share Consideration less than the Conversion Price in effect on the date of such
issuance, the Conversion Rate in effect on such date will be adjusted as in
Subsection (A) above on the basis that the related Additional Shares of Common
Stock are to be treated as having been issued on the date of issuance of such
Common Stock Equivalents, and the aggregate consideration received and the
minimum amount receivable by the Company on conversion or exercise of such
Common Stock Equivalents shall be deemed to have been received for such
Additional Shares of Common Stock.
(D) On the expiration of any Common Stock Equivalents on account of which
an adjustment in the Conversion Rate and Conversion Price have been made
previously pursuant to this Section 5(c)(ii), the Conversion Rate and Conversion
Price shall forthwith be readjusted to such Conversion Rate and Conversion Price
as would have obtained had the adjustment made upon
D-6
<PAGE>
the issuance of such Common Stock Equivalents been made upon the basis of the
issuance of only the unexpired Common Stock Equivalents.
(iii) Notice of Adjustments. Upon any adjustment under this Section 5, then
---------------------
in each such case the Company shall give written notice thereof within thirty
(30) days of the occurrence of the adjustment, addressed to each registered
holder of Series D Preferred at the address of such holder as shown on the
records of the Company. Such notice shall describe the adjustment in reasonable
detail, as well as the method of calculation and the facts upon which such
calculation is based.
(d) Certain Provisions Regarding Conversion.
---------------------------------------
(i) No Fractional Shares. The number of shares of Common Stock issuable
--------------------
upon conversion of any shares of Series D Preferred shall be rounded to the
nearest whole number, and no fractional shares of Common Stock, and no payment
in lieu thereof, shall be issued upon any such conversion.
(ii) Common Stock Reserved. The Company shall at all times reserve and keep
---------------------
available out of its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the conversion of all then outstanding
shares of Series D Preferred.
(iii) Status of Converted or Unissued Series D Preferred. Shares of Series D
--------------------------------------------------
Preferred that have been issued and reacquired in any manner, including upon
conversion of such shares, shall (upon compliance with any applicable provisions
of the laws of the State of Delaware) have the status of authorized and unissued
shares of the Company's Preferred Stock, par value $.01 per share, undesignated
as to series and may be redesignated and reissued as part of any series of the
Preferred Stock.
(iv) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the number of shares receivable pursuant to this Section 5,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series D Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any holder of
Series D Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, and (ii) 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 each series of Series D
Preferred.
D-7
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES, AND RIGHTS OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
CURAGEN CORPORATION
CURAGEN CORPORATION, a Delaware corporation (the "Company"), DOES HEREBY
CERTIFY:
That, pursuant to authority conferred on the Board of Directors of the
Company by the Certificate of Incorporation of the Company and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code, said Board of
Directors, by the affirmative vote of at least a majority of its members,
adopted a resolution providing for the powers, designation, preferences and
relative, participating, optional or other rights, and qualifications,
limitations or restrictions thereof, of one hundred thousand (100,000) shares of
the Company's Preferred Stock, par value $.01 per share, which resolution is as
follows:
"RESOLVED: That pursuant to the authority granted to and vested in
--------
the Board of Directors of this Company in accordance with the
provisions of its Restated Certificate of Incorporation, as
amended, the Board of Directors hereby designates a series of
Preferred Stock of the Company, par value $.01 per share (the
"Preferred Stock"), consisting of 100,000 shares of the
authorized, unissued Preferred Stock of the Company, as the
Series E Convertible Preferred Stock (the "Series E Preferred"),
and hereby fixes such designation and number of shares, and the
powers, preferences and relative, participating, optional or
other rights, and qualifications, limitations and restrictions
thereof, as set forth below, and that the officers of the
Company, and each acting singly, are hereby authorized,
empowered and directed to execute and file with the Secretary of
State of the State of Delaware a Certificate of Designation,
Preferences and Rights of Series E Convertible Preferred Stock,
as the officer or officers shall deem necessary and advisable to
carry out the purposes of this resolution."
Series E Preferred. The powers, preferences, and relative, participating,
------------------
optional or other rights, and qualifications, limitations and restrictions
thereof, with respect to the Series E Preferred, par value $.01 per share, are
as follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series E Convertible Preferred Stock" (the "Series E Preferred"), and the
number of shares constituting the Series E Preferred shall be one hundred
thousand (100,000).
2. Dividends. Subject to the provisions of law and this Certificate of
---------
Incorporation and the rights and preferences of the holders of shares of the
Series B Redeemable Preferred Stock (the "Series B Preferred") and any other
class or series of the capital stock of the Company ranking senior to, or on a
parity with, the Series A Convertible Preferred Stock (the "Series A
Preferred"), the Series C Convertible Preferred Stock (the "Series C
Preferred"), the Series D Convertible Preferred Stock (the "Series D Preferred")
and the Series E Preferred, the holders of the outstanding shares of Series A
Preferred, Series C Preferred, Series D Preferred, and Series E Preferred in
<PAGE>
preference to the holders of shares of the Common Stock and any other class or
series of the capital stock of the Company ranking junior to the Series A
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred, shall be entitled to receive dividends if, as and when declared by
the Board of Directors out of funds legally available for such purpose. The
Series A Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred shall be on a parity with respect to dividends. Dividends
(other than those payable solely in shares of Common Stock) may be paid, or
declared and set aside for payment, upon shares of Common Stock in any calendar
year only if dividends of an equal or greater amount per share shall have been
paid, or declared and set aside for payment, on account of all outstanding
shares of the Series A Preferred, the Series C Preferred, the Series D
Preferred, the Series E Preferred and any other class or series of the capital
stock of the Company designated to be on a parity with the Series E Preferred.
For purposes of the comparison required by the preceding sentence, the Series A
Preferred, the Series C Preferred, the Series D Preferred, and the Series E
Preferred and any other class or series of the capital stock of the Company
designated to be on a parity with the Series A Preferred, the Series C
Preferred, Series D Preferred and Series E Preferred shall be treated as having
been converted into Common Stock immediately prior to the declaration of such
dividends.
3. Voting Rights. Except as otherwise set forth herein or required by
-------------
law, in all matters submitted to a vote of the stockholders of the Company, the
holders of shares of Series E Preferred shall be entitled to notice of any
stockholders' meeting and to vote together with all other classes and series of
stock of the Company as one class. In all such votes each share of Series E
Preferred shall entitle the holder thereof to such number of votes per share on
each matter put before the stockholders of the Company as equals the number of
shares of Common Stock into which such share of Series E Preferred are
convertible on the record date for determining stockholders eligible to vote on
such matter or, if no such record date is established, the date immediately
preceding the date such vote is taken or any written consent of stockholders is
solicited. On any matter as to which holders of Series E Preferred are entitled
to vote separately as a class under Delaware law, each share of Series E
Preferred shall be entitled to one vote.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Company, or in the event of its insolvency, before any
distribution or payment is made to any holders of any shares of the Common Stock
or any other class or series of capital stock of the Company designated to be
junior to the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred, and the Series E Preferred and subject to the
liquidation rights and preferences of any class or series of capital stock of
the Company designated to be senior to, or on parity with, the Series A
Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred, the holders of outstanding shares of the
Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred shall be entitled to have set apart for
them, or to be paid first out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, an amount
in cash equal to (i) $5.86 per share of Series A Preferred and Series C
Preferred, plus all declared but unpaid dividends, (ii) $10.00 per share of
Series B Preferred, plus all accrued but unpaid dividends, whether or not
declared, on the Series B Preferred, (iii) $7.50 per share of Series D
Preferred, plus all declared but unpaid dividends, and (iv) $10.00 per share of
the Series E Preferred, plus all accrued but unpaid dividends, whether or not
declared (and in all instances specified in (i), (ii), (iii), and (iv) subject
to
2
<PAGE>
equitable adjustment in the event of any stock dividend, stock split,
combination reorganization, recapitalization or other similar event affecting
such shares). If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company available for distribution
to stockholders shall be insufficient to set aside for or to pay such amounts to
the holders of shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred the total amount of the
Company's assets which is available to be paid to stockholders of the Company
shall be distributed ratably among the holders of the Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred in proportion to their preferential liquidation amounts as
specified above, subject to the liquidation rights and preferences of any other
class or series of capital stock of the Company designated to be senior to, or
on a parity with, the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred, and no
distribution shall be made to or set apart for the holders of Common Stock or
any other class or series of capital stock of the Company which at such time is
junior to the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred as to liquidation
rights and preferences. If the assets of the Company available for distribution
to stockholders exceed such amounts, the balance of such assets shall be paid to
or set aside for payment ratably among the holders of any class or series of
capital stock of the Company designated to be junior to the Series A Preferred,
the Series B Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred in accordance with their relative rights and preferences, and
thereafter, to the holders of Common Stock.
(b) The merger or consolidation of the Company into or with another
corporation, or the sale or other conveyance of all or substantially all of the
assets of the Company to another entity, shall be deemed, at the option of any
holder of shares of Series E Preferred, a liquidation, dissolution or winding up
of the Company for purposes of this Section 4 as to such holder.
5. Conversion. (a) Optional Conversion. Subject to the terms and
---------- -------------------
conditions of this Section 5, at any time after the issuance of the Series E
Preferred, the holder of each share of Series E Preferred shall have the right,
at such holder's option, to convert any such shares of Series E Preferred into
fully paid and non-assessable shares of Common Stock at the Conversion Rate (as
hereinafter defined) in effect at the time of conversion with no additional
consideration. The number of shares of Common Stock into which each share of
Series E Preferred may be converted is referred to as the "Conversion Rate." The
Conversion Rate shall be one (1) and shall be subject to adjustment as provided
in Section 5(c). Any adjustment of the Conversion Rate shall also cause an
appropriate adjustment of the Conversion Price (as hereinafter defined). The
amount obtained by dividing $10.00 by the Conversion Rate shall be called the
"Conversion Price." Such option to convert shares of Series E Preferred into
shares of Common Stock may be exercised as to all or any portion of such shares
of Series E Preferred by, and only by, giving written notice to the Company at
its principal office that the holder elects to convert a stated number of shares
of Series E Preferred into Common Stock and by surrendering for such purpose to
the Company at its principal office the certificate representing such shares of
Series E Preferred, duly endorsed or accompanied by proper instruments to
evidence the conversion election. At the time of such surrender, the persons
exercising such option to convert shall be deemed to be the holders of the
shares of Common Stock issuable upon such conversion, notwithstanding that the
stock transfer books of the Company may then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
such person. All rights with respect to the Series E Preferred so converted
(other than the right to receive
3
<PAGE>
declared but unpaid dividends), including, but not limited to, the right to vote
such shares of Series E Preferred, will then terminate. As promptly as
practicable after the receipt of the written notice referred to in the preceding
paragraph and surrender of the certificate or certificates for the share or
shares of Series E Preferred to be converted, the Company shall issue and
deliver, or cause to be issued and delivered, to the holder of the shares being
converted, a certificate or certificates registered in the holder's name or
designee, for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Series E Preferred. In case the number of
shares of Series E Preferred represented by the certificate or certificates
surrendered for conversion pursuant to this Section 5 exceeds the number of
shares converted, the Company shall, upon such conversion, execute and deliver
to the holder at the expense of the Company a new certificate or certificates
for the number of shares of Series E Preferred represented by the certificate or
certificates surrendered which are not to be converted.
(b) Automatic Conversion. All outstanding shares of Series E Preferred
--------------------
shall be deemed automatically converted into such number of shares of Common
Stock as are determined in accordance with Section 5(a) hereof immediately upon
the closing of a firm commitment underwritten public offering of the Common
Stock of the Company pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, other than a registration statement relating
solely to a transaction under Rule 145 under such Act (or any successor
thereto), or an employee benefit plan of the Company, at a public offering price
(prior to underwriting discounts and expenses) of $12.00 per share of Common
Stock (as adjusted for any stock dividends, combinations or splits with respect
to such shares), in which the aggregate proceeds to the Company shall be at
least $10,000,000 (after deductions for underwriting discounts, other related
compensation and expenses relating to issuances, including, without limitation,
fees of the Company's counsel), without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent. Upon such conversion, the
holders of certificates representing shares of Series E Preferred shall, upon
notice from the Company, surrender such certificates at the principal office of
the Company or its transfer agent for the Common Stock. As soon as practicable
thereafter, there shall be issued and delivered to such holder a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series E Preferred represented by the certificate so surrendered were converted.
The Company shall not be obligated to issue such certificates unless
certificates evidencing the shares of Series E Preferred so converted are either
delivered to the Company or any such transfer agent, or the holder notifies the
Company that such certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. All rights with respect to the Series E
Preferred so converted (other than the right to receive declared but unpaid
dividends), including, but not limited to, the right to vote shares of Series E
Preferred, will terminate as of the date of their automatic conversion.
(c) Adjustment. The number of shares of Common Stock into which each
----------
share of Series E Preferred may be converted shall be subject to the following
adjustments:
(i) Changes in Common Stock; Capital Reorganization or Reclassification.
-------------------------------------------------------------------
If the Company shall subdivide the outstanding shares of Common Stock into a
greater number of shares of Common Stock or combine the outstanding shares of
Common Stock into a lesser number of shares, or issue additional shares of
Common Stock as a dividend or other distribution on its Common Stock,
4
<PAGE>
reorganize or reclassify its shares of Common Stock into any other securities of
the Company, or do any other similar act affecting such shares, then the
Conversion Rate shall be subject to equitable adjustment, including without
limitation, adjustment so that the holder of shares of Series E Preferred
thereafter surrendered for conversion shall be entitled to receive for each
share of Series E Preferred the number of shares of Common Stock or other
securities which such holder would have owned or been entitled to receive after
the happening of any of the events described above if such holder's Series E
Preferred had been converted immediately prior to the happening of such event,
such adjustment to become effective concurrently with the effectiveness of such
event.
(ii) Capital Reorganization, Merger or Sale of Assets. If at any time or
------------------------------------------------
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, recapitalization, reclassification or
exchange of shares provided for elsewhere in this Section 5) or a consolidation
or merger of the Company, or a sale of all or substantially all of the assets of
the Company (a "Reorganization"), then, as a part of and as a condition to such
Reorganization, provision shall be made so that the holders of shares of the
Series E Preferred shall thereafter be entitled to receive upon conversion of
the shares of the Series E Preferred the same kind and amount of stock or other
securities or property (including cash) of the Company, or of the successor
corporation resulting from such Reorganization, to which such holder would have
been entitled if such holder had converted its shares of the Series E Preferred
immediately prior to the effective time of such Reorganization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 5 to the end that the provisions of this Section 5 (including
adjustment of the Conversion Rate then in effect and the number of shares of
Common Stock or other securities issuable upon conversion of the shares of the
Series E Preferred) shall be applicable after such Reorganization in as nearly
equivalent manner as may be reasonably practicable.
In the case of a transaction to which both this Subsection 5(c)(ii) and
Subsection 4(b) hereof apply, the holders of at least a majority of the
outstanding shares of the Series E Preferred upon the occurrence of a
Reorganization shall have the option to elect treatment either under this
Subsection 5(c)(ii) or under Subsection 4(b) hereof, notice of which election
shall be given in writing to the Company not less than fifteen (15) business
days prior to the effective date of such Reorganization or not less than fifteen
(15) days after the Company has given notice to the holders of the Series E
Preferred Stock of such Reorganization, whichever is later. If no such election
is timely made, the provisions of Subsection 4(b) and not of this Subsection
5(c)(ii) shall apply.
(iii) Adjustment of Conversion Rate for Certain Issuances of Common Stock
-------------------------------------------------------------------
and Common Stock Equivalents. The Conversion Rate shall be subject to the
- ----------------------------
following adjustment, in addition to those set forth above in Section 5(c)(i)
and 5(c)(ii). If, in connection with the first Significant Equity Financing
following the first date of issuance of any Series E Preferred, the Company
sells or issues any Common Stock or Common Stock Equivalents at a Per Share
Consideration that is less than the Conversion Price then in effect, then the
Conversion Rate shall be adjusted as provided in Subsections (A), (B) and (C) of
this Section 5(c)(iii).
As used herein, the following terms have the following meanings:
"Significant Equity Financing" means the issuance by the Company of Common
Stock or Common Stock Equivalents to any person or entity or group of persons or
entities in a single
5
<PAGE>
transaction or related group of transactions (other than issuances to Biogen,
Inc. or any of its affiliates) in which the aggregate Per Share Consideration
received by the Company upon the sale or issuance of such Common Stock and
Common Stock Equivalents exceeds $1,000,000.
"Per Share Consideration" means, with respect to the sale or issuance of
Common Stock, the price per share received by the Company, prior to the payment
of any expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents which are exchangeable into or exchangeable for Common Stock without
further consideration, the Per Share Consideration shall be determined by
dividing the maximum number of shares of Common Stock issuable with respect to
such Common Stock Equivalents (as set forth in the instrument relating thereto
without regard to any provisions contained therein for subsequent adjustment of
such number) into the aggregate consideration received by the Company upon the
sale or issuance of such Common Stock Equivalents, prior to the payment of any
expenses, commissions, discounts, other related compensation and other
applicable costs. With respect to the issuance of other Common Stock
Equivalents, the Per Share Consideration shall be determined by dividing the
maximum number of shares of Common Stock issuable with respect to such Common
Stock Equivalents into the total aggregate consideration received by the Company
upon the sale or issuance of such Common Stock Equivalents plus the minimum
aggregate amount of additional consideration receivable by the Company upon the
exchange or exercise of such Common Stock Equivalents, prior to the payment of
any expenses, commissions, discounts, other related compensation and other
applicable costs. The issuance of Common Stock or Common Stock Equivalents for
no consideration shall be deemed to be an issuance at a Per Share Consideration
of $.00. In connection with the sale or issuance of Common Stock and/or Common
Stock Equivalents for non-cash consideration, the fair market value of such
consideration shall be determined by the board of directors of the Company
acting in good faith.
"Common Stock Equivalents" means securities or rights exchangeable into or
entitling the holder thereof to receive shares of Common Stock.
"Additional Shares of Common Stock" shall mean either shares of Common
Stock issued in connection with the first Significant Equity Financing following
the first date of issuance of any Series E Preferred or, with respect to the
issuance of Common Stock Equivalents in connection with such first Significant
Equity Financing, the maximum number of shares of Common Stock issuable in
exchange for, upon exchange of, or upon exercise of such Common Stock
Equivalents (as set forth in the instrument relating thereto without regard to
any provisions contained therein for subsequent adjustment of such number).
(A) Subject to Subsections (B) and (C) below, upon the issuance of
Additional Shares of Common Stock in connection with the first Significant
Equity Financing following the first date of issuance of any Series E Preferred
for a Per Share Consideration that is less than the Conversion Price in effect
on the date of such issuance, the Conversion Rate in effect on such date will be
adjusted by multiplying it by a fraction,
(x) the numerator of which is the number of shares of Common Stock issuable
upon conversion of Preferred Stock and exercise of warrants to purchase Common
Stock of the Company outstanding immediately prior to the issuance of such
Additional Shares of Common Stock, plus the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock, plus the number of such Additional Shares of Common Stock
6
<PAGE>
so issued, and
(y) the denominator of which shall be the number of shares of Common
Stock issuable upon conversion of Preferred Stock and exercise of warrants to
purchase Common Stock of the Company outstanding immediately prior to the
issuance of such Additional Shares of Common Stock, plus the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock, plus the number of such Additional Shares of Common
Stock which the aggregate net consideration received by the Company for the
total number of such Additional Shares of Common Stock so issued would purchase
at the Conversion Price which is then in effect.
(B) Upon the issuance of Common Stock Equivalents, exchangeable without
further consideration into Common Stock in connection with the first Significant
Equity Financing following the first date of issuance of any Series E Preferred
for a Per Share Consideration that is less than the Conversion Price in effect
on the date of such issuance, the Conversion Rate in effect on such date will be
adjusted as in Subsection (A) above on the basis that the related Additional
Shares of Common Stock are to be treated as having been issued on the date of
issuance of the Common Stock Equivalents, and the aggregate consideration
received by the Company for such Common Stock Equivalents shall be deemed to
have been received for such Additional Shares of Common Stock.
(C) Upon the issuance of Common Stock Equivalents in connection with the
first Significant Equity Financing following the first date of issuance of any
Series E Preferred other than those described in Subsection (B) above, for a Per
Share Consideration less than the Conversion Price in effect on the date of such
issuance, the Conversion Rate in effect on such date will be adjusted as in
Subsection (A) above on the basis that the related Additional Shares of Common
Stock are to be treated as having been issued on the date of issuance of such
Common Stock Equivalents, and the aggregate consideration received and the
minimum amount receivable by the Company on conversion or exercise of such
Common Stock Equivalents shall be deemed to have been received for such
Additional Shares of Common Stock.
(D) On the expiration of any Common Stock Equivalents on account of which
an adjustment in the Conversion Rate and Conversion Price have been made
previously pursuant to this Section 5(c)(iii), the Conversion Rate and
Conversion Price shall forthwith be readjusted to such Conversion Rate and
Conversion Price as would have obtained had the adjustment made upon the
issuance of such Common Stock Equivalents been made upon the basis of the
issuance of only the unexpired Common Stock Equivalents.
(iv) Notice of Adjustments. Upon any adjustment under this Section 5,
---------------------
then in each such case the Company shall give written notice thereof within
thirty (30) days of the occurrence of the adjustment, addressed to each
registered holder of Series E Preferred at the address of such holder as shown
on the records of the Company. Such notice shall describe the adjustment in
reasonable detail, as well as the method of calculation and the facts upon which
such calculation is based.
(d) Certain Provisions Regarding Conversion.
---------------------------------------
7
<PAGE>
(i) No Fractional Shares. The number of shares of Common Stock issuable
--------------------
upon conversion of any shares of Series E Preferred shall be rounded to the
nearest whole number, and no fractional shares of Common Stock, and no payment
in lieu thereof, shall be issued upon any such conversion.
(ii) Common Stock Reserved. The Company shall at all times reserve and
---------------------
keep available out of its authorized but unissued Common Stock the full number
of shares of Common Stock deliverable upon the conversion of all then
outstanding shares of Series E Preferred.
(iii) Status of Converted or Unissued Series E Preferred. Shares of
--------------------------------------------------
Series E Preferred that have been issued and reacquired in any manner, including
upon conversion of such shares, shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
and unissued shares of the Company's Preferred Stock, par value $.01 per share,
undesignated as to series and may be redesignated and reissued as part of any
series of the Preferred Stock.
(iv) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the number of shares receivable pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series E Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any holder of
Series E Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, and (ii) 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 each series of Series E
Preferred.
6. No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, 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 Company but shall at all
times in good faith assist in the carrying out of all the provisions of this
Certificate of Designation and in the taking of all such action as may be
necessary or appropriate in order to protect the rights and preferences of the
holders of Series E Preferred against impairment in accordance with this
Certificate of Designation and the Delaware General Corporation Law.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
to be signed by its President and Chief Executive Officer this 25th day of June,
1997.
CURAGEN CORPORATION
By: /s/ Jonathan M. Rothberg
------------------------------------
Jonathan M. Rothberg, Ph.D.
President and Chief
Executive Officer
9
<PAGE>
Exhibit 3.3
-----------
CURAGEN CORPORATION
A Delaware Corporation
AMENDED AND RESTATED BY-LAWS
ARTICLE I - STOCKHOLDERS
--------- ------------
Section 1. Annual Meeting. An annual meeting of the stockholders, for the
--------- --------------
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held each year at such place, on such date, and at such time as the
Board of Directors shall fix.
Section 2. Special Meetings. Special meetings of the stockholders, for
--------- ----------------
any purpose or purposes prescribed in the notice of the meeting, may only be
called by the Board of Directors, by the affirmative vote of a majority of the
Whole Board. Special meetings of the stockholders shall be held at such place,
on such date, and at such time as shall be fixed by the Board of Directors or
the person calling the meeting. The term "Whole Board" shall mean the total
number of authorized directors, whether or not there exists any vacancies in
previously authorized directorships. No stockholder, it its, his or her
capacity as a stockholder, may call a special meeting of the stockholders.
Section 3. Notice of Meetings. Written notice of the place, date, and
--------- ------------------
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation, as amended and restated from time to time).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted that might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
--------- ------
majority of the voting power of the outstanding shares of the stock entitled to
vote at the meeting present, in person or by proxy, shall constitute a quorum
for all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes, or
series thereof, is required, the holders of a majority of the voting power of
the outstanding shares of such class or classes, or series, present, in person
or by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the voting power of the shares of stock entitled
to vote who are present, in person or by proxy, may adjourn the meeting to
another place, date, or time.
<PAGE>
Section 5. Organization. Such person as the Board of Directors may
--------- ------------
have designated or, in the absence of such a person, the Chairman of the Board,
if any, or, in his absence, the Chief Executive Officer, if any, or, in his
absence, the President, or, in his absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman of the meeting
appoints.
Section 6. Conduct of Business. The chairman of any meeting of
--------- -------------------
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as may seem to him in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
Section 7. Notice of Stockholder Business and Nominations.
--------- ----------------------------------------------
A. Annual Meetings of Stockholders.
-------------------------------
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section.
B. Special Meetings of Stockholders.
--------------------------------
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting given pursuant to Section 2 above. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice of the special meeting, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section.
-2-
<PAGE>
C. Certain Matters Pertaining to Stockholder Business and
------------------------------------------------------
Nominations.
-----------
(1) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph A of this
Section or for nominations to be properly brought before a special meeting
pursuant to paragraph B of this section, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and, in the case
of other business to be brought before an annual meeting, such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice pertaining to an annual meeting shall be delivered to the
Secretary 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 the
date of the annual meeting is more than thirty (30) days before or more than
sixty (60) days after such anniversary date, notice by the stockholder to be
timely must be so delivered 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 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. Such stockholder's notice for an annual meeting or a special
meeting shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all 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 Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before an annual
meeting, a brief description of the business desired to be brought before the
annual meeting, the reasons for conducting such business at the annual meeting
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
A stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended (or any successor provision), and
the rules and regulations thereunder with respect to the matters set forth in
these by-laws.
(2) Notwithstanding anything in the second sentence of paragraph C(1)
of this Section to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than the close of
business on the tenth (10th) day following the day on which
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such public announcement is first made by the Corporation.
(3) In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph C(1) of
this Section shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting nor later than the close of business on the later of the
sixtieth (60th) day prior to such special meeting, or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
D. General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to be nominated for
election as and to serve as directors and only such business shall be conducted
at a meeting of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section. Except as otherwise
provided by law or these by-laws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section and, if any proposed
nomination or business is not in compliance herewith to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "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.
(3) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section shall be deemed to affect any rights (i)
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
Section 8. Proxies and Voting. At any meeting of the stockholders,
--------- ------------------
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this Section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
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All voting, including on the election of directors but excepting where
otherwise required by law, may be by voice vote. Any vote not taken by voice
shall be taken by ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. The Corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the person presiding at the meeting may, and to the
extent required by law, shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
Except as otherwise provided in the terms of any class or series of
Preferred Stock of the Corporation, all elections at any meeting of stockholders
shall be determined by a plurality of the votes cast, and except as otherwise
required by law, all other matters determined by stockholders at a meeting shall
be determined by a majority of the votes cast affirmatively or negatively.
Section 9. Stock List. A complete list of stockholders entitled to
--------- ----------
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in such stockholder's name, shall be open to the
examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) days prior to
the meeting either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock list shall
also be kept at the place of the meeting during the whole time thereof and shall
be open to the examination of any such stockholder who is present. This list
shall presumptively determine the identity of the stockholders entitled to vote
at the meeting and the number of shares held by each of them.
ARTICLE II - BOARD OF DIRECTORS
---------- ------------------
Section 1. General Powers, Number and Term of Office. The business
--------- -----------------------------------------
and affairs of the Corporation shall be managed by or under the direction of its
Board of Directors. The number of directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated or such number as may be determined by the stockholders at the
annual meeting or at any special meeting of stockholders, provided, however that
the number of directors who shall constitute the Whole Board shall be a minimum
of two (2) and a maximum of nine (9). The directors shall be elected at the
annual meeting or at any special meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified, unless sooner displaced. Directors need
not be stockholders.
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<PAGE>
Section 2. Vacancies and Newly Created Directorships. Subject to the
--------- -----------------------------------------
rights of the holders of any class or series of Preferred Stock, and except as
otherwise determined by the Board of Directors or required by law, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum, or the sole remaining director. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
director.
Section 3. Resignation. Any director may resign at any time upon
--------- -----------
written notice to the Corporation at its principal place of business or to the
Chief Executive Officer, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event. Unless otherwise specified by law,
any director or the entire Board of Directors may be removed with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors, except that directors elected by the holders of a
particular class or series may be removed without cause only by the holders of a
majority of the outstanding shares of such class or series.
Section 4. Regular Meetings. Regular meetings of the Board of
--------- ----------------
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all directors. A notice of each regular meeting shall not be
required.
Section 5. Special Meetings. Special meetings of the Board of
--------- ----------------
Directors may be called by a majority of the Whole Board or by the Chairman of
the Board, if any, by the Chief Executive Officer, if a director, or by the
President, if a director, and shall be held at such place, on such date, and at
such time as they or he shall fix. Notice of the place, date, and time of each
such special meeting shall be given each director by whom it is not waived by
mailing written notice not less than five (5) days before the meeting, by
sending written notice by recognized overnight courier service not less than two
(2) days before the meeting or orally or by telegraphing or telexing or by
facsimile transmission of the same not less than twenty-four (24) hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a
--------- ------
majority of the Whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
Section 7. Participation in Meetings by Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of the Board of Directors or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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<PAGE>
Section 8. Conduct of Business. At any meeting of the Board of
--------- -------------------
Directors, business shall be transacted in such order and manner as the Board of
Directors may from time to time determine, and all matters shall be determined
by the vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members of the Board of Directors who are then in
office consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
Section 9. Powers. The Board of Directors may, except as otherwise
--------- ------
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, to borrow funds and guarantee obligations, and
to do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations not inconsistent herewith,
for the management of the Corporation's business and affairs.
Section 10. Compensation of Directors. Directors, as such, may
---------- --------------------------
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
ARTICLE III - COMMITTEES
----------- ----------
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<PAGE>
Section 1. Committees of the Board of Directors. The Board of
--------- ------------------------------------
Directors, by a vote of a majority of the Whole Board, may from time to time
designate committees of the Board of Directors, with such lawfully delegable
powers and duties as it thereby confers, to serve at the pleasure of the Board
of Directors and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of a committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution that designates the committee or a supplemental resolution
of the Board of Directors shall so provide. In the absence or disqualification
of any member of any committee and any alternate member in his place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may by unanimous vote
appoint another member of the Board of Directors to act at the meeting in the
place of the absent or disqualified member.
Section 2. Conduct of Business. Each committee of the Board of
--------- -------------------
Directors may determine the procedural rules for meeting and conducting its
business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provisions shall be made for notice to
members of all meetings of committees. One-third (1/3) of the members of any
committee shall constitute a quorum unless the committee shall consist of one
(1) or two (2) members, in which event one (1) member shall constitute a quorum;
and all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
---------- --------
Section 1. Generally. The officers of the Corporation shall consist
--------- ---------
of a Chief Executive Officer, a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers as may from time to time be
appointed by the Board of Directors or the Chief Executive Officer, including,
without limiting the generality of the foregoing, a Chairman of the Board, a
Chief Executive Officer, a Vice Chairman of the Board and one or more Assistant
Secretaries and Assistant Treasurers. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. The Chief Executive Officer may appoint from
time to time Vice Presidents, Assistant Secretaries and Assistant Treasurers.
Each officer shall hold office until his successor is elected and qualified or
if earlier, until he dies, resigns, is removed or becomes disqualified, unless a
shorter term is specified by the Board of Directors at the time of election of
such officer. Any number of offices may be held by the same person.
Section 2. Chairman of the Board. Unless otherwise provided by
--------- ---------------------
resolution of the Board of Directors, the Chairman of the Board, if any, shall
preside at all meetings of the
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stockholders and all meetings of the Board of Directors at which he is present
and shall have such authority and perform such duties as may be prescribed by
these by-laws or from time to time determined by the Board of Directors. The
Chairman of the Board shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized.
Section 3. Vice Chairman of the Board. The Vice Chairman of the
--------- --------------------------
Board, if any, shall have such powers and duties as may be delegated to him by
the Board of Directors. To the extent not otherwise provided herein, the Vice
Chairman of the Board shall perform the duties and exercise the powers of the
Chairman of the Board in the event of the Chairman's absence or disability.
Section 4. Chief Executive Officer. The Chief Executive Officer
--------- -----------------------
shall be the chief executive officer of the Corporation and shall, subject to
the direction of the Board of Directors, have general supervision and control of
its business. Unless otherwise provided by resolution of the Board of
Directors, in the absence of the Chairman of the Board, if any, the Chief
Executive Officer shall preside at all meetings of the stockholders and, if a
director, meetings of the Board of Directors. The Chief Executive Officer shall
have general supervision and direction of all of the officers, employees and
agents of the Corporation.
Section 5. President. Except for meetings at which the Chief
--------- ---------
Executive Officer or the Chairman of the Board, if any, presides, the President
shall, if present, preside at all meetings of stockholders, and if a director,
at all meetings of the Board of Directors. The President shall, subject to the
control and direction of the Chief Executive Officer and the Board of Directors,
have and perform such powers and duties as may be prescribed by these by-laws or
from time to time be determined by the Chief Executive Officer or the Board of
Directors. The President shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized. In the
absence of a Chief Executive Officer, the President shall be the chief executive
officer of the Corporation and shall, subject to the direction of the Board of
Directors, have general supervision and control of its business and shall have
general supervision and direction of all of the officers, employees and agents
of the Corporation.
Section 6. Vice President. Each Vice President shall have such
--------- --------------
powers and duties as may be delegated to him by the Board of Directors, the
Chief Executive Officer and the President. The Board of Directors may designate
a Vice President to perform the duties and exercise the powers of the President
in the event of the President's absence or disability.
Section 7. Treasurer. The Treasurer shall have the responsibility
--------- ---------
for maintaining the financial records of the Corporation. The Treasurer shall
make such disbursements of the funds of the Corporation as are authorized and
shall render from time to time an account of all such transactions and of the
financial condition of the Corporation. The Treasurer shall also perform such
other duties as the Board of Directors may from time to time prescribe.
Section 8. Secretary. The Secretary shall issue all authorized
--------- ---------
notices for, and shall keep minutes of, all meetings of the stockholders and the
Board of Directors. The Secretary shall have charge of the corporate books and
shall perform such other duties as the Board of Directors
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<PAGE>
may from time to time prescribe.
Section 9. Delegation of Authority. The Board of Directors may from
--------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provisions hereof.
Section 10. Removal. Any officer of the Corporation may be removed
---------- -------
at any time, with or without cause, by the Board of Directors. Any officer
elected or appointed by the Chief Executive Officer may be removed at any time
by the Board of Directors or by the Chief Executive Officer.
Section 11. Resignation. Any officer may resign by giving written
---------- -----------
notice of his resignation to the Chairman of the Board, if any, the Chief
Executive Officer, if any, the President, or the Secretary, or to the Board of
Directors at a meeting of the Board, and such resignation shall become effective
at the time specified therein.
Section 12. Bond. If required by the Board of Directors, any officer
---------- ----
shall give the Corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the Board of
Directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the Corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the Corporation.
Section 13. Action with Respect to Securities of Other Corporations.
---------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or the Chief
Executive Officer or any officer of the Corporation authorized by the President
or the Chief Executive Officer shall have power to vote and otherwise act on
behalf of the Corporation, in person or by proxy, at any meeting of stockholders
of or with respect to any action of stockholders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS
--------- -----------------------------------------
Section 1. Right to Indemnification. Each person who was or is made
--------- ------------------------
a party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or an officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only
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<PAGE>
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith; provided, however, that, except as provided in Section 3
of this Article with respect to proceedings to enforce rights to indemnification
or as otherwise required by law, the Corporation shall not be required to
indemnify or advance expenses to any such Indemnitee in connection with a
proceeding (or part thereof) initiated by such Indemnitee unless such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
Section 2. Right to Advancement of Expenses. The right to
--------- --------------------------------
indemnification conferred in Section 1 of this Article shall include the right
to be paid by the Corporation the expenses (including attorney's fees) incurred
in defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an Indemnitee in his capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
Indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this Section 2 or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 and 2
of this Article shall be contract rights and such rights shall continue as to an
Indemnitee who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the Indemnitee's heirs, executors and administrators.
Any repeal or modification of any of the provisions of this Article shall not
adversely affect any right or protection of an Indemnitee existing at the time
of such repeal or modification.
Section 3. Right of Indemnities to Bring Suit. If a claim under
--------- ----------------------------------
Section 1 or 2 of this Article is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the Indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Indemnitee shall also be entitled to be paid the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
Indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the Indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the Indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. 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
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee 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
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<PAGE>
Directors, independent legal counsel, or its stockholders) that the Indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the Indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification
--------- -------------------------
and to the advancement of expenses conferred in this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation as amended
from time to time, these by-laws, any agreement, any vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
--------- ---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the
--------- ----------------------------------------------
Corporation. The Corporation may, to the extent authorized from time to time by
- -----------
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE VI - STOCK
---------- -----
Section 1. Certificates of Stock. Each stockholder shall be entitled
--------- ---------------------
to a certificate signed by, or in the name of the Corporation by, the Chairman
or Vice-Chairman of the Board of Directors, the President or a Vice President,
and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only
--------- ------------------
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of this Article, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 3. Record Date. In order that the Corporation may determine
--------- -----------
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any
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change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date on which the resolution fixing the record date is adopted
and which record date shall not be more than sixty (60) nor less than ten (10)
days before the date of any meeting of stockholders, nor more than sixty (60)
days prior to the time for such other action as hereinbefore described,
provided, however, that 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, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto. 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.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of
--------- --------------------------------------
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
--------- -----------
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VII - NOTICES
----------- -------
Section 1. Notices. Except as otherwise specifically provided herein
--------- -------
or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
recognized courier service, prepaid telegram, telex, mailgram or by facsimile
transmission. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his last known address as the same appears on the
books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails, by courier or by
telegram, telex, facsimile transmission or mailgram, shall be the time of the
giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
--------- -------
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
-13-
<PAGE>
ARTICLE VIII - MISCELLANEOUS
------------ -------------
Section 1. Facsimile Signatures. In addition to the provisions for
--------- --------------------
use of facsimile signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a
--------- --------------
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Secretary or Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records. Each director,
--------- ----------------------------------------
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
as fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these by-laws
--------- ------------
that requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
Section 6. Pronouns. Whenever the context may require, any pronouns
--------- --------
used in these by-laws shall include the corresponding masculine, feminine or
neuter forms.
ARTICLE IX - AMENDMENTS
---------- ----------
These by-laws may be amended or repealed by the affirmative vote of a
majority of the Whole Board at any meeting or by the stockholders by the
affirmative vote of two-thirds (66b%) of the outstanding voting power of the
then outstanding shares of capital stock of the Corporation, entitled to vote
generally in the election of directors, at any meeting at which a proposal to
amend or repeal these by-laws is properly presented.
-14-
<PAGE>
Exhibit 10.1
------------
LEASE AGREEMENT
FUSCO HARBOUR ASSOCIATES, LLC
LANDLORD
AND
CURAGEN CORPORATION
TENANT
________________
LONG WHARF MARITIME CENTER
BUILDING I
555 LONG WHARF DRIVE
NEW HAVEN, CONNECTICUT
________________
DATE: DECEMBER 23, 1996
<PAGE>
FUSCO HARBOUR ASSOCIATES, LLC
AND
CURAGEN CORPORATION
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Premises....................................................... 1
2. Use............................................................ 2
3. Term........................................................... 3
4. Rent and Rent Commencement..................................... 5
5. Covenants of Landlord.......................................... 11
6. Covenants of Tenant............................................ 12
7. Default........................................................ 15
8. Termination.................................................... 15
9. Holding Over................................................... 16
10. Damage or Destruction of Premises.............................. 17
11. Insolvency of Tenant, etc...................................... 18
12. (Intentionally Omitted)........................................ 18
13. Mortgages...................................................... 18
14. Construction................................................... 19
15. Maintenance of Premises........................................ 22
16. Services....................................................... 22
17. Service Charges................................................ 23
18. Extra Services and Utilities................................... 23
19. Insurance...................................................... 24
20. Tenant's Liability and Indemnification of Landlord............. 25
21. Landlord May Pay Tenant's Obligations.......................... 25
22. Costs of Collection............................................ 26
23. Eminent Domain................................................. 26
24. Inspection by Landlord......................................... 26
25. Risk of Loss to Property....................................... 27
26. Landlord Status................................................ 27
27. Rules and Regulations.......................................... 28
28. Force Majeure.................................................. 28
29. Estoppel Certificate........................................... 28
30. Notice to Mortgagees........................................... 29
31. Assignment..................................................... 29
32. Partial Enforcement............................................ 29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
33. Attornment..................................................... 30
34. Validity and Enforcement....................................... 30
35. Prejudgment Remedy, Redemption, Counterclaim and Jury Trial.... 30
36. Brokerage...................................................... 31
37. Miscellaneous.................................................. 31
38. Usage.......................................................... 31
39. Notice......................................................... 31
40. Parking........................................................ 31
41. Recordation.................................................... 32
42. Successors and Assigns......................................... 32
43. Governing Law.................................................. 32
</TABLE>
2
<PAGE>
FUSCO HARBOUR ASSOCIATES, LLC
AND
CURAGEN CORPORATION
LEASE AGREEMENT
DEFINITIONS LOCATION INDEX
<TABLE>
<S> <C>
Additional Rent.................................................... 6
Average Occupancy Figure........................................... 7
Base Rent.......................................................... 4
Broker............................................................. 32
Commencement Date.................................................. 4
Common Areas....................................................... 7
Construction Commencement Date..................................... 21
Denominator........................................................ 7
Estimate........................................................... 7
Fair Market Rent................................................... 4
First Renewal Term................................................. 4
Initial Term....................................................... 4
Landlord........................................................... 2
Landlord's Building................................................ 4
Landlord's Work.................................................... 20
Lease Year......................................................... 4
Offer.............................................................. 2
Operating Expenses................................................. 6
Plans.............................................................. 20
Premises........................................................... 2
Property Taxes..................................................... 6
Renewal Rental Notice.............................................. 4
Second Renewal Term................................................ 4
Substantially Complete............................................. 21
Tenant............................................................. 2
Tenant Improvements................................................ 13
Tenant's Proportionate Share....................................... 6
Total Cost......................................................... 20
</TABLE>
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is dated as of the day of December, 1996 and is made
by and between FUSCO HARBOUR ASSOCIATES, LLC, a Connecticut limited liability
company with offices and a principal place of business do The Fusco Corporation
555 Long Wharf Drive, New Haven, Connecticut 06511 (said Fusco Harbour
Associates, LLC, its successors and assigns hereinafter referred to as the
"Landlord") and CURAGEN CORPORATION, a Delaware corporation with an office at
322 East Main Street, Branford, Connecticut 06405 (said CuraGen Corporation, its
successors and assigns hereinafter referred to as the "Tenant").
WITNESSETH: That
1. Premises.
--------
A. Landlord does hereby agree to lease to Tenant and Tenant does
hereby agree to lease from Landlord upon the terms, conditions and covenants
herein contained, those certain demised premises which for the purpose of this
Lease are deemed to contain twenty six thousand two hundred sixty six (26,266)
rentable square feet of floor area, and which are situated in a certain
building, being Building I of the Long Wharf Maritime Center complex, located at
555 Long Wharf Drive, New Haven, Connecticut ("Landlord's Building") constructed
on a certain piece or parcel of land more particularly described in Exhibit A
attached hereto and made a part hereof. Said demised premises ("hereinafter
referred to as the "Premises") are located on the 11th floor of Landlord's
Building and are designated and shown on the sketch of said floor which sketch
is attached hereto as Exhibit B.
B. The Premises include the right of ingress and egress thereto and
therefrom upon and over the common areas and elevators of Landlord's Building;
however, the Landlord reserves the right to make changes and alterations to the
building, fixtures and equipment thereof, in the street entrances, doors, halls,
corridors, lobbies, passages, elevators, stairways, toilets and other parts
thereof which Landlord may deem necessary or desirable, provided that such
changes shall not materially affect Tenant's manner of ingress and egress and
shall not materially affect Tenant's use and enjoyment of the Premises or reduce
the size thereof to any greater extent that the size of pipes and conduits that
may be installed. Any such installations, repairs or replacements shall be of a
quality at least equal to existing installations.
C. Tenant is hereby granted a right of first refusal during the Term
hereof (including any Renewal Term) with respect to all leasable space on the
tenth floor of Landlord's Building. The right of first refusal granted hereby
shall operate such that if Landlord shall, during
<PAGE>
the Term hereof (including any Renewal Term), receive any bona fide third party
offer to lease all or a portion of the said tenth floor (the "Offer"), Landlord
shall thereupon immediately notify Tenant in writing of the relevant business
terms and provisions of the Offer and Tenant shall thereafter have a period of
fifteen (15) business days (thereby excluding Saturdays, Sundays and State of
Connecticut and U.S. holidays) after receipt of notice of such Offer in which to
determine whether to exercise its right of first refusal or decline such right
of first refusal and thereby waive same. In the event that Tenant shall intend
to exercise its right of first refusal granted hereunder, then in such event
Tenant shall be obligated to provide written notice to Landlord to such effect
within such 15 business day period. Landlord and Tenant agree that within thirty
(30) days after receipt by Landlord of written notice from Tenant of its
exercise of the right of first refusal granted hereunder, Landlord and Tenant
shall enter into a written lease agreement (or amendment to the herein Lease
Agreement) in form and manner incorporating terms substantially similar to the
herein Lease Agreement but further incorporating the business terms and
conditions as contained in the Offer. Upon execution of such lease agreement (or
amendment hereto) Landlord and Tenant shall be bound to the terms and conditions
thereof and the parties agree to act in all good faith to expedite the drafting
and execution of such Lease Agreement In the event that Tenant shall either
notify Landlord of any waiver of its right of first refusal hereunder or shall
fail to notify Landlord in writing of any intention to exercise its right of
first refusal within fifteen (15) business days after receipt of the Offer (time
being of the essence of such 15 business day period), then in either or any such
event Tenant shall be deemed to have waived its right of first refusal granted
hereunder by virtue of this express provision and such right of first refusal
shall be deemed of no further force or effect with respect to the specific Offer
causing the commencement of the running of the 15 business day period. Landlord
shall thereupon have the right, without further encumbrance or limitation, to
enter into a lease agreement with such third party upon the terms and provisions
contained in such Offer. In the event that Landlord shall fail to enter into a
lease agreement with such third party upon the provisions as contained in such
Offer within a reasonable time after receipt thereof (but in no event later than
six (6) months thereafter), the right of first refusal granted to Tenant
hereunder shall re-vest in the Tenant and shall thereafter re-commence operation
upon the terms and conditions contained in this paragraph C.
2. Use.
---
A. Said Premises shall be used by Tenant solely for Tenant's ordinary
business purposes including molecular biology and DNA office-based biotechnical
research. Tenant shall use the Premises for no other or further uses or purposes
whatsoever. Notwithstanding the foregoing, Tenant shall not make any use of the
Premises or of Landlord's Building which would generate any disposable items
including any waste or trash which would require any specialized handling by
Landlord or its cleaning contractor. If Tenant shall generate any waste
requiring any such special handling, Tenant shall notify Landlord in writing of
the need to cause specialized waste removal services to be provided to the
Premises, and Tenant shall thereafter contract for such services on and for its
own account and at its own sole and separate cost and expense. The indemnity
provided by Tenant and set forth in Article 20.
2
<PAGE>
hereinafter shall be deemed to extend to all aspects of the removal of any such
special and separately handled waste referenced herein, by virtue of this
express provision.
B. Tenant covenants that it shall use the Premises in accordance with
the foregoing and further agrees that its continued use and occupancy of the
Premises is specifically conditioned upon its use of the Premises as stipulated
hereinabove.
3. Term.
----
A. TO HAVE AND TO HOLD the above Premises for a period and term of
six (6) years (the "Initial Term") commencing January 1, 1997 (the "Commencement
Date").
B. The Initial Term hereof shall end at midnight on December 31,
2002. For purposes of this Lease the phrase "Lease Year" shall mean the calendar
year; the initial Lease Year shall commence on the Commencement Date and end on
December 31, 1997; and the final Lease Year shall end on the termination or
expiration of the Term hereof.
C. Tenant shall have the option to extend the Initial Term of this
Lease for two (2) successive renewal terms each of five (5) years duration
("First Renewal Term" and "Second Renewal Term" respectively) conditioned upon
the following:
1. that at the time of exercise of any option to renew this
Lease, Tenant shall not be in default of any of the terms, conditions and
provisions hereof or, if Tenant shall be in default hereof, that Tenant
shall be in the process of diligently prosecuting cure of such default and
shall thereafter completely and fully cure such default in timely manner;
2. that Tenant shall timely give written notice to Landlord of
the exercise of any option to renew this Lease for and during any Renewal
Term as such notice is required pursuant to the provisions of this
paragraph contained hereinafter; and
3. that all terms and conditions of this Lease shall continue
and shall remain in fill force and effect throughout any Renewal Term,
excepting only provisions with respect to the Base Rent (as defined
hereinafter) to be paid by Tenant which Base Rent shall be governed by the
terms of paragraph C.4. set forth hereinafter.
The Base Rent for either Renewal Term shall be equal to ninety five
percent (95%) of the "Fair Market Rent" (as hereinafter defined) for comparable
facilities in a comparable location in the New Haven, Connecticut area. Fair
Market Rent shall mean the annual effective fair market rental value, on a net
basis, for the Premises as of the commencement of the Renewal Term. Ml rental
concessions then being given by Landlord, if any, including, without limitation,
free rent and cash allowances for moving expenses and other tenant inducements
shall be taken into account in determining Fair Market Rent. To exercise any
option to renew contained in this paragraph B., Tenant must first, by way of
written request to Landlord, seek Landlord's opinion of Fair Market Rent, which
request must be received by
3
<PAGE>
Landlord at least six (6) months prior to the expiration of the then current
Term or Renewal Term as the case may be. Within thirty (30) days after
Landlord's receipt of Tenant's notice requesting Landlord's opinion of Fair
Market Rent, Landlord shall send Tenant a notice (the "Renewal Rental Notice")
stating the amount which Landlord reasonably believes shall constitute the Fair
Market Rent for the Premises as of the commencement of the applicable Renewal
Term. Within thirty (30) days following Tenant's receipt of the Renewal Rental
Notice, Tenant may either (i) accept the same, in which event the Fair Market
Rent amount set forth therein shall become the Base Rent under this Lease during
the Renewal Term or (ii) send Landlord notice of Tenant's dispute of Landlord's
determination of the Fair Market Rent for the Premises. If Landlord and Tenant
are unable to agree upon the Fair Market Rent for the Premises, within thirty
(30) days following Tenant's notice to Landlord that Tenant disputes Landlord's
determination, then Tenant shall have the right, within fifteen (15) days after
the expiration of such thirty (30) day period, to submit such dispute to
arbitration as hereinafter set forth, failing which, Tenant shall be deemed to
have waived any further option to renew this Lease at such time. If, within ten
(10) business days following the date on which Tenant notifies Landlord that
Tenant is submitting such dispute to arbitration, Landlord and Tenant shall
agree on a single arbitrator, such arbitrator shall determine the amount of Fair
Market Rent within thirty (30) days following its appointment and Tenant shall
have fifteen (15) days following such determination to exercise the relevant
renewal option. If Landlord and Tenant do not agree upon a single arbitrator
within the ten (10) business day period set forth in the preceding sentence,
then Landlord and Tenant shall each designate their own arbitrator within five
(5) business days following the expiration of such ten (10) business day period.
Such arbitrators shall meet within ten (10) business days following their
appointment and, if the two (2) arbitrators are unable to agree upon the amount
of Fair Market Rent by the expiration of such ten (10) business day period, then
they shall in turn appoint a third arbitrator within such ten (10) business day
period. If the two (2) arbitrators cannot agree upon a third arbitrator within
such ten (10) business day period, then either party may request that the
American Arbitration Association (or any successor thereto) make such
appointment within ten (10) business days. In the event of such appointment of
three (3) arbitrators, they shall, by majority decision, determine the Fair
Market Rent for the Premises as of the commencement of the Renewal Term based on
the criteria set forth above within ten (10) business days following their
appointment. After such determination, Tenant shall have fifteen (15) days to
exercise the relevant renewal option. The arbitrators shall be M.A.I. approved
real estate appraisers or consultants with at least ten (10) years continuous
experience in appraising or managing commercial real estate properties in the
New Haven, Connecticut area. If there is a single arbitrator, such arbitrator's
fees and expenses shall be shared equally by the parties. If there are two (2)
arbitrators, each party shall pay the fees and expenses of its arbitrator. The
fees and expenses of a third arbitrator, and all other expenses, other than
attorneys' fees, witness fees and similar expenses of the individual parties,
shall be shared equally by the parties hereto.
Tenant shall exercise its option hereunder by giving written notice of
its intent to exercise as to a given Renewal Term within the time frame set
forth hereinabove. Tenant must exercise its option for the first Renewal Term as
a condition to having any vested option with respect to the Second Renewal Term.
4
<PAGE>
4. Rent and Rent Commencement
--------------------------
A. Tenant covenants and agrees to pay to Landlord and Landlord shall
be entitled to receive during the Initial Term of this Lease Agreement an annual
base rental ("Base Rent") in the following amounts:
<TABLE>
<CAPTION>
Fiscal Period Base Rent Per Annualized Monthly
of Lease Square Foot Base Rent Installments
-------- ----------- --------- ------------
<S> <C> <C> <C>
1. Year One:
a) January 1, 1997 to $ 0 $ 0 $ 0
July 1, 1997
b) July 1, 1997 to $ 10.00 $262,660.00 $21,888.33
January 1, 1998
2. Year Two:
a) January 1, 1998 to $ 10.00 $262,660.00 $21,888.33
April 1, 1998
b) April 1, 1998 to $ 20.50 $538,453.00 $44,871.08
January 1, 1999
3. Years Three Through $ 20.50 $538,453.00 $44,871.08
Six of the Initial Term
</TABLE>
B. After the conclusion of the base Lease Year of 1997, in addition
to the foregoing Base Rent, Tenant agrees to pay, as additional rent
("Additional Rent"), Tenant's Proportionate Share' (as defined in paragraph C.
hereafter) of (i) increases in Operating Expenses (as defined in paragraph D.
hereinafter) and (ii) increases in Property Taxes (as defined in paragraph E.
hereinafter) over those expenses incurred during calendar year 1997.
Landlord shall, on or before December 15, 1997 and thereafter on or
before December 15 of each Lease Year during the Term hereof, furnish Tenant
with a written estimate ("Estimate") of reasonably anticipated increases in
Operating Expenses and increases in Property Taxes for the ensuing Lease Year
and the determination of Tenant's Proportionate Share thereof.
Commencing with the first monthly rent payment due during Lease Year
1998, and thereafter each month during the balance of the Term of this Lease,
the Tenant shall pay, together with the Base Rent hereinbefore provided, one-
twelfth (1/12) of Tenant's Proportionate Share of the annual amount of the
foregoing estimated increases in Operating Expenses and increases in Property
Taxes, all pursuant to such Estimate. Within one hundred thirty-five (135)
5
<PAGE>
days after the close of each Lease Year, Landlord agrees to furnish to Tenant a
statement of actual increases in Operating Expenses and increases in Property
Taxes incurred during the preceding year including a statement of Tenant's
Proportionate Share thereof, and together with an accounting of all payments
made by Tenant during such year. If Tenant has overpaid, then Landlord shall
furnish Tenant with a credit statement to be applied to the next monthly rent
payment due, and if Tenant has underpaid, Tenant shall pay the amount of the
underpayment together with the next monthly rent payment due. Any such
adjustment shall survive the expiration of this Lease. Upon the written request
of Tenant, Landlord shall further provide reasonable back-up information in
support of its statement, including source documentation and statements prepared
by Landlord's independent certified public accountants prepared in accordance
with generally accepted accounting principles, consistently applied, which
relate to the information and data supplied by Landlord in its statement.
All rent to be paid hereunder shall be payable beginning on the
Commencement Date and thereafter on a monthly installment basis in advance on
the first (1st) day of each month during the Term and each Renewal Term. If the
Term or any Renewal Term shall commence on any day other than the first day of a
calendar month, a pro rata portion of such month's rent shall be payable on the
Commencement Date. Any rental adjustment to be made other than on the first day
of the month shall be prorated on the basis of the number of days in the month.
C. For the purposes of this Agreement, the term "Tenant's
Proportionate Share" shall be defined as that fraction, the numerator of which
is the number of rentable square feet of floor space in Tenant's demised
Premises as set forth in Article 1. Premises, and the denominator of which
--------
(the "Denominator") is the average of the aggregate number of total rentable
square feet of floor space in Landlord's Building actually under lease to
tenants during the Lease Year previous to the Lease Year in which Landlord's
Operating Expense Estimate is to be effective (the "Average Occupancy Figure").
Notwithstanding the foregoing, in the event that the Average Occupancy Figure is
less than ninety five percent (95%) of the total rentable square footage in
Landlord's Building during any period in question, then in such event (i) the
Denominator described hereinabove shall be then increased during such period in
question to ninety five percent (95%) of the total rentable square footage in
Landlord's Building, and (ii) those components of Operating Expenses which
relate to and are incurred as a consequence of building tenant use and occupancy
(including building maintenance and repair, janitorial and cleaning expenses,
building management fees and costs, and tenant electric expenses) shall be
increased on a pro rata basis from the actual levels at which they are incurred
during any given Lease Year in question to the levels at which they would have
been incurred had the Average Occupancy Figure been ninety five percent (95%) of
the total square footage in Landlord's Building during the Lease Year in
question.
D. The term "Operating Expenses" shall include all operating and
management expenses reasonably paid or incurred by Landlord for the operation of
(i) the entirety of Landlord's Building; (ii) the parking garage adjacent to
Landlord's Building; and (iii) the grounds surrounding the Landlord's Building
which are designed to be a part of the building area (all for convenience
hereunder collectively referred to as the "Common Areas"), such
6
<PAGE>
Operating Expenses being herein deemed to include, but not necessarily limited
to, the following:
1. Reasonable wages and salaries of all on-site personnel
engaged in the actual physical operation and maintenance of Landlord's
Building and the Common Areas, including Employer's Social Security Taxes
and any other taxes which may be levied against Employer on such wages and
salaries, but excluding salaries of executive personnel.
2. Reasonable and customary managing agent's fees in accordance
with any agreement between the Landlord or owner of the Common Areas and
any managing agent (not to exceed five percent (5%) of gross rentals).
3. The cost of all utilities, fuel charges and related utility
costs and services attributable to all portions of Landlord's Building and
the Common Areas, including, but not limited to, heating, hot water and
heating fuel costs, all water and sewer charges, all common area and tenant
occupation area electric charges and all other utility, fuel and related
costs and charges, all exclusive of any such charges which are separately
metered and separately charged to any tenant. Any such charges relative to
the Common Areas which are attributable in part to Landlord's Building and
in part to other buildings in the Long Wharf Maritime Center complex shall
be allocated and charged among the buildings on a pro rata basis.
4. All janitorial supplies and similar materials used in the
operation and maintenance of the Landlord's Building and the Common Areas.
5. All office supplies and similar materials used in the
operation of the Landlord's Building and the Common Areas.
6. The cost of all maintenance and all services incurred in the
operation of Landlord's Building and the Common Areas and all service
agreements pursuant thereto, including, but not limited to, protection and
security service, window cleaning, tenant area and Common Area cleaning and
janitorial service, plant and landscaping service, including maintenance of
the grounds, plantings and re-plantings, elevator maintenance and repair,
ice and snow removal, trash removal, parking garage cleaning and
maintenance and all other similar maintenance and service expenses.
7. Insurance premiums for liability, fire and hazard insurance
for Landlord's Building and the Common Areas and the operation thereof, and
insurance premiums for both Workers Compensation Insurance and Unemployment
Compensation Insurance covering employees to the extent that their
employment related activities are attributable to operation of Landlord's
Building and the Common Areas.
8. The cost of repairs, replacements and maintenance, whether
performed pursuant to obligations under leases or otherwise, including but
not limited to.
7
<PAGE>
replacement of plate and other window glass, repair and replacement of all
heating and cooling units and systems, repair and replacement of any
portion of the sprinkler system, restrooms and all plumbing facilities, all
maintenance, repairs and replacements to the roof, exterior and interior
walls, floors and covering of same in Common Areas. utility conduits,
pumping stations and force mains, signs, elevators, sidewalks and steps,
all building service equipment, lighting units and fixtures including bulbs
and tubes. all other building fixtures and equipment, and, except to the
extent they are covered by warrants or insurance, all other repairs,
replacements and maintenance to Landlord's Building. Notwithstanding the
foregoing, with respect to any repair, replacement or other expenditure
which is characterized as a capital expenditure under generally accepted
accounting principles, consistently applied ("GAAP"), such capital
expenditure shall be includable within Operating Expenses only if (i) it
constitutes a replacement of an existing class of installation item and
(ii) is of a character or quality similar to the item being replaced or
(iii) is either required by law first in effect after the Commencement Date
or results in an actual reduction in Operating Expenses on an annualized
basis. Any such includable capital expenditure shall be amortized on a
straight-line basis over the useful life of such capital item being
installed or replaced as determined under GAAP, and only that portion of
the amortization of the cost of such capital item which falls within any
year of the Initial Term or Renewal Term hereof shall be includable within
Operating Expenses for the purposes of this provision.
9. Notwithstanding anything to the contrary contained herein,
Operating Expenses shall be exclusive of the following, which shall not be
charged to Tenant:
(a) Items which are the direct responsibility of any tenant
or are caused by the intentional or negligent acts of any such tenant, its
agents, licensees or invitees and the costs of which are recovered from
such tenant;
(b) Expenses of alterations to the Premises or Landlord's
Building for the accommodation of a specific tenant or tenants, which
expenses shall be borne by such tenants;
(c) All costs of leasing space in Landlord's Building and
Garage including office expenditures, legal fees and broker's commissions;
(d) Costs actually covered by Landlord's insurance or other
manner of reimbursement to the extent that payment is received by Landlord;
(e) Repairs or other work resulting from damage by fire,
windstorm or other casualty covered by insurance in force, or by the
exercise of eminent domain;
8
<PAGE>
(f) Leasing commissions, attorney's fees, costs and
disbursements and other expenses incurred in connection with negotiations
or disputes with tenants, other occupants or prospective tenants or other
occupants;
(g) Landlord's cost of electricity and other services that
are sold to tenants and for which Landlord is reimbursed by tenants as an
additional charge or rental over and above the rent payable under the lease
with such tenant;
(h) Depreciation and amortization of any kind;
(i) Interest on debt or amortization payments on any
mortgage or mortgages and/or rentals under any ground lease or other
underlying leases.
(j) Work & Services. Leasehold improvements, alterations
---------------
and decorations or other work done for tenants of the building, and
services (such as painting) performed for any tenant (including Tenant) of
the building. whether at the expense of Landlord or such tenant, to the
extent that such work or services are in excess of the work or services
which Landlord is required to furnish to Tenant under this Lease at
Landlord's expense.
(k) Promotional Expenses. Advertising and promotional
--------------------
expenditures or contributions or gifts.
(l) Defects & Legal Requirements. Costs incurred in
----------------------------
connection with (i) correction of any defects in the construction of any
portion of the building, and (ii) compliance with any requirement of law,
ordinance, order, rule or regulation of any public authority having
jurisdiction in effect during and applicable during the initial
construction and equipping of the building.
(m) Financing Costs. Financing and refinancing costs in
---------------
respect of any mortgage placed upon the property, including points and
commissions in connection therewith.
(n) Interest & Penalties. Interest or penalties for any
--------------------
late payments by Landlord.
(o) Judgments. Costs (including, without limitation,
---------
attorneys' fees and disbursements) incurred in connection with any
judgment, settlement or arbitration award resulting from any tort
liability.
(p) Non-allocable Costs. Compensation paid to any building
-------------------
employee to the extent that the same is not fairly allocable to the work or
service provided by such employee to the Landlord's Building.
9
<PAGE>
(q) Taxes. Estate, franchise, succession. inheritance,
-----
profit, gross receipts, rental, capital gains, and transfer taxes imposed
upon Landlord, the building or the land.
(r) Brokerage Commissions. Leasing and brokerage fees and
---------------------
commissions.
(s) Building Additions. Costs (including increased taxes
------------------
and operating costs) of any additions to the building after the original
construction.
(t) Fire & Casualty. Costs of rep airs 6r replacements
---------------
incurred by reason of fire or other casualty or caused by the exercise of
the right of eminent domain whether or not insurance proceeds or a
condemnation award are recovered or adequate for such purposes.
(u) Overtime Charges. Costs of any heating, ventilating,
----------------
air conditioning, janitorial or other building services provided to other
tenants during other than operating hours.
(v) Salaries & Fringes. Salaries and fringe benefits of
------------------
personnel above the grade of building manager.
(w) Air Rights. Any expenditures on account of Landlord's
----------
acquisition of air or similar development rights.
(x) Insurance Proceeds. There shall be deducted from
------------------
operating costs an amount equal to all amounts received by Landlord through
proceeds of insurance to the extent the proceeds are compensation for
expenses which (i) previously were included in Operating Expenses
hereunder, (ii) are included in Operating Expenses for the operating year
in which the insurance proceeds are received or (iii) will be included as
Operating Expenses in a subsequent operating year.
(y) Licenses & Permits. Costs and expenses of governmental
------------------
licenses and permits, or renewals thereof, unless the same are for
governmental licenses or permits normal to the operation or maintenance of
the land or building.
(z) Other Properties. Costs of any work or service
----------------
performed for any facility or property other than the building.
(aa) Reimbursables. All amounts received by Landlord
-------------
through the sale or charge for overtime or similar services provided to
tenants the cost of which service is included in Operating Expenses.
(bb) Rebates and Credits. Rebates. credits and similar items
-------------------
of which Landlord receives the benefit.
10
<PAGE>
E. The term "Property Taxes" shall include all property taxes,
assessments. levies, impositions and governmental charges of every sort
whatsoever which are levied or charged on either an ad valorem or specific basis
against real estate or personal property and any and all other similar taxes and
assessments attributable to Landlord's Building and the Common Areas, including
taxes on all personal property, equipment, furnishings, etc. included in,
pertaining to, or used in maintaining and operating Landlord's Building and the
Common Areas. Notwithstanding the foregoing, Property Taxes shall not include
(i) federal, state or local income taxes; (ii) franchise, gift, transfer,
excise, capital stock, estate, succession or inheritance taxes; or (iii)
penalties or interest for late payment of real estate or personal property
taxes. Landlord covenants that it shall pay all taxes due and owing upon their
due date or within any applicable period of grace prior to imposition of
interest or liens.
In the event that Landlord or owner of the Common Areas elects to
contest any such assessment, and is successful in reducing any such property tax
assessment, Tenant shall be entitled to a proportionate reduction in any amounts
paid by Tenant relating to the portion of the assessment that was so reduced
(less reasonable costs, expenses and attorney's fees relating to such contest)
to the extent such amount is recoverable and recovered by Landlord or its
successors, if any payments have been made with respect thereto at such time. In
the event that Landlord has not in fact paid any amounts collected from Tenant
with respect to such reduced assessment, then Tenant shall be entitled to a
return of its Proportionate Share of any attendant property tax savings (less
the costs, expenses and attorney's fees relating to such contest) by a pro rata
reduction in its monthly payments during ensuing Lease Year. In the event that
tenants of Landlord's Building leasing forty percent (40%) or more of the
rentable area thereof shall request in writing that Landlord commence and
prosecute an appeal of the ad valorem assessment of Landlord's Building, for
local real property tax purposes, then in such event Landlord agrees that it
shall diligently undertake and prosecute such appeal in accordance with the
relevant provisions of the Connecticut General Statutes appertaining. In
addition to the foregoing, in the event that Tenant shall separately apply for
and obtain any abatement of real property taxes directly attributable to the
specific scientific manner of use and occupancy of the Premises on the part of
Tenant, then in such event Tenant shall be entitled to a credit against payment
of rent hereunder to the extent of such abatement on a dollar for dollar basis
as and where such abatement shall result in a reduction in and to the real
property taxes otherwise to be paid by Landlord as owner of Landlord's Building
hereunder.
F. All payments of rent provided for herein shall be payable in
advance on the first day of each month during the Term, and shall be due and
payable in fill without off-set or deduction of any kind unless specifically
provided for herein or otherwise agreed upon by Landlord.
5. Covenants of Landlord.
---------------------
A. Landlord covenants with Tenant that Landlord has good right to
lease said Premises in the manner aforesaid. Tenant shall be entitled (Tenant
keeping all of the covenants to be kept and performed on the part of Tenant, as
contained herein) to occupy possess and quietly
11
<PAGE>
enjoy said Premises during the Term aforesaid, without hindrance or molestation
from Landlord or any person claiming by, from or under Landlord.
B. Landlord covenants to operate and maintain Landlord's Building
and Areas as a first class office building and structure in accordance with the
standards for office buildings in the greater New Haven area.
6. Covenants of Tenant.
-------------------
A. Tenant covenants with Landlord to hire said Premises and to pay
the rent therefor as aforesaid. that Tenant will commit no waste, nor suffer the
same to be committed thereon, nor injure nor misuse the same, nor use the same
for any purpose but that hereinbefore authorized, but will deliver up the same
at the expiration or sooner termination of Tenant's tenancy, in as good
condition as they are at the time of completion of Tenant Improvements, as
defined hereinafter, reasonable wear and tear and damage by fire or other
insurable casualty excepted.
B. Tenant covenants to operate Tenant's business in said leased
Premises in accordance with the laws and regulations of the United States and of
the State of Connecticut, and the by-laws, rules, regulations and ordinances of
the City of New Haven, so far as the same relate to the conduct of Tenant's
business; and Tenant further covenants and agrees to comply with all provisions
of any fire, public liability, or other insurance policies upon Landlord's
Building upon notice of same to Tenant. The Tenant shall save and hold the
Landlord harmless from and against all fines, penalties and costs incurred
because of Tenant's violation of or noncompliance with the terms of this
paragraph, including the cost of defending against any such fines, penalties or
costs. In the event of such noncompliance by the Tenant in any particularity,
and if the Tenant has not taken any legal steps in good faith to determine if it
has failed to comply, the Landlord may, but shall not be obliged to, take the
necessary steps to correct such noncompliance, including the expenditure of
funds, and in such event the Tenant will reimburse the Landlord on demand for
all such sums expended and for all other costs, including reasonable legal fees,
incurred by the Landlord in correcting such noncompliance.
C. The Tenant further agrees to keep said Premises and all parts
thereof in a clean and sanitary condition and free from excess accumulation of
trash; inflammable material; medical waste; hazardous materials and hazardous
waste (as such terms are defined under Connecticut law and regulation); and
other dangerous or hazardous matter. Any water and wash closets and other
plumbing fixtures available for use by the Tenant shall not be used for any
purpose other than those for which they were designed or constructed, and no
sweepings, rubbish, rags, or other substances shall be deposited therein. After
the Commencement Date and excepting any "punch list" items yet to be performed
by Landlord, the Tenant will bear the expense of all interior painting and will
perform and make all interior maintenance and repairs (excluding structural
repairs and repairs to the HVAC and other mechanical and utility systems)
necessary to keep the interior of the Premises in good order and condition,
ordinary wear and tear and damage by fire or other insurable casualty excepted.
Tenant, at Tenant's sole cost, shall be
12
<PAGE>
responsible for the provision of janitorial and other services beyond that
customarily provided by Landlord as contained in Landlord's Service Letter, set
forth as Exhibit C hereto, if such are elected by Tenant or are made necessary
by Tenant's use of the Premises and are required for the proper maintenance of
the Premises. In the event Tenant fails to maintain and repair the interior of
the Premises in accordance with the foregoing, Landlord may, upon reasonable
notice, enter upon the Premises, do the necessary maintenance work, or make the
necessary repairs, and charge Tenant a reasonable amount therefor as additional
rent If any such repairs are covered by Tenant's insurance policy or policies,
Landlord shall receive, by assignment or otherwise, all proceeds of such
insurance sufficient to pay for such repairs and maintenance performed at
Landlord's cost and expense, the remainder, if any, to be received by Tenant.
D. Tenant covenants and agrees that Tenant shall not make or erect
any improvements, alterations, replacements, additions or accessions or any
Tenant Improvements (as defined hereinafter) in any manner whatsoever to
Landlord's Building or to the Premises without the prior written consent of the
Landlord which consent shall not be unreasonably withheld, conditioned or
delayed. For the purposes of this Agreement "Tenant Improvements" shall include
and be defined to mean all work, other than Landlord's Work (as defined in
paragraph 14. hereof) required to be done in preparing the demised Premises so
that it may be operated for business, as well as all alterations, decorations,
installations, additions or improvements to the demised Premises occurring
thereafter, excluding, however, Tenant's furniture, furnishings, equipment,
trade fixtures, decorations and the like. Tenant covenants and agrees that all
such Tenant Improvements shall be done at Tenant's full cost and expense, shall
comply with all applicable governmental regulations, shall be done only by
contractors, subcontractors and mechanics with respect to whom Landlord has
consented, and shall be done in a manner which will assure labor harmony at the
site. Tenant agrees to provide Landlord copies of all plans and specifications
for such Tenant Improvements and with the name of the general contractor and, if
known, names of any subcontractors and mechanics who are to perform such work at
least fifteen (15) days in advance of the commencement of any such work.
Landlord shall, within seven (7) days of receipt of such notice from Tenant,
notify Tenant as to whether Landlord consents to such plans, specifications,
contractors, subcontractors, etc., which consent shall not be unreasonably
withheld, or whether such consent is withheld, in which case Tenant's
contemplated construction shall not commence. Notwithstanding the aforesaid,
Landlord's consent to Tenant's plans, specifications, contractors,
subcontractors, etc. shall not be construed as Landlord's consent to Tenant
causing work to be done in the demised Premises in a manner or under conditions
which entitle the person doing the work or furnishing the materials to a
mechanic's or materialmen's lien. As a condition precedent to Landlord's consent
to the making by Tenant of such Tenant Improvements to the demised Premises,
Tenant agrees to obtain and deliver to Landlord written and unconditional
waivers of mechanic's liens or other liens upon the real property in which the
demised Premises are located, for all work, labor and services to be performed
and materials to be furnished in connection with such work, signed by all
contractors, subcontractors, materialmen and laborers who contract for or intend
to perform such work. Notwithstanding the foregoing, if any mechanic's lien or
other lien is filed against the demised Premises or the Landlord's Building for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, it shall be discharged by Tenant within twenty (20)
13
<PAGE>
days thereafter, at Tenant's expense, by filing the bond required by law, or by
payment or otherwise. If any such mechanic's or other liens be filed against the
land, the Landlord's Building or the Premises and Tenant fails to discharge same
within twenty (20) days after such filing, then in addition to any other right
or remedy of the Landlord, the Landlord may, but without obligation to do so,
discharge the same by bonding or by paying the amount claimed to be due. Any
amount paid by the Landlord for the satisfaction of any such lien and all
reasonable legal and other costs incurred by Landlord in procuring such
discharge shall be payable by the Tenant to Landlord as Additional Rent. Tenant
covenants and agrees to indemnify Landlord and hold Landlord harmless of and
from any and all claims, costs, suits, damages and liability whatsoever arising
out of or as a result of any such work done by Tenant or Tenant's contractors,
subcontractors, agents or employees, including reasonable attorney's fees for
the defense thereof. Landlord shall not be liable for any failure of any
building facilities or services caused by alterations, installations and/or
additions by Tenant, and Tenant shall promptly correct any such failure. In the
event Tenant shall not promptly correct same, Landlord may make such correction
and charge Tenant for the cost thereof. Such sum due Landlord shall be deemed
Additional Rent and shall be paid by Tenant promptly upon being billed therefor.
Prior to commencing any work pursuant to the provisions of this Lease
Agreement, Tenant shall additionally furnish to Landlord: (i) copies of all
governmental permits and authorizations which may be required in connection with
such work; (ii) a certificate evidencing that Tenant (or Tenant's agents or
contractors) has (have) procured workers compensation insurance covering all
persons employed in connection with the work who might assert claims for death
or bodily injury against Landlord, Tenant or Landlord's Building; and (iii) such
additional personal injury and property damage insurance as Landlord may
reasonably require because of the nature of the work to be done by Tenant.
All Tenant Improvements upon the Premises and any replacements
therefor, made by either party, including all paneling, decorations, partitions,
railings, furniture and movable trade fixtures shall remain the property of
Tenant and may be removed at the conclusion of this Lease by Tenant, provided
that (i) Tenant shall not be in default hereof at such time in any material
respect and (ii) Tenant, at the Tenant's expense, shall restore said Premises to
their preexisting condition as at the time of initial occupancy by Tenant after
completion of all initial construction work, as if no further erections,
alterations, additions and improvements had been made, ordinary wear and tear
and damage by fire or other insurable casualty excepted.
E. Tenant covenants and agrees that the installation of signs,
graphics or other advertisements shall be made only upon consent of Landlord,
which consent may be withheld at the sole discretion of Landlord due to the
first class nature and character of the building. Further, Tenant covenants that
any such signs, graphics or other advertisements to which Landlord may consent
shall be consistent with the laws of the City of New Haven and State of
Connecticut and the rules and regulations established by the Landlord for the
Landlord's Building and shall be at the sole cost of Tenant.
14
<PAGE>
7. Default. Tenant shall be in default hereof if Landlord shall not be in
-------
actual receipt of any installment of Base Rent within ten (10) days after the
date when same shall be due and payable, without necessity of notice or demand
to or upon Tenant to pay same. If Tenant defaults in fulfilling any of the
remaining terms, conditions or covenants of this Lease, other than the covenants
for the payment of Base Rent or additional rent, then, in any one or more of
such events, upon Landlord serving a written thirty (30) days notice upon Tenant
specifying the nature of said default and upon the expiration of said thirty
(30) days, if Tenant shall have failed to comply with or remedy such default, or
if the said default or omission complained of shall be of such a nature that the
same cannot be completely cured or remedied within said thirty (30) day period
and if Tenant shall not have diligently commenced to take action towards curing
such default within such thirty (30) day period and shall not thereafter with
reasonable diligence and in good faith proceed to remedy or cure such default,
Landlord may serve a written thirty (30) days notice of cancellation of this
Lease upon Tenant, and upon the expiration of said thirty (30) days, this Lease
and the Term hereof shall end and expire and terminate as fully and completely
as if the date of expiration of such thirty (30) day period were the day herein
definitely fixed for the end and expiration of this Lease and the Term hereof
and Tenant shall then quit and surrender the demised Premises to Landlord but
Tenant shall remain liable as hereinafter provided. If any installment of Base
Rent or additional rent shall not be received by Landlord upon the due date
thereof or within the applicable grace period as aforesaid; or if Tenant shall
fail to perform and fulfill any and/or all of the covenants or the provisions or
any of them herein contained to be performed by said Tenant after notice from
Landlord as aforesaid, then in either or any of such events this Lease shall
thereupon, by virtue of this express stipulation, expire and terminate, and
Landlord may recover possession thereof in the same manner prescribed by the
statute relating to Summary Process, it being understood and agreed that no
demand for the rent and no re-entry for condition broken, as at common law,
shall be necessary to enable the Landlord to recover such possession pursuant to
the statute relating to Summary Process, but that all right to any such demand
or any such re-entry is expressly waived by the Tenant except that Tenant shall
be entitled to all rights to any notice to quit possession as required by the
statute relating to Summary Process.
8. Termination.
-----------
A. In the event that this Lease shall terminate upon the Tenant's
default as aforesaid and/or Landlord shall obtain possession by Summary Process,
then at any time thereafter the Landlord shall have the right to relet the
Premises or any part thereof for such period (including a period running beyond
the last day of the Term), for such rentals and upon such terms and conditions
as the Landlord may deem advisable and the Tenant shall pay to the Landlord the
expenses incurred by the Landlord in obtaining possession of the Premises.
including reasonable attorneys' fees, and shall pay such expenses as the
Landlord may incur in putting the Premises in good order and condition, and all
commissions and fees which shall be incurred by the Landlord in connection with
the reletting of the Premises.
B. Upon such termination, and per this express provision,
Tenant further agrees to pay to the Landlord each month during the balance of
the then applicable Term, and at
15
<PAGE>
the time fixed in this Lease for payment of monthly installments of rentals, a
sum equal to the monthly rentals herein reserved plus interest on any payment
made more than ten (10) days after the due date computed at ten percent (10%)
per annum, plus all other payments provided for herein to be paid by the Tenant
which are then due and payable, less any net proceeds which may be received for
such month from the reletting of the Premises. Landlord shall make reasonable
efforts to relet the Premises, but shall in no event be liable for failure to so
relet. The Landlord shall be entitled to apply the net proceeds of reletting
first to the payment of the Landlord's costs and expenses above mentioned. The
Landlord may sue for and enforce the collection of such amount which may be due
at the expiration of each quarter or from time to time as the deficiencies
between the sums due as aforesaid and the net proceeds from reletting are
determined by the Landlord, and the Tenant expressly agrees that any such action
or proceeding shall not be a bar or prejudice in any way to the rights of the
Landlord to enforce the collection of the amount due at the end of any future
quarter or period by a like or similar action or proceeding.
C. Landlord, at its election, may collect from the Tenant and the
Tenant shall pay in lieu of the sums becoming due under the provisions of
Article 8.B. above, an amount equal to the excess of the aggregate of the Base
Rent and other charges reserved hereunder for (what would, in the absence of the
aforesaid termination, be) the unexpired portion of the Term of this Lease, over
the then fair rental value of the Premises, if any, for the same period, both
discounted at the rate of eight percent (8%) per annum to then present worth.
Such sum shall be payable in addition to and not in lieu of amounts due under
Article 8.A. above and any amounts owed pursuant to the terms of this Lease for
any period prior to termination as aforesaid. In determining the fair rental
value of the Premises, the rental realized by any reletting shall be deemed
prima facie evidence thereof. Landlord agrees to make commercially reasonable
efforts to mitigate any damages accruing from any default on the part of Tenant.
D. On termination of this Lease, in any way, Tenant will yield up
the Premises to Landlord broom clean and in good condition (ordinary wear and
tear and damage by fire or other insurable casualty excepted) and deliver the
keys to the Landlord at the Premises.
Tenant hereby grants to and confers upon Landlord the right, but
without any obligation to so do, to remove from the Premises all Tenant's
property remaining in the Premises after the termination of the Lease; to store
the same at Tenant's expense and risk; and to sell said effects upon five (5)
days written notice to Tenant. after the passage of thirty (30) days from the
date of termination of this Lease, the proceeds of which shall belong to
Landlord as liquidated damages for Tenant's failure to remove said effects.
9. Holding Over. It is further mutually agreed that no holding over by
------------
the Tenant shall operate to renew this Lease without the written consent of the
Landlord. If the Tenant shall hold over said Premises beyond the period above
specified for the termination of this Lease. Landlord may at its option; (i)
elect to treat Tenant as one who has not removed at the end of its Term, and
thereupon be entitled to all the remedies against Tenant provided for herein in
the event of default or as otherwise provided by law in this situation or (ii)
Landlord may elect to
16
<PAGE>
construe such holding over as a tenancy from month to month subject to the same
terms and pursuant to the same stipulations, covenants and agreements as are
herein contained except the duration thereof and, except the monthly rent
payable shall be equal to one hundred fifty percent (150%) of the monthly rent
at the end of the Term, in addition to all of the other payments required to be
made by Tenant under this Lease for Operating Expenses, Property Taxes, etc.
10. Damage or Destruction of Premises.
---------------------------------
A. Partial Damage. If the Premises are partially damaged by fire or
--------------
other causes during the Term hereof (meaning that less than 50% of the Premises
are so damaged), or if the Premises are more than fifty percent (50%) damaged
but such damage is confined to the Premises or to the floor on which the
Premises are located, Landlord shall promptly and diligently cause the Premises
to be repaired and restored at Landlord's expense. If the Premises shall be
rendered partially or wholly untenantable under reasonable commercial office
standards by reason of such partial damage, and unless such damage shall be
caused by the gross negligence or willful misconduct of Tenant, then in such
event abatement shall be made to Tenant from the rent corresponding with the
time during which the Premises cannot be used and for that portion of the
Premises that cannot be used by Tenant after damage occurring as aforesaid. If
the Premises remain generally tenantable under reasonable commercial office
standards notwithstanding such damage, then Tenant shall not be entitled to any
abatement in the rent.
B. Total Destruction. In the event of the total destruction of the
-----------------
Premises by fire or other causes, this Lease shall cease and come to an end, and
Tenant shall be liable for rent only up to the time of such total destruction,
Landlord being entitled to receive the proceeds of any insurance owned by
Landlord covering the Premises and thereafter there shall be no liability on the
part of Landlord or Tenant for such termination.
C. Substantial Destruction. In addition to the provisions of
-----------------------
paragraph 1 0.A. hereof, if the Premises are substantially damaged (meaning more
than partially damaged but less than totally damaged) by fire or other causes,
and the event of damage shall not be confined to the Premises or to the floor on
which the Premises are located, Landlord shall thereupon have the option whether
such damage shall be repaired or the Premises shall be rebuilt. In the event
that Landlord shall decide not to repair or rebuild, this Lease shall then and
thereupon cease and come to an end, Landlord shall be entitled to the proceeds
of all insurance covering the Premises and Tenant shall be liable for rent only
up to the time of such damage, and thereafter there shall be no further
liability on the part of the parties hereto by reason of such termination.
Tenant shall promptly surrender possession of the Premises to Landlord.
If in the event of such substantial damage, Landlord shall decide that
the Premises shall be repaired and rebuilt following a fire or other cause,
Landlord shall give Tenant notice thereof within thirty (30) days after
receiving notice of such damage, and the Premises shall be repaired by Landlord
diligently and with reasonable dispatch. If Landlord shall fail to substantially
complete and repair within nine (9) months of such notice (subject to extension
due
17
<PAGE>
to conditions of force majeure), the Tenant shall have the option to cancel
this Lease by providing written notice to Landlord and all obligations of the
parties shall thereupon cease and terminate. Unless such damage shall be caused
by the gross negligence or willful misconduct of Tenant, its employees, agents,
contractors, licensees or invitees, Tenant shall receive an abatement in the
rental payments otherwise due which abatement shall correspond with the term
during which and the extent to which the Premises cannot be used by Tenant for
the uses and purposes contemplated by this Lease. Tenant recognizes that there
may be from time to time a mortgage or mortgages covering the Premises and the
foregoing options with respect to repairing and rebuilding are all subject to
any mortgagee on any current or future mortgage agreeing to allow the Premises
to be repaired and/or rebuilt under the terms of any such mortgage.
D. DeMinimis Damage. If the Premises are insubstantially or not
----------------
materially damaged by fire or other causes, Landlord shall be obligated to
promptly repair such damage, Landlord being entitled to receipt of all insurance
proceeds covering the Premises, and Tenant shall remain in possession without
rental abatement.
E. No Set-Off. The rent hereunder shall in no case be withheld or
----------
diminished on account of any defect in the Premises or in Landlord's Building,
any change in the condition thereof, any damage occurring thereto, or the
existence with respect thereto of any violations of the laws or regulations of
any governmental authority except as otherwise specifically provided herein.
11. Insolvency of Tenant, etc. If at any time during the Term of this
-------------------------
Lease, Tenant shall make any assignment for the benefit of creditors, or be
decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for Tenant, or if Tenant shall dissolve or liquidate or any
proceedings shall be commenced or instituted by the Tenant for such purpose and
same shall not be dismissed, or if action shall be brought for the appointment
of a receiver or trustee for the property of Tenant, for whatever reason, then
Landlord may, at Landlord's option, terminate this Lease. The exercise of such
option shall be evidenced by notice to that effect served upon the Tenant, or
upon any assignee, receiver, trustee or any person in charge of Tenant's estate
(with a copy to Tenant), but such termination shall not release or discharge any
payment of rent payable hereunder and then accrued, or any liability then
accrued by reason of any agreement or covenant herein contained on the part of
Tenant, or Tenant's legal representative.
12. (Intentionally Omitted)
13. Mortgages. The Tenant covenants and agrees that this Lease is subject
---------
to and is hereby subordinated to all present mortgages and deeds of trust
affecting the Premises or the property of which said Premises are a part. with
respect to any such present mortgages or deeds of trust, Landlord agrees to make
good faith, reasonable efforts to obtain a non-disturbance provision in favor of
Tenant. The Tenant agrees to execute, at no expense to the Landlord any
instrument which may be deemed necessary or desirable by the Landlord to
evidence the subordination of this Lease Agreement to any such mortgage or deed
of trust. The Tenant hereby
18
<PAGE>
agrees that, if the Landlord makes a demand by certified mail, return receipt
requested, for execution of such an instrument, and thirty (30) days elapse
without delivery of such an executed instrument, the Landlord shall have the
right and power as agent of the Tenant pursuant to an irrevocable power of
attorney, coupled with an interest, hereby granted to Landlord to execute any
and all such instruments, and such instruments executed by the Landlord as
Tenant's agent shall have the same effect, and be as binding upon the Tenant as
if they were only executed by the Tenant itself. Tenant further covenants and
agrees that this Lease shall be subject to and subordinated to all future
mortgages and deeds of trust affecting the Premises or the property of which
said Premises are a part, provided that the lender or mortgagee with respect to
any such mortgage or deed or trust shall agree in writing, so long as Tenant is
not in default of its obligations hereunder, not to disturb the occupancy of
Tenant under the terms of this Lease. Tenant agrees to act in all good faith in
entering into and executing any subordination, non-disturbance, attornment, and
estoppel agreement with any lender of Landlord's Building to evidence the
foregoing subordination and non-disturbance provisions.
14. Construction.
------------
A. Landlord shall, at the sole cost and expense of Tenant as
described hereinafter, provide and construct (or cause its contractor to provide
and construct) certain improvements within and to the Premises in accordance
with the plans and specifications therefor (the "Plans") as agreed upon by
Landlord and Tenant (all such work being hereinafter referred to as "Landlord's
Work'"). Landlord's Work shall be accomplished in accordance with the Plans and
in compliance with all federal, state and local building codes and ordinances.
Tenant shall also be responsible at its own cost and expense for acquisition and
installation of all trade fixtures and other trade installations necessary for
the conduct of Tenant's business; all telephone, telecommunication and data line
costs and installation expenses; and all moving and relocation expenses.
Landlord (or its contractor) shall provide construction management
services and oversight in connection with the construction and completion of
Landlord's Work in accordance with this Article 14. Landlord covenants with
Tenant that (i) all of Landlord's Work shall be performed by contractors and
subcontractors chosen by Landlord and Tenant by mutual agreement (or where
applicable recommended by Tenant or its representatives) on a "lowest
responsible bid" basis; (ii) with respect to each component of Landlord's Work,
three (3) bids will be sought for all such work except under any unusual
circumstances whereunder Landlord and Tenant shall agree that three (3) bids are
not necessary or appropriate; (iii) each component of Landlord's Work shall be
awarded to the lowest responsible bidder unless Landlord and Tenant otherwise
agree in writing; and (iv) Landlord or its contractor serving as construction
manager shall be entitled to a fee for general conditions and overhead and
profit in the aggregate sum of fifteen percent (15%) of the total final project
cost for all of Landlord's Work (the "Total Cost"). Landlord's Work shall not
commence until the Total Cost for such work is determined per the foregoing
procedure and communicated to Tenant in writing and Tenant agrees thereupon in
writing to be bound hereunder to such Total Cost. Tenant's Cost shall in no
event exceed a Guaranteed Maximum Price (the "GMP") in an amount to be mutually
agreed upon by Landlord
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and Tenant after reviewing all bids for Landlord's Work. Landlord and Tenant
agree to negotiate in good faith on the GMP so that Landlord's Work can be
constructed at reasonably competitive prices, with neither party obligated to
employ any particular contractor or subcontractor. If Landlord and Tenant are
unable to agree upon the GMP on or before January ~ 1, 1997, then either
Landlord or Tenant may terminate this Lease upon five (5) days notice to the
other, and., unless within such 5-day period Landlord and Tenant shall agree on
a GMP, this Lease shall terminate with no further liability of either party.
When Landlord and Tenant shall finally agree on the Total Cost and GMP for
Landlord's Work, Landlord or its contractor shall thereupon immediately cause
commencement of Landlord's Work and shall thereafter cause the completion
thereof in accordance with this Article 14.
If Landlord is selected by mutual agreement of the parties to serve as
construction manager per this Article 14., Landlord or its contractor shall
cause Landlord's Work to be performed in accordance with the Plans and in good,
workmanlike manner. Landlord shall bill Tenant for the cost of all such
Landlord's Work in installments from time to time as the work progresses by way
of written invoices in reasonable detail so as to evidence the work completed.
Tenant shall pay all such invoices in fill without retainage within ten (10)
days after receipt thereof.
B. If Landlord is selected by mutual agreement of the parties to
serve as construction manager per this Article 14., Landlord agrees to cause the
Premises and all of Landlord's Work to be Substantially Complete within eight
(8) calendar weeks after Tenant has provided final and complete Plans to
Landlord in form and manner so as to allow construction to be commenced and to
be completed in accordance with applicable building codes, laws and regulations
and after Tenant has authorized Landlord in writing to commence construction in
accordance therewith as a consequence of agreement as to the Plans and as to the
GMP (the "Construction Commencement Date"). The Premises shall be Substantially
Complete when all of the following shall have occurred:
1. There shall have been issued by the appropriate authorities in the
City of New Haven such certificate or certificates as may be required m order
that the Premises may be lawfully occupied by Tenant in accordance with the
approved plans and specifications for the building and the leasehold
improvements.
2. The leasehold improvements and base building core and shall have been
fully completed except for minor punch list items that do not adversely affect
the use and occupancy of the Premises for the normal conduct of Tenant's
business and do not adversely detract from the overall aesthetic appearance of
the Premises; Landlord shall diligently complete all such unfinished work as
soon as reasonably practicable.
3. The Premises are free from debris, floors level and broom clean.
4. The HVAC, passenger and freight elevators and utility
and plumbing systems (including telephone trunk lines to the Premises) for the
Premises, the lobby and all common and
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public areas of floors to be occupied by Tenant are substantially completed,
operating and balanced in accordance with the approved plans and specifications.
5. All facilities and systems servicing the building and passing through
the Premises or any part thereof shall have been enclosed and no access through
the Premises, which will interfere with or adversely affect Tenant's use
thereof, is required to complete the same, and the work remaining to be done in
the building shall be of such nature as will not materially and adversely
interfere in a substantial and continuing manner with Tenant's use and occupancy
of the Premises for the normal conduct of its business.
6. All walls exposed to elevator lobbies on all floors to be occupied in
whole or m part by Tenant and other public or common areas on such floors shall
have been substantially completed.
7. All rooms located in the building core on all floors to be occupied in
whole or in part by Tenant, including mechanical rooms, toilet rooms, electrical
closets, janitor closets, freight elevator anterooms, lobbies and elevator cars,
and stairways, shall have been substantially completed with the building
standard finishes, fixtures and accessories corresponding to each particular
core area.
In the event that Landlord shall fail to cause the Premises to be
Substantially Complete within eight (8) calendar weeks after the Construction
Commencement Date, then in such event the Term Commencement Date shall be deemed
to have been extended on a day to day basis corresponding with the number of
days beyond the foregoing 8-week period that the Premises shall fail to be
Substantially Complete. In such event the parties shall execute a memorandum
supplemental hereto that shall stipulate the amended Term Commencement Date, and
all dates in this Lease Agreement which are dependent for their calculation upon
a determination for the Term Commencement Date shall be deemed amended in
accordance therewith.
C. Tenant shall give Landlord written notice of any incomplete work,
unsatisfactory conditions or patent defects in the Premises within thirty (30)
days after Tenant has taken possession of the Premises and Tenant shall give
Landlord written notice of any latent defects in the Premises within thirty (30)
days of Tenant's discovery of same. Landlord shall complete said work and/or
remedy such unsatisfactory conditions or defects within a reasonable period of
time subject to conditions of force majeure. The existence of any in complete
work of a "punch-list" nature, unsatisfactory conditions or defects as aforesaid
shall not effect the Term Commencement Date or the obligation of Tenant to
commence payment of Base Rent and all other charges hereunder.
D. Neither Landlord nor Landlord's agents have made any
representations or promises with respect to the condition of the building, the
Premises, the land upon which the building is constructed, or any other matter
or thing affecting or related to the building or the Premises, except as herein
expressly set forth, and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in this Lease.
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15. Maintenance of Premises. The Tenant agrees that Tenant shall be
-------------- --------
responsible, at Tenant's sole expense, for all maintenance, repairs and
replacements resulting from damage to any part of Landlord's Building or
grounds, or of the Premises, including any fixtures or improvements thereupon,
regardless of whether such improvements were made by Landlord or Tenant, in all
cases where such damage results solely from the negligent act of Tenant or from.
such act of the agents, employees, licensees or business invitees of Tenant
conducted within the Premises. Such maintenance, repair and/or replacement shall
be made with due diligence taking into account the nature of such repair or
replacement by either Landlord or Tenant or their respective contractors,
subcontractors or agents, as Landlord shall direct in its sole discretion. In
the event that Landlord shall elect to make such repairs, all insurance
proceeds, if any, shall be paid or assigned to Landlord.
All other maintenance, repairs and replacements to the Landlord's Building
or grounds or to the Premises including fixtures and improvements (other than
such matters which are the responsibility of other tenants in Landlord's
Building in accordance with the terms of their lease) shall be performed by
Landlord and shall be to the extent applicable, included within Operating
Expenses. Landlord agrees to cause maintenance and repair work described in this
Article 15. and cleaning, janitorial and similar services described hereinafter
in Article 16., as nearly as practicable given the nature of the repair or
service, to be performed other than during regular business hours and in a
manner so as to minimize disruption of Tenant's business operation.
16. Services. Landlord shall provide the following of a quality consistent
--------
with Class A office space: (a) reasonable heating and air conditioning during
business hours and days as hereinafter defined, provided that Tenant shall
comply with all reasonable requests of Landlord relating to heating and air
conditioning of the Premises; (b) at least four (4) automatic passenger
elevators; (c) cause the Common Areas of the building in which the Premises are
located to be kept reasonably clean; (d) cleaning and janitorial services Monday
through Friday in accordance with Exhibit C which is attached hereto and made a
part hereof; (e) electricity to all lights and outlets; (f) all other services
reflected in paragraph 4.D. forming a part of Operating Expenses and not
specifically set forth otherwise in this paragraph; and (g) building standard
directory and exterior door signage (the latter at Tenant's cost). Business
hours for Landlord's Building shall be between the hours of 8:00 a.m. and 6:00
p.m. Mondays through Fridays, and 8:00 am. to 12:00 noon on Saturdays, but there
shall be excluded from business days Connecticut and U.S. holidays that are
normally observed by general business offices, except that Tenant shall have
access to the Landlord's Building and shall have use of the Premises at all
times, provided that such use is at all times in accord with Article 2. hereof.
Landlord shall not be liable to Tenant or anyone claiming under Tenant for the
cessation of any such service rendered to the Premises or Landlord's Building
pursuant to the terms of this Lease, due to any accident, the making of repairs,
alterations or improvements, labor difficulties, difficulties in obtaining fuel,
water, electrical service or supplies, or for any cause beyond the Landlord's
control. Notwithstanding the foregoing, in the event that use and occupancy of
the Premises by Tenant becomes commercially unreasonable due to any of the
foregoing circumstances, and remains so for a period in excess of three (3)
business days, then in such event the rent reserved hereunder shall abate
commencing with the fourth such day and shall remain abated until such time that
the
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foregoing circumstances are remedied, thereby allowing resumption of
commercially reasonable use and occupancy of the Premises.
17. Service Charges. Except as otherwise may be provided herein in
---------------
Article 4.D., Tenant, at its expense, shall be responsible for provision for and
payment of certain services otherwise not included within the scope of Operating
Expenses including, for example, telephone service, data transmission services
and facsimile and internet services.
18. Extra Services and Utilities.
----------------------------
A. Landlord will attempt, upon receipt of reasonable advance written
notice from Tenant of its requirements in that regard, to furnish additional
services and utilities to the Premises on days and at times other than as above
provided. Tenant agrees to reimburse Landlord for the reasonable costs of any
such additional services and utilities and, if Tenant avails itself of such
services or utilities without notice to Landlord, Landlord may impose a charge
therefor.
B. In addition to the foregoing, in the event that actually metered
electrical consumption by Tenant for operation of lights, plugs, computers,
diagnostic and other equipment, laboratory equipment and other facilities used
by Tenant in the Premises (such Premises encompassing and being the entire
tenant occupied area of the 11th floor of Landlord's Building) shall exceed the
average electrical consumption in Landlord's Building actually experienced and
metered on all other office tenant occupied floors of Landlord's Building (being
floors two through fourteen of Landlord's Building). then in such event (and
only in such event) Tenant shall be charged for such excess consumption based
upon the metering of the 11th floor electrical usage by Tenant. Such charges
shall be determined by actually metered consumption utilizing the actual rates
charged by the United Illuminating Company (or any successor thereto) and shall
fairly take into account only any such metered usage by Tenant on the 11th floor
that shall exceed the average metered usage on all other office tenant floors
described hereinabove. Any charges incurred pursuant to this paragraph shall be
deemed Additional Rent and shall, after the first Lease Year hereof; be
reconciled as to any such excess consumption charges by accounting and billing
within one hundred twenty (120) days after the end of calendar year 1997 in
accordance with procedures described in Article 4.B. hereinabove. Commencing
with calendar year 1998, and continuing thereafter during each Lease Year
hereof, charges for excess consumption shall be estimated based upon previous
year metered excess consumption, paid on a monthly basis as Additional Rent and
reconciled after the conclusion of each Lease Year in the manner described in
said Article 4.B.
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19. Insurance.
---------
A. Tenant will secure and carry at its own expense throughout the
Term hereof a public liability policy with a company authorized to do business
in the State of Connecticut, insuring Tenant and Landlord, as their interests
may appear, against any claims based on bodily injury (including death) arising
out of the use of said Premises by Tenant, such policy to insure against any
claim up to Two Million Dollars ($2,000,000) in the case of one person receiving
bodily injuries or in the case of the death of one person and up to Two Million
Dollars ($2,000,000) in the case of any one accident involving bodily injury
(including death) of more than one person, and insuring Landlord and Tenant
against any claims for damage to property up to an amount of Five Hundred
Thousand Dollars ($500,000). Tenant agrees to keep, maintain and pay for
throughout the Term hereof a Tenant's Fire Insurance Policy on its property in
the Premises. In the case of the failure of Tenant to carry such insurance,
Landlord may effect such insurance and in such case any premiums paid by
Landlord for such insurance shall be forthwith due and payable from Tenant to
Landlord as additional rent with interest thereon at ten percent (10%) per
annum, or if lesser, the maximum amount allowable by law. Tenant will furnish to
Landlord at the beginning of the Term hereof and thereafter on an annual basis a
certificate of insurance showing that these policies are in full force and
effect, that they cannot be cancelled or terminated or adversely changed without
thirty (30) days prior written notice to the Landlord (ten (10) days in the
event of non-payment of premium), and that they include the Landlord as an
additional named insured, as its interests may appear.
All proceeds of insurance paid upon policies owned by Tenant and on
account of damage to property of Tenant shall at all times be paid to and shall
be the exclusive property of Tenant.
B. Landlord will secure and carry at its own expense throughout the
Term hereof (i) a public liability policy with a company authorized to do
business in the State of Connecticut, insuring against all claims based on
bodily injury (including death) arising out of the use of said Premises and
Common Areas by Tenant, such policy to insure against any claim up to Two
Million Dollars (S2, 000,000) in the case of one person receiving bodily
injuries or in the case of the death of one person and up to Two Million Dollars
($2,000,000) in the case of any one accident involving bodily injury (including
death) of more than one person; and (ii) a policy or policies of fire and
extended "all risk" hazard insurance insuring Landlord's Building and all tenant
improvements and fixtures therein to the full replacement cost thereof. Landlord
shall deliver to Tenant upon request a certificate evidencing such coverages.
C. Notwithstanding any other provision of this Lease, each party
hereby waives any and all rights to recover against the other or against the
officers, employees, agents, representatives, customers, invitees, licensees or
visitors of such other party for damage to such waiving party or loss of its
property or the property of others under its control arising from any cause
insured against under such party's insurance policies.
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20. Tenant's Liability and Indemnification of Landlord. Tenant covenants
--------------------------------------------------
and agrees that Tenant will have sole liability for any claims, demands,
penalties or liabilities that may arise solely out of Tenant's occupation, use
or enjoyment of the Premises and will release, discharge, indemnify Landlord and
hold Landlord harmless from and against all such claims, demands, penalties and
liabilities for any damage or injury to persons, firms, corporations or property
suffered, sustained, or incurred as a result of or in connection with or arising
out of any intentional or negligent act or omission of Tenant or its agents,
employees, contractors, licensees and business invitees, in connection with the
occupation, use, or enjoyment of the Premises by the Tenant, including the cost
of defending against such claims or demands except arising out of Landlord's
negligence. Tenant shall indemnify and save harmless Landlord from and against
any and all liability and damages, and from and against any and all suits,
claims, and demands of every kind and nature, including reasonable counsel fees,
by or on behalf of any person, firm, association or corporation arising out of
or based upon any accident, injury or damage, however occurring, which shall or
may happen during the Term hereof, on the demised Premises, and from and against
any liability or damage solely and proximately caused by the condition,
maintenance, repair, alteration, use, occupation or operation of the demised
Premises which is the responsibility of Tenant under this Lease; provided,
however, that Tenant does not hereby agree to indemnify Landlord from claims,
demands, penalties or liabilities which are the result of the willful or
negligent acts of Landlord, its agents, servants, contractors or employees. In
case of any action or proceeding on any such claim or demand being brought
against the Landlord, the Tenant, upon notice from the Landlord, covenants to
resist and defend such action or proceeding. Landlord may also resist and defend
such action in the event Tenant refuses to do so, and in such event, the Tenant
shall reimburse the Landlord for all reasonable costs which the Landlord may
incur in so doing.
21. Landlord May Pay Tenant's Obligations.
-------------------------------------
A. In the event that the Tenant does not make any of the payments
required of it when due for the expenses and obligations, or for any taxes it is
required to pay, or for any insurance premiums or payments it is required to
pay, or for any item or payment or expense required of Tenant under this Lease,
the Landlord, after mailing notice to Tenant and failure by Tenant to make any
of such payments within thirty (30) days of such mailing, may in the case of
payments to be made to someone other than the Landlord elect to make such
payment or payments on the Tenant's behalf, but shall not be obliged to do so.
In the event that the Landlord shall make such payment or in the event that the
Tenant fails. within thirty (30) days of such mailing to make a payment owed to
the Landlord, Tenant shall reimburse Landlord therefor on demand, together with
interest at the lesser rate of either twelve percent (12%) per annum or the
maximum rate allowed by law, which interest shall accrue until such amount has
been repaid to the Landlord, whether before or after demand, and whether or not
any judgment is rendered thereon.
B. If Landlord shall fail to provide any service or perform any
repair or other work which Landlord is required to provide or perform hereunder,
then in such event Tenant may, upon thirty (30) days prior written notice to
Landlord (and provided Landlord shall not
25
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within such 30-day period contest in writing whether Landlord is obligated
hereunder to provide such service or perform such work): then in such event
Tenant shall have the right to cause such service or such work to be provided or
performed and to receive reimbursement from Landlord for the reasonable costs
thereof. Landlord shall provide such reimbursement within ten (10) days of
receipt of a written invoice from Tenant detailing the service or work performed
and the cost thereof. If Landlord shall contest the necessity of such service or
work in accordance with the foregoing, Tenant shall not proceed to perform such
service or such work but may submit the matter to arbitration before the
American Arbitration Association sitting in New Haven, Connecticut. The results
of such arbitration proceeding shall be binding upon the parties.
22. Costs of Collection. In the event of any claim of default by either
-------------------
party hereto in the performance of any of the covenants of this Lease, the
parties agree that any and all costs incurred in the collection and enforcement
thereof, including reasonable attorneys' fees, shall be awarded to the
prevailing party.
23. Eminent Domain.
--------------
A. In the event that the building of which the Premises are a part,
or any part of the Premises which renders the Premises untenantable under
reasonable commercial standards, shall during the Term of this Lease be taken by
condemnation or eminent domain for any public or quasi-public use or purpose (or
transferred under threat of any such action), then and m such event all sums
that may be awarded for compensation for said taking shall be the sole property
of Landlord, and upon such takings, this Lease shall thereby cease and end by
limitation, from the date of the vesting of said Premises or said part thereof
in the proper authorities exercising the right of eminent domain.
B. Nothing herein shall in any way prevent Tenant from making and
collecting a claim against the condemning authority for payment of moving
expenses and/or severance expenses or any other compensation or reimbursement
that Tenant may be entitled to receive by law directly from the condemning
authority as of the date of condemnation, provided that any such claim shall not
be deductible from any award otherwise payable to Landlord.
C. Tenant agrees to execute such instruments of assignment as may be
required by Landlord, or join with Landlord in any petition for the recovery of
damages. if requested by Landlord, so long as the same does not impair Tenant's
direct claim as set forth in paragraph 23.B. hereof. If Tenant shall fail to
execute such instruments as may be required by Landlord, or to undertake such
other steps as may be required by Landlord, or to undertake such other steps as
may be requested as herein stated, then and in any such event, Landlord after
ten (10) days written notice given to Tenant by certified mail, return receipt
requested, shall be deemed the duly authorized irrevocable agent and attorney-
in-fact of Tenant to execute such instruments and undertake such steps as herein
stated in and on behalf of Tenant
24. Inspection by Landlord. Landlord and Landlord's agents, employees and
----------------------
contractors shall have the right, upon reasonable advance notice to Tenant, to
enter upon the Premises during regular business hours. and in emergencies at all
times without prior notice. to
26
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examine or inspect the same; or with reasonable advance notice to Tenant, to
exhibit same to prospective purchasers or (during the final year of the Term) to
prospective lessees; or with advance notice to the Tenant as to any repairs,
alterations, improvements or additions that will be visible in the Premises, to
make such repairs, alterations, improvements or additions as Landlord may deem
necessary or desirable, without the same constituting an eviction of Tenant in
whole or in part and, so long as Tenant's business is not materially
interrupted, the rent reserved hereunder shall in no event abate while said
repairs, alterations, improvements or additions are being made, by reason of
loss or interruption of business or otherwise (except as otherwise specifically
provided in Article 10.C. above).. If Tenant or a representative of Tenant shall
not be personally present to open and permit an entry into said Premises, when
due to emergency circumstances entry shall be deemed necessary by Landlord,
Landlord or Landlord's agents may forcibly enter the same, without rendering
Landlord or such agents liable therefor, and without in any manner affecting the
obligations and covenants of this Lease. Nothing herein contained, however,
shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, maintenance or repair of
the Premises or any part thereof, except as otherwise herein specifically
provided. Tenant shall have the right, except in the event of any emergency, to
be present or to designate an agent to be present at any inspection or other
entry by Landlord. Tenant shall further have the right to designate not more
than ten percent (10%) of the floor area of the Premises as "secure" or "no
access" areas which shall be off limits to all parties other than those
specifically permitted by Tenant, except in the event of any emergency.
25. Risk of Loss to Property. It is expressly understood and agreed that
------------------------
Landlord and its agents shall not be responsible or liable for (i) any loss or
damage to any property of Tenant or of others entrusted to employees of the
Landlord's Building, nor (ii) for the loss or damage to any property of Tenant
by theft or otherwise. - nor (iii) for any damage occasioned by failure to keep
the Premises or Landlord's Building in repair, except in any such event that any
such failure shall be due to or shall be deemed to be solely and proximately
caused by the negligence or willful misconduct of Landlord. Landlord and its
agents shall not be liable for any injury' or damage to persons or property
resulting from fire, explosion, falling plaster, steam. gas, electricity, water,
rain or snow or leaks from any part of the Landlord's Building or from the
pipes, appliances or plumbing works or from the roof, street, or subsurface or
from any other place or by dampness or by any other cause of whatsoever nature,
nor shall Landlord be liable for any latent defect in the demised Premises or in
the Landlord's Building, unless in any event due to the negligence or willful
misconduct of Landlord. Landlord shall not be liable for any damages arising
from acts of neglect of co-tenants or other occupants of the same building, or
of any owners or occupants of adjacent or contiguous property. Landlord shall
not be responsible for any loss occasioned by the interruption of any utility
service provided to the Premises such as electricity or water. Tenant shall give
immediate notice to Landlord in case of accidents in the demised premises or in
the Landlord's Building or of defects thereon or in any fixtures or - equipment.
26. Landlord Status. Tenant understands and agrees that the person or
---------------
persons signing below for Landlord is or are signing in representative capacity'
only and neither such person nor
27
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any person, persons or entities serving as partners of Landlord shall have any
personal liability hereunder with respect to the transactions contemplated
hereby. Tenant shall look solely to the equity of the Landlord or any successor
in interest to the Landlord in the fee or leasehold estate of the Landlord, as
the case may be, for the satisfaction of each and every remedy of the Tenant in
the event of any breach by the Landlord or by any successor in interest to the
Landlord of any of the terms, covenants and conditions of this Lease to be
performed by the Landlord. Such exculpation of personal liability of Landlord is
absolute and without any exception whatsoever, and Tenant waives any right to
look to the partner(s) of the partnership which are Landlord or any of their
individual assets for satisfaction of any such liability. The foregoing shall
not limit any limitation of liability accorded to said signing person or persons
under applicable law.
27. Rules and Regulations. Landlord, Landlord's agents, Tenant, and
---------------------
Tenant's servants, employees, agents, visitors, and licensees shall observe
faithfully and comply reasonably with reasonable rules and regulations of
general applicability to all tenants as Landlord or Landlord's agents may from
time to time adopt. Notice of any rules or regulations shall be given in
writing. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the rules and regulations or terms,
covenants or conditions in any other lease, as against any other tenant and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, visitors or licensees, unless such failure or
such violation shall result in an interference with the quiet use and enjoyment
of the Premises on the part of Tenant. The initial Rules and Regulations for
Landlord's Building are set forth as Exhibit D hereto. No change to such Rules
and Regulations which would materially and adversely affect Tenant's rights and
obligations under this Lease shall be effective except upon Tenant's prior
written consent.
28. Force Majeure. Landlord (but not Tenant) shall not be in default
-------------
hereunder if Landlord is unable to fulfill or is delayed in fulfilling any of
its obligations hereunder or is prevented from fulfilling such obligations by
reason of fire or other casualty', strikes or labor troubles, governmental
preemption in connection with a national emergency, shortage of supplies or
materials, or by reason of any rule, order or regulation of any governmental
authority, or by reason of the condition of supply and demand affected by war or
other emergency, or any other cause beyond its control. Such inability or delay
by Landlord in fulfilling any of its obligations hereunder shall not affect,
impair or excuse the Tenant from the performance of any of the terms, covenants,
conditions, limitations, provisions or agreements hereunder to be performed.
29. Estoppel Certificate. Upon request of either party, the other will
--------------------
execute and deliver an instrument stating, if the same be true, that this Lease
is a true and exact copy of the Lease between the parties hereto, that there are
no amendments hereof (or stating what amendments there may be), that the same is
then in full force and effect and that, to the best of such party's knowledge,
there are then no offsets, defenses or counterclaims with respect to the payment
of rent reserved hereunder or in the performance of the other terms, covenants
and conditions hereof on the part of the other party to be performed, and that
as of such date no default has been declared hereunder by either party hereto
and that such party at the time has no knowledge of any facts or circumstances
which it might reasonably believe would give rise to a
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default by either party. If same not be true, the signing party shall indicate
and describe on said instrument any such amendments, offsets, defenses,
counterclaims or facts or circumstances which might give rise to a default.
30. Notice to Mortgagees. Tenant agrees that in the event Tenant shall
--------------------
claim any event of default or non-performance hereunder on the part of Landlord
or shall claim that there exist any circumstances whatsoever which give rise (or
with the passage of time would give rise) to a right of termination on the part
of Tenant hereunder, Tenant shall give immediate written notice of such event or
such circumstances to all mortgagees of Landlord of which Tenant has been
notified in writing, in addition to and separate from any notice required to be
given to Landlord hereunder. Notwithstanding anything to the contrary contained
elsewhere herein, any such mortgagee shall be given a period of fifteen (15)
days after receipt of such notice in which to cure or commence to cure any such
event or circumstances, the doing of which by any such mortgagee shall be deemed
to constitute a cure of such event or circumstances under this Lease Agreement,
notwithstanding that such cure shall not have been performed by Landlord
hereunder.
31. Assignment.
----------
A. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor sublet,
or suffer or permit the demised premises or any part thereof to be used by
others at any time during the term hereof without the express written consent of
Landlord, not to be unreasonably withheld or delayed.
B. Notwithstanding the foregoing, Tenant shall have the right to
assign its rights under this Lease upon ten (10) days prior written notice to
Landlord (but without necessity of consent of Landlord) to any entity which may
control Tenant by ownership of more than one-half of its capital stock; to any
entity controlled by Tenant and of which Tenant owns more than one-half of its
capital stock; to any entity which may acquire all or substantially all of the
capital stock of Tenant; or to any entity which may come into existence by way
of merger with Tenant.
C. No assignment by Tenant shall operate to mitigate, reduce or
amend the obligations of the Tenant hereunder.
32. Partial Enforcement. No delay or omission by Landlord 6r Tenant to
-------------------
exercise any rights, power or privileges accruing upon any noncompliance or
default by the other with respect to any of the terms hereof shall impair any
such right, power or privilege or be construed to be a waiver thereof, and every
such right, power and privilege may be exercised at any time during the
continuance of such noncompliance or default. It is further agreed that a waiver
by Landlord or Tenant of any of the covenants or agreements hereof to be
performed by the other shall not be construed to be a waiver of any succeeding
breach thereof or of any other covenants or agreements herein contained to be
performed by such party.
29
<PAGE>
33. Attornment. Tenant agrees, that in the event of a sale, transfer
----------
(including, without limitation, a deed in lieu of foreclosure), or assignment of
Landlord's interest in Landlord's Building, the Premises or any part thereof, or
in the event any proceedings are brought for the foreclosure of or for the
exercise of any power of sale under any mortgage or deed of trust now or
hereafter placed upon or affecting Landlord's Building and/or the Premises, to
attorn to and to recognize such transferee, purchaser or mortgagee as Landlord
under this Lease, and no such transfer shall be deemed to operate under any
circumstances as a constructive eviction of Tenant, provided that such
transferee, purchaser or mortgagee, `as the case may be, shall assume all
obligations of Landlord hereunder and shall not disturb the tenancy of Tenant
hereunder except in the event of any default on the part of Tenant under the
provisions of this Lease.
34. Validity and Enforcement. This Lease and the Exhibits, Attachments and
------------------------
Addenda hereto, if any, constitute the entire agreement between the parties
hereto with respect to the transactions contemplated herein and the Lease shall
not be modified in any way except by written instrument signed by Landlord and
Tenant. Any prior conversations or writings are merged herein and extinguished.
Submission of this Lease for examination does not constitute an option for the
Premises and becomes effective as a lease only upon execution and delivery
thereof by Landlord to Tenant. If any provision contained in a schedule,
exhibit, rider or addenda is inconsistent with any other provision of this
Lease, the provision contained in said schedule, exhibit, rider or addenda shall
supersede said other provision, unless otherwise provided in said schedule,
exhibit, rider or addenda. The failure of Landlord to insist in any one or more
instances upon the strict performance of any one or more of Tenant's obligations
under this Lease, or to exercise any election herein contained, shall not be
construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this Lease or of the right to exercise such
elections.
No payment by Tenant, or acceptance by Landlord, of a lesser amount than
shall be due from Tenant to Landlord shall be treated otherwise than as a
payment on account. The acceptance by Landlord of a check for a lesser amount
with an endorsement or statement thereon. or upon any letter accompanying such
check, that such lesser amount is payment in full. shall be given no effect, and
Landlord may accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
35. Prejudgment Remedy, Redemption, Counterclaim and Jury Trial. The
-----------------------------------------------------------
Tenant, for itself and for all persons claiming through or under it, hereby
acknowledges that this Lease constitutes a commercial transaction as such term
is used and defined in Chapter 903 (a), Section 52-278 (a) of the Connecticut
General Statutes, or its successor provisions if amended, and hereby expressly
waives any and all rights which are or may be conferred upon the Tenant by said
Act to any notice or hearing prior to a prejudgment remedy under Sections 52-
278(a) to 52-278(g), or their successor provisions if amended, inclusive of said
statutes. Such waiver is intended as a waiver in accordance with Section 52-
278(f) or its successor provisions if amended, of said statutes. Tenant further
waives any and all rights which are or may be conferred by any present or future
law to redeem the said Premises, or to any new trial in any action of ejectment
under any provision of law, after re-entry thereupon, or upon any part thereof,
by the Landlord,
30
<PAGE>
or after any warrant to dispossess or judgment in ejectment If the Landlord
shall acquire possession of the said Premises by summary proceedings, or in any
other lawful manner without judicial proceedings, it shall be deemed a re-entry
within the meaning of that word as used in this Lease.
36. Brokerage. Landlord and Tenant covenant and agree to and with each
---------
other that no broker is recognized as being responsible for consummation of the
herein Lease Agreement, except C.A. White, Inc. of New Haven, Connecticut (the
"Broker"). Tenant expressly agrees to assume all liability to said Broker for
the initial commission payment due to said Broker as set forth on page 3 of a
certain letter from Fusco Management Company, LLC to Mr. Frank M. Micali of the
said brokerage firm and dated October 7, 1996. Landlord agrees to assume all
liability to said Broker for all commissions due and payable other than the
initial installment expressly assumed by Tenant in accordance with the
foregoing.
Landlord and Tenant mutually agree to indemnify the other and hold the
other harmless from all suits, claims and demands brought by any party for
brokerage commissions not described hereinabove and expressly assumed by the
parties respectively.
37. Miscellaneous. The rights and remedies afforded Landlord herein are
-------------
not intended to be exclusive but as additional to all rights and remedies the
Landlord would otherwise have by law. The captions preceding each of the
numerical paragraphs in this Lease are inserted only for the convenience of the
parties and for reference purposes and in no way define, limit or otherwise
restrict or have any legal effect whatsoever on any provision of this Lease. If
any provision herein is adjudged invalid by any court or administrative agency,
the remaining provisions shall remain in effect.
38. Usage. Words of any gender used in this Lease shall be held to include
-----
any other gender, and words in the singular number shall be held to include the
plural when the same requires.
39. Notice. Any notice or demand, which, under the terms of this Lease or
------
under any statute must or may be given or made by the parties hereto, shall be
in writing, and may be given or made by mailing the same by registered or
certified mail, return receipt requested, or by forwarding via reputable
overnight courier, addressed to, for the Landlord, Fusco Harbour Associates,
LLC, do The Fusco Corporation, 555 Long Wharf Drive, New Haven, Connecticut
06511, or to such person and address as Landlord or its successors or assigns
shall instruct, arid for the Tenant, CuraGen Corporation, 322 East Main Street,
Branford, Connecticut 06405, or to such other address as the Tenant may
instruct. Any notice given hereunder shall be deemed delivered when received.
40. Parking. Tenant shall have certain rights to park vehicles in the
-------
parking garage adjacent to Landlord's Building as a consequence of the herein
Lease Agreement, subject to the reasonable rules and regulations of Landlord and
its garage operator governing the use of the garage, arid in accordance with the
terms of Exhibit E annexed hereto and made a part hereof.
31
<PAGE>
41. Recordation. The Tenant agrees that the only recordation of this Lease
-----------
or any memorandum or notice hereof on the Land Records of the City of New Haven
or upon any other public record shall be in the form of a Notice of Lease and
shall contain only the information as set forth in Section 47-19 of the
Connecticut General Statutes and any other or different form of recording shall
constitute an event of default hereunder on the part of Tenant.
42. Successors and Assigns. This Lease shall inure to, and be binding
----------------------
upon, the respective heirs, executors, administrators, successors and assign's
of the respective parties.
43. Governing Law. This Lease and all the provisions hereof shall be
-------------
governed and interpreted under the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the day and year first above written.
In the presence of: LANDLORD
FUSCO HARBOUR ASSOCIATES, LLC
/s/ Paul Dimauro /s/ Edmund J. Fusco
- --------------------------------- -------------------------------------
Its Managing Member
Duly Authorized
/s/ Mark O'Hagan
- ---------------------------------
In the presence of: TENANT
CURAGEN CORPORATION
/s/ Frank Micali /s/ Gregory T. Went
- --------------------------------- --------------------------------------
Its Senior Vice President
Duly Authorized
/s/ Michael McKenna
- ---------------------------------
32
<PAGE>
STATE OF CONNECTICUT )
) ss, New Haven; January 10, 1997
COUNTY OF NEW HAVEN )
Personally appeared, Edmund J. Fusco, Managing Member of FUSCO HARBOUR
ASSOCIATES, LLC, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed and the free act and deed of said company,
before me.
/s/ Angela M. Salvati
-------------------------------------------
Commissioner of the Superior Court
Notary Public
STATE OF CONNECTICUT )
) ss, New Haven; December 23, 1997
COUNTY OF NEW HAVEN )
Personally appeared, Gregory Went, Ph.D. Senior Vice President of CURAGEN
CORPORATION, signer and sealer of the foregoing instrument. and acknowledged the
same to be his/her free act and deed and the free act and deed of said credit
union. before me.
/s/ Florence Whaling
-------------------------------------------
Commissioner of the Superior Court
Notary Public
Commission expires 4/28/2001
33
<PAGE>
EXHIBIT A
All that certain piece or parcel of land situated in the City and County of
New Haven. State of Connecticut, in the Long Wharf Redevelopment Area. being
shown as Parcel 1 on a certain map entitled "Property Map Reuse Parcel 1, Long
Wharf Development. New Haven. Connecticut:" dated August 1984 and prepared by
Cahn, Inc., more particularly bounded and described as follows:
Commencing at a point on the Southeasterly street line of Long Wharf Drive
marking the Northeasterly corner of the herein described parcel, said point
having the coordinates North 169,497.22 and East 555,404.58 on the Connecticut
Coordinate System;
Thence running South 00 degrees 02 minutes 10 seconds West 675.23 feet
along land now or formerly of the City of New Haven, being Reuse Parcel 2-A
hereinafter described;
Thence running North 89 degrees 56 minutes 50 seconds West 190.00 feet
along land now or formerly of the City of New Haven, being Reuse Parcel H-3
hereinafter described;
Thence running North 00 degrees 02 minutes 10 seconds East 561.52 feet
along land now or formerly of the City of New Haven, being Reuse Parcel 1-A
hereinafter described;
Thence running North 59 degrees 09 minutes 10 seconds East 221.39 feet
along the Southeasterly street line of Long Wharf Drive to the point and place
of commencement; being Reuse Parcel 1, containing 117,491 square feet, more or
less, and the portion thereof above the high water mark of New Haven Harbor
contains 2.4 acres, more or less.
Subject to the right and easement in favor of the City of New Haven, its
agents and assigns to enter upon the portion of said 20.98 feet through said
Parcel 1;
Thence running South 0 degrees 02 minutes 10 seconds West 30.00 feet along
said Parcel 2-A;
Thence running North 89 degrees 57 minutes 50 seconds West 51.66 feet and
South 59 degrees 09 minutes 10 seconds West 161.20 feet through said Parcel 1;
Thence running North 0 degrees 02 minutes 10 seconds East 11.65 feet along
said Parcel 1-A to the point and place of commencement; for all purposes of
construction, reconstruction, installation, repair, operation, maintenance and
replacement of existing and future sewer and public and municipal utility lines
in and through the same. Subject, however, to the obligation of the City at its
sole cost and expense to restore such portion of said Parcel 1 disturbed in
exercise of such right to substantially its condition existing immediately prior
to entry by the City for the foregoing purposes, and subject to the right of the
owner, its heirs and assigns to use such portion of said Parcel 1 in any manner
whatsoever so long as such use is not inconsistent with and does not materially
obstruct or interfere with the exercise of the foregoing right and easement of
the
1
<PAGE>
City of New Haven and provided that the owner, its heirs and assigns shall, in a
manner satisfactory to the City Engineer of the City of New Haven protect such
sewer lines from damage during the construction, reconstruction, maintenance and
repair of the owner's improvements on Parcel 1.
2
<PAGE>
EXHIBIT C
SCHEDULE OF SERVICES FOR LANDLORD'S BUILDING
All general and private offices, entrances, lobbies, elevators, escalators,
corridors. stairwells, rest rooms and plazas shall receive janitorial and window
cleaning services as described herein.
1. DAILY SERVICES - TENANT'S SPACE:
-------------------------------
A. Empty and clean all waste baskets.
B. Sweep and dust clean composition floors.
C. Dust all desks, tables, files, and horizontal surfaces and clean glass
tops, unless covered with papers, or other items.
D. Dust all desk accessories (including, without limitation, telephones)
and replace same in proper place.
E. Vacuum all carpets.
F. Damp mop spillage.
G. Remove trash generated by normal daily business activity
to designated areas.
H. Spot clean woodwork and doors and partition glass weekly.
I. Sweep (vacuum if carpeted) all interior private stairwells
and tiled areas.
J. Mop tiled areas on a weekly basis.
2. MONTHLY SERVICES - TENANT'S SPACE:
---------------------------------
A. Dust all cabinets, files and chairs.
B. Dust all paneling with appropriate cleaning products.
C. Dust picture frames.
D. Buff and wax tiled areas.
3. QUARTERLY SERVICES - TENANT'S SPACE
-----------------------------------
A. Dust door tops, tops of partitions, high ledges, high files,
ventilating, air conditioning outlets, and return air grills.
B. Dust blinds (where installed).
4. DAILY SERVICES - PUBLIC REST ROOM AREAS
---------------------------------------
A. Empty all wastepaper containers.
B. Clean all mirrors.
C. Clean all lavatory fixtures.
D. Keep sinks, toilet bowls, and urinals free of scale at all
times.
E. Wash and sanitize toilet seats, toilet fixtures, and
compartments.
1
<PAGE>
F. Refill soap, towel and tissue containers (using standard
building stock only).
G. Wipe down walls around lavatories.
H. Mop all lavatory floors.
I. Fill floor drains when installed.
J. Dust all horizontal surfaces.
K. Empty, clean and disinfect sanitary napkin disposals.
5. MONTHLY SERVICES - PUBLIC REST ROOM AREA:
----------------------------------------
A. Wash down ceramic tile walls and toilet compartment
partitions.
B. Perform high dusting.
C. Brush down vents.
6. STAIR WELLS:
-----------
A. Sweep and spot mop all stair wells weekly.
B. Spot clean walls as required.
7. BUILDING ENTRANCE LOBBY AREAS:
-----------------------------
A. Sweep or vacuum all floors daily with proper equipment.
B. Dust and polish directory boards regularly.
C. Spot clean daily and wash weekly entrance door glass and
side lights.
D. Clean drinking fountains daily.
E. Spot clean walls daily to remove finger marks and smudges.
F. Remove spillage daily.
8. FLOOR SERVICES FOR PUBLIC AREAS ON TENANT FLOORS AND TENANT'S SPACE:
-------------------------------------------------------------------
A. Buff all floors once each month.
B. Buff traffic areas in the premises once each week.
9. WINDOW CLEANING SERVICES:
------------------------
A. Wash all windows in the Building inside and outside twice
each year.
10. ELEVATORS AND ESCALATORS:
------------------------
A. Vacuum elevator carpets daily and spot clean same as
necessary.
B. Clean elevator cabs nightly.
C. Wash elevator walls monthly.
D. Dust and polish elevator control and dispatch panels
regularly.
E. Dust escalator skirts nightly.
F. Wash all elevator lights annually.
G. Clean escalator thresholds., treads. hand rails and sides
daily.
2
<PAGE>
11. SPECIAL:
-------
A. Spot clean blemishes on walls as required.
B. Wash lighting fixtures and lenses annually.
C. Render pest control services as necessary.
D. The following services will be furnished on an "as needed"
basis:
(i) Spot cleaning of carpet.
(ii) Dusting and/or washing ceiling grills annually.
E. The hours for janitorial cleaning services shall be as
follows:
(i) 5:00 p.m. to approximately 11:00 p.m., Monday through Friday,
excluding holidays.
(ii) Modifications of starting time for specific locations within the
premises may be coordinated with the Building Office and the
cleaning crew, provided that same does not delay the completion
of overall Building cleaning.
F. Except as otherwise scheduled herein, wash all metal partitions,
flooring and walls covered with vinyl or similar material in Building
areas common to all tenants every twenty-four (24) months.
G. Sweep the Building plazas, and the Building sidewalks as often as
necessary to maintain same in a first-class condition and maintain the
Building landscaping in a first-class condition.
3
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
RULES AND REGULATIONS. Tenant agrees to observe the rights reserved to
Landlord in the Lease and agrees, for itself, its employees, agents, clients,
customers licensees, invitees and guests, to comply with the following rules and
regulations and with such reasonable modifications thereof and additions thereto
as Landlord may make, from time to time, for Landlord's Building (the
"Building").
1. Any sign, lettering, picture, notice or advertisement installed within
Tenant's Premises which is visible to the public from within the Building shall
be installed at Tenant's cost and only in such manner, character and style as
Landlord may approve in writing which approval-may be withheld at the sole
discretion of the Landlord due to the first class nature of the Building and the
strict standards imposed m keeping therewith. No sign, lettering, picture,
notice or advertisement shall be placed on any outside window or in any position
so as to be visible from outside the Building or from any atrium or lobbies of
the Building.
2. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity, without prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed.
3. Tenant, its customers, invitees, licensees and guests shall not
obstruct sidewalks, entrances, passages, courts, corridors, vestibules, halls,
elevators and stairways in and about the Building. Tenant shall not place
objects against glass partitions or doors or windows or adjacent to any open
common space which would be unsightly from the Building corridors or from the
exterior of the Building, and will promptly remove the same upon notice from
Landlord.
4. Tenant shall not make noises, cause disturbances, create vibrations,
odors or noxious fumes or use or operate any electrical or electronic devices or
other devices that emit sound, waves or are dangerous to other tenants and
occupants of the Building or that would interfere with the operation of any
device or equipment or radio or television broadcasting or reception from or
within the Building or elsewhere, and shall not place or install any
projections, antennae, aerials or similar devices inside or outside of the
Premises.
5. Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building and shall not exhibit, sell or offer to sell,
use, rent or exchange any item or services in or from the Premises unless
ordinarily embraced within the Tenant's use of the Premises as specified in this
Lease.
6. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air conditioning and shall refrain from attempting to adjust any
controls. Tenant shall keep public corridor doors closed.
1
<PAGE>
7. Door keys and/or cards for doors in the Premises will be furnished at
the commencement of the Lease by Landlord. Tenant shall not affix additional
locks on doors and shall purchase duplicate keys only from Landlord. When the
Lease is terminated. Tenant shall return all keys to Landlord and will provide
to Landlord the means of opening any safes. cabinets or vaults left in the
Premises.
8. Tenant assumes full responsibility for protecting its space from
theft. robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured.
9. Peddlers, solicitors and beggars shall be reported to the office of
the Building or as Landlord otherwise requests.
10. Tenant. shall not install nor operate machinery or any mechanical
devices of a nature not directly related to Tenant's ordinary use of the
Premises without the written permission of the Landlord.
11. No person or contractor not employed by Landlord shall be used to
perform window washing, cleaning, repair or other work in the Premises.
12. Tenant shall not:
(a) Use the Premises for lodging or for any immoral or illegal
purposes;
(b) Use the Premises to engage in the manufacture or sale of, or
permit the use of; any spirituous, fermented, intoxicating or alcoholic
beverages on the Premises;
(c) Use the Premises in the manufacture or sale of; or permit the use
of any illegal drugs.
13. Neither the Tenant nor its servants, employees, agents, visitors or
licensees shall at any time bring onto or store upon the Premises any flammable,
combustible or explosive fluid, chemical or substance except small quantities of
alcohol and other normal laboratory reagents which may be stored upon the
Premises and used thereon provided that such storage and usage shall at all
times be in accordance with all applicable federal, state and local statutes,
ordinances and regulations. If any substance shall be regulated in a manner as
to require a Material Safety Data Sheet to be prepared and maintained upon the
Premises, then Tenant agrees to assume all liability and responsibility for the
preparation and maintenance of such Material Safety Data Sheet. Landlord shall
have the right upon notice to Tenant to review any such Material Safety Data
Sheet from time to time, but waiver by Landlord of any such review shall not
relieve Tenant of the responsibility for preparation and maintenance of same.
14. Tenant shall comply with all applicable federal. state and municipal
laws, ordinances and regulations and building rules, and shall not directly or
indirectly make any use of
2
<PAGE>
the Premises which may be prohibited thereby or which shall be dangerous to
person or property or shall increase the cost of insurance or require additional
insurance coverage.
15. If Tenant desires signal, communication, alarm or other utility or
service connection installed or changed, the same shall be made at the expense
of Tenant, with approval and under direction of Landlord.
16. Smoking is prohibited in Landlord's Building and must be restricted to
smoking areas outside of Landlord's Building.
3
<PAGE>
EXHIBIT E
FUSCO HARBOUR ASSOCIATES, LLC LANDLORD
RE: 555 LONG WHARF DRIVE, NEW HAVEN, CT
PARKING
1. RECITALS:
--------
TENANT: CuraGen Corporation
LOCATION OF PARKING AREA: Parking garage adjacent to Landlord's Building'.
NO. OF SPACES: Seventy two (72) unreserved spaces included in Base Rent.
COST PER PARING SPACE: Seventy two (72) unreserved spaces are included in
Base Rent. Tenant shall have the option to lease up to thirty three (33)
additional unreserved spaces during the Term ("Additional Spaces"), subject to
such spaces being available, but the monthly rental rate for such spaces shall
be Thirty Six Dollars and Eight Five Cents ($36.85) per space per month during
the first Lease Year and thereafter during the balance of the Initial Term shall
be set at sixty percent (60%) of the then average and customary rate charged by
Landlord to other space users for those spaces not includable within base rental
charges being otherwise paid by such space users. The current rental rate for
such spaces is Sixty Dollars ($60.00) per space per month plus applicable sales
taxes. During any Renewal Term, such Additional Spaces, if available, shall be
charged at the actual full monthly rental rate customarily being charged from
tune to time to other space users for spaces not includable within base rental
rate structures. In no event shall the cost of any such parking spaces be
increased by more than ten percent (10%) from any calendar year to the next.
MANNER OF PAYMENT: Monthly in advance for Additional Spaces together with
monthly payment of rent.
COMMENCEMENT DATE OF PARKING RIGHTS: Upon the Commencement Date of the Term
of the Lease.
2. RULES AND REGULATIONS: Tenant agrees that any rights granted in the
----- --- -----------
Lease to which this Exhibit is annexed ("Lease") with respect to parking, which
rights are as set forth above, are subject to the reasonable rules and
regulations governing the parking areas promulgated by Landlord from time to
time. Landlord agrees to give notice to Tenant in writing of such rules and
regulations and Tenant, for itself and its agents, employees, licensees,
invitees, successors and assigns, agrees to comply at all times with such rules
and regulations.
3. DEFAULT AND TERMINATION: Any event of default under the Lease which
-----------------------
results in a termination of said Lease shall also result in termination of
Tenant's rights to park pursuant to the terms of said Lease and this Exhibit E.
Default in payment of parking fees and
<PAGE>
costs shall result in forfeiture of parking rights relative to the defaulting
party until such default shall be fully cured, but no such default shall
otherwise effect Tenant's rights under this Lease.
<PAGE>
Exhibit 10.2
------------
=======================================
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
=======================================
AGREEMENT OF LEASE, made as of this 11th day of February, 1993, BETWEEN
BRANFORD OFFICE VENTURE, a New York Partnership having an address c/o Carlyle
Construction, 340 East 46/th/ Street, New York, New York 10017, party of the
first part, hereinafter referred to as OWNER and CURAGEN CORPORATION, a Delaware
corporation having an office at 633 Rosemount Lane, New Haven, Connecticut
06515, party of the second part, hereinafter referred to as TENANT.
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the premises (the "demised premises" or "Premises") consisting of
approximately 4,500 square foot usable and 4,990 rentable square feet on the
second floor in the building (the "Building") known as The Wyatt Executive
Center, located at 322 East Main Street, Branford, Connecticut, for a term (the
"Term") of approximately three (3 years to commence on the Commencement Date (as
defined in Article 43) and to end on the Expiration Date (as defined in Article
43), both dates inclusive, at an annual fixed minimum, rental as set forth in
Article 38 hereof (hereinafter the "Fixed Minimum Rent"), which Tenant agrees to
pay in lawful money of the United States which shall be legal tender in payment
of all debts and dues, public and private, at the time of payment, in equal
monthly installments in advance on the first day of each month during said Term,
at the office of Owner or such other place as Owner may designate, without any
set off or deduction whatsoever.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successor and assigns, hereby covenant as
follows"
Rent 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy 2. Tenant shall use and occupy demised premises for
3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations, additions or improvements which
are non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property
<PAGE>
damage insurance as Owner may require. If any mechanic's lien is filed against
the demised premises, or the building of which the same forms a part, for work
claimed to have been done for, materials furnished to, Tenant, whether or not
done pursuant to this article, the same shall be discharged by Tenant within
thirty days thereafter, at Tenant's expense, by filing the bond required by law.
All fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner in Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the premises by Tenant
prior to the expiration of the lease, at Tenant's expense. Nothing in this
article shall be construed to give Owner title to or to prevent Tenant's removal
of trade fixture, moveable office furniture and equipment, but upon removal of
any such from the premises or upon removal of other installations as may be
required by Owner, Tenant shall immediately and at its expense, repair and
restore the premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such removal. All
property permitted or required to be removed, by Tenant at the term remaining in
the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises Owner, at Tenant's expense.
Maintenance 4. Tenant shall, throughout the term of this lease, take good care
and of the demise premises and the fixtures and appurtenances therein.
Repairs Tenant shall be responsible for all damage or injury to the demised
premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs caused
by or resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's subtenants, agents, employees, invitees or licensees, or which
arise out of any work, service or equipment done for or supplied to Tenant or
any subtenant or arising out of the installation, use or operation of the
property or equipment of Tenant or any subtenant. Tenant shall also repair all
damage to the building and the demised premises caused by the moving of Tenant's
fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's
expense, all repairs in and to the demised premises for which Tenant is
responsible, submitted by Owner. Any other repairs in or to the building or the
facilities and systems thereof for which Tenant is responsible shall be
performed by Owner at the Tenant's expense. Owner shall maintain in good working
order and repair the exterior and the structural portions of the building,
including the structural portions of its demised premises, and the public
portions of the building interior and the building plumbing, electrical, heating
and ventilating systems serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner may be
responsible hereunder. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract.
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The provisions of this Article 4 shall not apply in the case of fire or other
casualty which are dealt with in Article 9 hereof.
Window 5. Tenant will not clean nor require, permit, suffer or allow any
Cleaning window in the demised premises to be cleaned form the outside in
violation applicable law, ordinance, rule of regulation of any
governmental or guasi-governmental agency, board or body having jurisdiction
thereof.
Requirements 6. Prior to the commencement of the lease term, if Tenant is then
of Law, in possession, and at all times thereafter Tenant, at Tenant's sole
Fire cost and expense, shall promptly comply with all present and future
Insurance, laws, orders and regulations of all state, federal, municipal and
Floor local governments, departments, commissions and boards and any
Loads direction of any public officer pursuant to law, and all orders,
rules and regulations of the Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, (including Tenant's
permitted use) or, with respect to the building if arising out of Tenant's use
or manner of use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make structural repairs
or alterations unless Tenant has, by its manner of use of the demised premises
or method of operation therein, violated any such laws, ordinances, orders,
rules, regulations or requirements with respect thereto. Tenant may, after
securing Owner to Owner's satisfaction against all damages, interest, penalties
and expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to Owner,
contest and appeal any such laws, ordinances, orders, rules, regulations or
requirements provided same is done with all reasonable promptness and provided
such appeal shall not subject Owner to prosecution for a criminal offense or
constitute a default under any lease or mortgage under which Owner may be
obligated, or cause the demised premises or any part thereof to be condemned or
vacated. Tenant shall not do or permit any act or thing to be done in or to the
demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised premises or
the building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
actin or proceeding wherein Owner
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and Tenant are parties, a schedule or "make-up" of rate for the building or
demised premises issued by the Fire Insurance Exchange, or other body making
fire insurance rates applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in setting sufficient, in Owner's judgment, to
absorb and present vibration, noise and annoyance. *Connecticut
Subordination 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which demised premises are a part and
to all renewals, , consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by and ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Property-- 8. Owner or its agents shall not be liable for any damage to
Loss, Damage, property of Tenant or of others entrusted to employees of the
Reimbursement, building, nor for loss of or damage to any property of Tenant by
Indemnity theft or otherwise, nor for any injury or damage to persons or
property resulting from any cause of whatsoever nature, unless
caused by or due to the negligence of Owner, its agents, servants, or employees.
Owner or its agents will not be liable for any such damage caused by other
tenants or persons in, upon or about said building or caused by operations in
construction of any private, public or quasi public work..
If at anytime any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but not limited to Owner's
own acts, Owner shall not be liable for any damage Tenant may sustain thereby
and Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall indemnify and save harmless
Owner against and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Owner shall not be reimbursed by insurance,
including reasonable attorneys fees, paid, suffered or incurred as a result of
any breach by Tenant, Tenant's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this lease, or the carelessness,
negligence or improper conduct of the Tenant, Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this lease extends to
the acts and omissions of any sub-tenant, and any agent, contractor, employee,
invitee or licensee of any sub-tenant. In case any action or proceeding is
brought against Owner by reason of any such claim Tenant, upon written notice
from Owner, will, at Tenant's expense, resist or defend such action or
proceeding by counsel approved by Owner in writing, such approval not to be
reasonably withheld. See Article 44
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Destruction, 9. (a) If the demised premises are any part thereof shall be
Fire and Other damaged by fire or other casualty, Tenant shall give immediate
Casualty notice thereof to Owner and this lease shall continue in full
force and effect except as hereinafter set forth. (b) If the
demised premises are partially damaged or rendered partially unusable by fire or
other casualty, the damages thereto shall be repaired by and at the expense of
Owner and the rent, until such repair shall be substantially completed, shall be
apportioned from the day following the casualty according to the part of the
premises which usable. (c) If the demised premises are totally damaged or
rendered wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by Owner,
subject to Owner's right to elect not to restore the same as hereinafter
provided. (d) If the demised premises are rendered wholly unusable or (whether
or not the demised premises are damaged in whole or in part) if the building
shall be so damaged that Owner shall decide to demolish it or to rebuild it,
then, in any of such events, Owner may elect to terminate this lease by written
notice to Tenant, given within 90 days after such fire or casualty, specifying a
date for the expiration of the lease, which date shall not be more than 6- days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for tenant's occupancy. (e) Nothing contained herein above
shall relieve tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, each party shall look
first to any insurance in its favor before making any claims against the other
party for recovery for loss or damage resulting from fire or other casualty, and
to the extent that such insurance is in force and collectible and to the extent
permitted by law, owner and tenant each hereby releases and waives all right of
recover against the other or anyone claiming through or under each of them by
way of subrogation oar otherwise. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance. If, and to the
extent that such a waiver can be obtained only by the payment of additional
premiums, then the party benefiting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and/or furnishings or
any fixtures or equipment, improvements, or appurtenances removable to Tenant
and agrees that Owner will not be obligated to repair any damages thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of
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the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
Eminent 10. If the whole or any part of the demised premises shall be
Domain acquired or condemned by Eminent Domain for any public or quasi
public use or purpose, then and in that event, the term of this
lease shall case and terminate from the date that event, the term of this lease
shall cease and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of said lease and
assigns to Owner, Tenant's entire interest in any such award.
Assignment, 11. Tenant, for itself, its heirs, distributees, executors,
Mortgage, administrators, legal representatives, successors and assigns,
Etc. expressly covenants that it shall not assign, mortgage or encumber
this agreement, nor underlet, or suffer or permit the demised
premises or any part thereof to be used by others, without the prior written
consent of Owner in each instance. Transfer of the majority of the stock of a
corporate Tenant shall be deemed an assignment. If this lease be assigned, or if
the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
anywise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Tenant covenants and agrees that at all times its use of electric current
shall not exceed the capacity of existing feeders to the building or the risers
or wiring installation and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no wise make Owner liable
or responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to 13. Owner or Owner's agents shall have the right (but shall not be
Premises obligated) to enter the demised premises in any emergency at any
time, and, at other reasonable times, to examine the same and to
make such repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits in and through the demised premises
and to erect new pipes and conduits therein provided they are concealed within
the walls, floor or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter to demised premises at reasonable
hours for the purpose of showing the same to prospective purchasers or
mortgagees of the building, and during
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the last six months of the term for the purpose of showing the same to
prospective tenants. If Tenant is not present to open and permit an entry in to
the premises, the Owner's agents may enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom. Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
Occupancy 15. Tenant will not at any time use or occupy the demised premises
in violation of the certificate of occupancy issued for the
building of which the demised premises are a part. Tenant has
inspected the premises and accepts them as is, subject to the riders annexed
hereto with respect to Owner's work, if any. In any event, Owner makes no
representation as to the condition of the premises and Tenant agrees to accept
the same subject to violations, whether or not of record.
Bankruptcy 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the
sending of a written notice to Tenant within a reasonable time
after the happening of any one or more of the following events: (1) the
commencement of a case in bankruptcy or under the laws of any state naming
Tenant as the debtor; or (2) the making by Tenant of an assignment or any other
arrangement for the benefit of creditors under any state statute. Neither Tenant
nor any person claiming through or under Tenant, or by reason of any statute or
order of court, shall thereafter be entitled to possession of the premises
demised but shall forthwith quit and surrender the premises. If this lease shall
be assigned in accordance with its terms., the provisions of this Article 16
shall be applicable only to the party then owning Tenant's interest in this
lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the reserved hereunder for the un-expired portion of the term
demised and the fair and reasonable rental value of the demised premises for the
same period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the un-expired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part of the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are
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to be proved, whether or not such amount be greater, equal to, or less than the
amount of the difference referred to above.
Default 17. (1) If Tenant defaults in fulfilling any of the covenant of
this lease other than the covenants for the payment of rent
or additional rent: or if the demised premises becomes vacant or deserted; or if
any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if this lease be rejected under (S)235 of Title 11 of the
U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take
possession of the premises within ten (1) days after the commencement of the
term of this lease, then, in any one or more of such events, upon Owner serving
a written five (5) days notice upon Tenant specifying the nature of said default
and upon the expiration of said five (5) days. If /1/Tenant shall have failed to
comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said five (5) day period, and if Tenant shall not have
diligently commenced during such default within such five (5) day period, and
shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) day period were the
day herein definitely fixed for the end and expiration of this lease and the
term thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid: or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required:
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and disposes Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby wives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice. (See Article 57)
Remedies of 18. In case of any such default, re-entry, expiration
Owner and and/or dispossess by summary proceedings or otherwise, (a) the
Waiver of rent shall become due thereupon and be paid up to the time of
Redemption such re-entry, dispossess and/or expiration, (b) Owner may re-let
the premises or any part or parts thereof, either in the name of
Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay
_____________________
/1/ Following the receipt of such notice
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Owner as liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorney's fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency of any subsequent month by a similar proceeding. Owner in
putting the demised premises in good order or preparing the same for re-rental
may, at Owner's option, make such alterations, repairs, replacements, and/or
decorations in the demised premises as Owner, in Owner's sole judgment considers
advisable an d necessary for the purpose of re-letting the demised premises, and
the making of such alterations, repairs, replacements, and/or decorations shall
not operate or be construed to release Tenant from liability hereunder as
aforesaid. Owner shall in no event be liable in any way whatsoever for failure
to re-let, the demised premises, or in the event that the demised premises are
re-let, for failure to collect the rent thereof under such re-letting, and in no
event shall Tenant be entitled to receive any excess, if any, of such net rents
collected over the sums payable by Tenant to Owner hereunder. In the event of a
breach or threatened breach by Tenant of any of the covenants or provisions
hereof, Owner shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this lease of any particular
remedy, shall not preclude Owner from any other remedy, in law or in equity.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Owner obtaining possession of
demised premises, by reason of the violation by Tenant of any of the covenants
and conditions of this lease, or otherwise./2/
Fees and 19. If Tenant shall default in the observance or performance of
Expenses any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any
article of this lease, then, unless otherwise provided
elsewhere in this lease, Owner may immediately or at nay time thereafter and
without notice perform the obligation of Tenant thereunder. If Owner in
connection with the foregoing or in connection with any default by Tenant in the
covenant to pay rent hereunder, makes any expenditures or incurs any obligations
for the payment of money,
__________________
/2/ It is stipulated and agreed that, in the event of any default by Tenant,
Owner shall notwithstanding any other provision of this Lease to the contrary,
at it's option and in addition to any and all other rights and remedies herein
and at law, be entitled to recover from Tenant as and for liquidated damages; an
amount equal to the difference between the rent reserved hereunder for the un-
expired portion of the term and the fair and reasonable rental value of the
demised premises for the same period calculated in accordance with the
provisions of Article 16 (b).
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including but not limited to attorney's fees, in instituting, prosecuting or
defending any action or proceeding, then Tenant will reimburse Owner for such
sums so paid or obligations incurred with interest and costs. The foregoing
expenses incurred by reason of Tenant's default shall be deemed to be additional
rent hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
Building 20. Owner shall have the right at any time without the same
Alterations constituting an eviction and without incurring liability to
and Tenant therefor to change the arrangement and/or location of
Management public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets or other public parts of the building
and to change the name, number or designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claim against Owner by reason of Owner's
imposition of such controls of the manner of access to the building by Tenant's
social or business visitors as the Owner may deem necessary for the security of
the building and its occupants.
No Repre- 21. Neither Owner nor Owner's agents have made any
sentations representations or promises with respect to the physical
by Owner condition of the building, the land upon which it is erected or
the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the premises except as
expressly set forth in the provisions of this lease. Tenant has inspected the
building and the demised premises and is thoroughly acquainted with their
condition and agrees to take the same "as is" and acknowledges that the taking
of possession of the demised premises by Tenant shall be conclusive evidence
that the said premises and the building of which the same form a part were in
good and satisfactory condition at the time such possession was so taken, except
as to latent defects. All understandings and agreements heretofore made between
the parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, dischargeor abandonment is sought.
End of
Term 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised
premises, broom clean, in good order and condition, ordinary wear and damages
which Tenant is not required to repair as provided elsewhere in this lease
excepted, and Tenant shall remove all its property. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this Lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
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Quiet 23. Owner covenants and agrees with Tenant that upon Tenant
Enjoyment: paying the rent and additional rent and observing and performing
all the terms, covenants and conditions, on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions of this lease
including, but not limited to, Article 31 hereof and to the ground leases,
underlying leases and mortgages hereinbefore mentioned.
No. Waiver: 24. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition
of this lease or of any of the Rules or Regulations, set forth or
hereafter adopted by Owner, shall not 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 Owner of rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of key to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of 25. It is mutually agreed by and between Owner and Tenant that
Trial by Jury: the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or
__________________________________ counter-claim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant. Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
Inability to 26. This Lease and the obligation of Tenant to pay rent
Perform: hereunder and perform all of the other covenants and agreements
hereunder on part of Tenant to be performed shall in no wise be
affected, impaired or excused because Owner is unable to fulfill any of its
obligations under this lease or to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repair, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Owner is prevented or
delayed from so doing by reason of strike or labor
11
<PAGE>
troubles or any cause whatsoever including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency.
Bills and 27. Except as otherwise in this lease provided, a bill,
Notices: statement, notice or communication which Owner may desire or be
required to give to Tenant, shall be deemed sufficiently given or
rendered if, in writing, delivered to Tenant personally or sent by registered or
certified mail addressed to Tenant at the building of which the demised premises
form a part or at the last known residence address or business address of Tenant
or left at any of the aforesaid premises addressed to Tenant, and the time of
the rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant
to Owner must be served by registered or certified mail addressed to Owner at
the address first hereinabove given or at such other address as Owner shall
designate by written notice.* With a copy sent to Spitzer & Feldman, P.C. 405
Park Avenue, New York, N.Y. 10022, Attn: M. James Spitzer, Jr., Esq.
Services 28. As long as Tenant is not in default under any of the
Provided by covenants of this lease, Owners shall provide: (a) necessary
Owners: elevator facilities on business days from 8 a.m. 10 6 p.m. and
on Saturdays from 8 a.m. to 1 p.m. and have one elevator subject
to call at all other times; (b) heat to the demised premises when and as
required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8
a.m. to 1 p.m.; (c) cleaning service for the demised premises on business days
at Owner's expense provided that the same are kept in order by Tenant. If,
however, said premises are to be kept clean by Tenant, it shall be done at
Tenant's sole expense, in a manner satisfactory to Owner and no one other than
persons approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall pay Owner the
cost of removal of any of Tenant's refuse and rubbish from the building; (d) if
the demised premises is serviced by Owner's air conditioning/cooling and
ventilating system, air conditioning/cooling will be furnished to tenant from
May 15th through September 30th on business days (Mondays through Fridays,
holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be
furnished on business days during the aforesaid hours except when air
conditioning/cooling is being furnished as aforesaid. If Tenant requires air
conditioning/cooling or ventilation for more extended hours or on Saturdays,
Sundays or on holidays, as defined, Owner will furnish the same at Tenant's
expense. RIDER to be added in respect to rates and conditions for such
additional service; (e) Owner reserves the right to copy services of the
heating, elevators, plumbing, air-conditioning power systems or cleaning or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner at any time may substitute automatic control elevator
service and upon ten days' written notice to Tenant, proceed with alterations
necessary therefor without in any wise affecting this lease or the obligation of
Tenant hereunder. The same shall be done with a minimum of inconvenience to
Tenant and Owner shall pursue the alteration with due diligence. See Articles 42
& 55.
12
<PAGE>
Captions: 29. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the
scope of this lease nor the intent of any provisions thereof.
Definitions: 30. The term "office", or "offices", wherever used in this
lease, shall not be construed to mean premises used as a store
or stores, for the sale or display, at any time, of goods, wares or merchandise,
of any kind, or as a restaurant, shop, booth, bootblack or other stand, barber
shop, or for other similar purposes or for manufacturing. The term "Owner" means
a landlord or lessor, and as used in this lease means only the owner, or the
mortgagee in possession, for the time being of the land and building (or the
owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Owner shall be and hereby is entirely
freed and relieved of all covenants and obligations of Owner hereunder, and it
shall be deemed and construed without further agreement between the parties or
their successors in interest, or between the parties and the purchaser, at any
such sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry out
any and all covenants and obligations of Owner, hereunder. The words "re-enter"
and "re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
Adjacent 31. If an excavation shall be made upon land adjacent to the
Excavation- demised premises, or shall be authorized to be made. Tenant shall
Shoring: afford to the person causing or authorized to cause such
excavation, license to enter upon the demised premises for the
purpose of doing such work as said person shall deem necessary to preserve the
wall or the building of which demised premises form a part from injury or damage
and to support the same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent.
Rules and 32. Tenant and Tenant's servants, employees, agents, visitors,
Regulations: and licensees shall observe faithfully, and comply strictly with,
the Rules and Regulations and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional rules or regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10 days after
the giving of
13
<PAGE>
notice thereof. Nothing in this lease contained shall be construed
to impose upon Owner any duty or obligation to enforce the rules and Regulations
or terms, covenants or conditions in any other lease, as against any other
tenant and Owner shall not be liable to Tenant for violation of the same by any
other tenant, its servants, employees, agents, visitors or licensees. See
Exhibit A
Security: 34. Tenant has deposited with Owner the sum of $________________
as security for the faithful performance and observance by Tenant
of the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants, and conditions, this least, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants of this lease, the security shall
be returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Owner, In the event of
a sale of the land and building or leasing of the building, of which the demised
premises form a part Owner shall have the right to transfer the security to the
vender or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; an Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor his successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted
encumbrance./3/
Estoppel 35. Tenant, at any time, and from time to time, upon at least 10
Certificate days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person, firm or corporation
specified by Owner, a statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been modification, that the same is in
full force and effect as modified and stating the modification), stating the
dates to which the rent and additional rent have been paid, and stating whether
or not there exists any default by Owner under this Lease, and if so specify
each such default.
Successors 36. The covenants, conditions and agreements contained in this
and Assigns: lease shall bind and inure to the benefit of Owner and Tenant and
their respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their assigns.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
______________
/3/ Promptly and such other information as shall be requested by Owner.
14
<PAGE>
Witness for Owner:
/s/ Carmen M. Aguillera /s/ Norman E. Dimson
- ----------------------------------- -----------------------------------
Branford Corporation
Witness for Tenant:
/s/ Karen M. Seliga /s/ Jonathan M. Rothberg
- ----------------------------------- -----------------------------------
CuraGen Corporation
15
<PAGE>
Exhibit 10.3
------------
Sid Martin
Biotechnology Development Institute
INCUBATOR LICENSE AGREEMENT
THIS AGREEMENT, made this 15th day of July, 1997, between CuraGen Corporation
("Licensee") and the University of Florida Research Foundation, Inc., a Florida
not for profit corporation ("UFRFI") in Gainesville, Florida.
WHEREAS, the University of Florida ("University") has established the
Biotechnology Development Institute ("BDI") which seeks to encourage the
development of early-stage companies whose technology relates in the molecular
life sciences by providing incubator resources which will foster that
development (the "Incubator Program"); and
WHEREAS, the BDI Building has been constructed at the Progress Park in Alachua,
Florida, to provide facilities for the Incubator Program; and
WHEREAS, UFRFI has agreed to manage certain activities of the Incubator Program,
including licensing and managing space in the BDI Building, (as shown on the
plan attached as Exhibit A) and other services as more particularly described
herein; and
WHEREAS, Licensee has submitted an application for admission to the BDI
Incubator Program and has submitted or is developing a business plan in support
of that application; and
WHEREAS, UFRFI, upon review of Licensee's application and supporting
documentation has accepted Licensee's application for participation in the BDI
Incubator Program; and
WHEREAS, Licensee is desirous of being the recipient of resources to be made
available to the participants in the BDI Incubator Program;
NOW, THEREFORE, in consideration of the mutual covenants and agreements in this
Agreement, the parties agree as follows:
1. License Grant. UFRFI grants to Licensee and Licensee hereby accepts a
-------------
license to use the space or spaces located within the BDI Building, the exact
location and area allowances of which are as indicated in Attachment A (the
"Licensed Space"). UFRFI shall also make available the following resources and
facilities:
(a) Shared Facilities. UFRFI will provide a centralized reception and
-----------------
administrative support suite and limited secretarial services. Other services
and facilities will include access to centralized mail handling, certain library
and reference materials, a copying machine, a fax machine, and limited
transportation between the BDI Building and the University campus. In addition,
the BDI Building will contain a central instrumentation lab for common equipment
usage, common use cold rooms, autoclaves, and dark room, a 600 sq. ft.
greenhouse, support facilities for media preparation, small-scale fermentation
experiments, and glassware washing. Such services and facilities will be made
available to Licensee on a shared basis with other occupants of the BDI Building
and others, and, as such, Licensee understands that UFRFI will make such
services available on a reasonable, best efforts basis, as determined at the
sole discretion of the Incubator Manager.
(b) "If Available" Shared Facilities. UFRFI will provide Licensee on an "if
--------------------------------
available" basis the use of a conference room within the BDI Building together
with certain audio visual equipment.
<PAGE>
(c) Communications Connections. UFRFI shall provide wiring and jacks for one (1)
--------------------------
telephone and one (1) computer and network hook-up within each office or lab in
the Licensed Space. Licensee shall pay any additional costs associated with
telephone(s) including, but not limited to, service initiation charges, monthly
service charges, voice mail charges, long distance charges, and e-mail or
connect time charges. Any replacement or upgrading of equipment or service
shall be at the expense of Licensee and only with the prior written approval of
the Incubator Manager. UFRFI will provide the wiring for computer network
link-up to the wall outlet at no charge. However, a communications circuit
accessory linecord to the T-1 connection is required to access network services
and can be provided by UFRFI to the licensee for an additional charge. This
charge will be added to the monthly invoice following its installation.
(d) Utilities. UFRFI shall provide Licensee with electric, gas, water,
---------
analytical grade deionized water, and sewer service for seven days per week of
normal office or laboratory use. BDI shall also supply normal refuse (paper,
cardboard, aluminum, etc.) disposal during business days. Normal and reasonable
janitorial service shall be provided by UFRFI. If Licensee makes excessive use
of the facilities as determined by the Incubator Manager in his or her sole
discretion, the costs of such excessive use shall be borne by Licensee as
additional cash license fees as described in paragraph 3(c) below.
(e) Lab and Office Equipment. Upon request of Licensee, UFRFI shall use its
-----------------------
best efforts to provide for use within the Licensed Space such lab and office
equipment as set forth on Attachment A. Such furnishings and equipment shall be
selected by UFRFI. Any changes in carpet, installed equipment, or any structural
changes in the Licensed Space shall be implemented only with the prior written
approval of the Incubator Manager, and at the exclusive expense of Licensee.
(f) Core Laboratories and other Resources. UFRFI will use its best efforts, but
-------------------------------------
does not guarantee, to provide Licensee with access to certain Biotechnology
Program resources upon request by Licensee, including access to the
Biotechnology Program Core Laboratory Services, and transportation for samples
and reagents between campus-based laboratories and facilities and the BDI
Building. Licensee may, at UFRFI's discretion, have access to disclosure,
patent, or technology transfer training. Payment of service fees relating to
such resources, if any, shall be the sole responsibility of Licensee.
(g) Damage to Facilities. In the event that any licensed facilities, equipment,
--------------------
or any other UFRFI or University property is damaged or destroyed through
misuse, or negligence by Licensee, UFRFI may make the required repairs or
replacement of damaged property and shall provide Licensee with an invoice
representing the loss to UFRFI or the University (whether replaced or repaired
or otherwise), said invoice to be due and payable by Licensee in accordance with
its terms. In the event that normal maintenance or repair is required for said
facilities, equipment, or UFRFI or University property, Licensee shall notify
the Incubator Manager, who is the sole person authorized to arrange for such
service. The cost for any unauthorized repairs ordered by Licensee shall be
borne exclusively by Licensee. All other costs of maintenance and repair shall
be borne by UFRFI.
2. Scheduling of Use of University Campus Facilities. The Incubator Manager will
-------------------------------------------------
assist the Licensee to identify and access University of Florida facilities on
the main campus as needed.
3. License Fees; Term. The term of this Agreement and Licensee's obligation to
------------------
pay a license fee (consisting of monthly cash payments, additional license fees,
if any, and a supplementary license fee) are as provided below.
(a) License Fees. Cash payments shall commence on the 1/st/ day of August, 1997,
------------
(the "Effective Date"), and thereafter the license fee shall be paid in equal
monthly installments on or before the first day of each month during the term,
in advance, to the UFRFI at its offices at 109 Grintor Hall, Gainesville,
Florida 32611-2037, unless UFRFI designates another place. The license fee shall
be paid without abatement, deduction, or set off for any reason.
2
<PAGE>
The cash license fee during the term of this license shall be payable by
Licensee as follows:
Initial Term: Licensee will pay $11.00 per square foot per year for 2929 square
- ------------
feet during the period from August 1, 1997 to July 31, 1998 at $2684.92 per
month.
Renewal years: Licensee shall have the option to extend this license for two
- -------------
successive one year terms on all the same terms as the initial term.
Licensee shall notify UFRFI of its exercise ninety (90) days before expiration
of the current term.
(b) Additional License Fees. Unless otherwise agreed to, the cost of any
-----------------------
services or resources requested by the Licensee, and provided by BDI or the
University not indicated in Section 1 above shall be borne by Licensee. Licensee
shall be billed separately for said additional services or resources as
additional cash license fees, payment for which shall be due and payable within
thirty (30) days.
4. Supplementary License Fee. In further consideration for UFRFI's entering into
-------------------------
this Agreement, Licensee shall pay a supplementary license fee to UFRFI for the
use of space in the BDI. The supplementary license fee shall be calculated at
the rate of $8.00 per square foot of Licensed Space per year of licensed
occupancy. The supplementary license fee shall be paid as follows:
Licensee shall pay the supplementary license fee in cash. Such
payment shall be made in 12 equal installments at the same time and subject to
the same conditions as the License Fees referred to in Section 3 above.
Licensee will pay $8.00 per square foot per year for 2929 square
feet during the period from August 1, 1997 to July 31, 1998 at $1952.67 per
month.
5. Termination. Nothing herein shall relieve either party of any outstanding
-----------
obligation incurred pursuant to this Agreement prior to any termination except
as expressly set forth in Section 5(a) herein. The parties understand that this
Agreement constitutes a license, not a lease, and that the relationship of the
parties hereunder is that of licensor and licensee, and not that of landlord and
tenant, but is always subject to the express terms of this agreement, including,
without limitation, the prohibition against termination without cause set forth
in section 5(c) herein. The facilities, equipment, and Licensed Space licensed
hereunder are licensed for the purpose of furthering Licensee's business
objectives as approved by UFRFI. Pertinent portions of Licensee's business plan,
including its business objectives and financial progress reports are attached as
Attachment C.
(a) Notices and Time Periods. Notwithstanding anything in this license agreement
------------------------
or applicable laws to the contrary, this license may not be terminated except,
in the event of default by either party hereto and then only after notice and
time periods as follows:
In the event of payment defaults, the breaching party shall
have ten (10) days written notice to cure. In the event of defaults other than
as to payments, the breaching party shall have thirty (30) days written notice
to cure, provided that if such method is not susceptible of cure within thirty
days, so long as the breaching party has commenced its cure within said thirty
(30) day period and is diligently pursuing a cure to such breach, so termination
is permitted.
(b) Consequences of Certain Terminations. If this Agreement is terminated by
------------------------------------
UFRFI due to default of the Licensee not cured within the time period in section
5(a) above at any time during the initial or any renewal term, then the license
fee and supplementary license fee shall be reduced by a factor of which the
numerator is the number of months remaining in the term and the denominator is
the total number of months originally in said term.
(c) Termination Without Cause. Neither party may terminate this agreement
--------------------------
without cause.
3
<PAGE>
6. Indemnification. Licensee shall at all times during the term of this
---------------
Agreement and thereafter, indemnify, defend and hold the University of Florida
Research Foundation, Inc., the University, the Board of Regents of the State of
Florida, the State of Florida and the board members, officers, employees, and
affiliates of any of these entities (hereinafter "Indemnities"), harmless
against all claims and expenses, including legal expenses and reasonable
attorneys' fees, whether arising from a third party claim or resulting from
UFRFI's enforcing this indemnification clause against Licensee, or arising out
of the death of or injury to any person or persons or out of any damage to
property and against any other claim, proceeding, demand, expense, or liability
of any kind whatsoever but only if resulting from the Licensee's occupancy of
the Licensed Space, the use of any University services or resources, arising
from any right or obligation of Licensee hereunder, or arising out of Licensee's
business plan, or research involving, without limitation, the use of animals,
human subjects, or biohazardous materials. This indemnification shall not apply
to any liability, damage, loss, or expense to the extent that it is attributable
to the negligence or intentional wrongdoing of the Indemnities. Licensee shall,
at its own expense, provide attorneys reasonably acceptable to UFRFI to defend
against any actions brought or filed against any party indemnified hereunder
with respect to the subject of indemnity contained herein, whether or not such
actions are rightfully brought.
7. Insurance. During the term of this Agreement, Licensee shall, at its sole
---------
cost and expense, procure and maintain policies of comprehensive general
liability insurance naming the Indemnities as additional insureds.
(a) Comprehensive General Liability. The comprehensive general liability
-------------------------------
insurance shall provide broad form contractual liability coverage for Licensee's
indemnification under this Section 6 in the following minimum amounts:
(i) comprehensive liability (personal injury, including death): $500,000 per
claim and $1,000,000 per occurrence and;
(ii) property damage: $500,000 per claim and $1,000,000 per occurrence.
(b) Self-Insurance. If Licensee elects to self-insure, such self-insurance
--------------
program must be acceptable to UFRFI.
(c) Other Insurance. Licensee shall obtain and keep in force all worker's
---------------
compensation insurance required under the laws of the State of Florida, and such
other insurance as may be necessary to protect Indemnities against any other
liability of person or property arising hereunder by operations of law, whether
such law is now in force or is adopted subsequent to the Effective Date.
(d) Cancellation: Replacement Insurance. Licensee shall provide UFRFI with
-----------------------------------
written evidence of such insurance upon request, and shall provide UFRFI with
written notice at least 45 days prior to the cancellation, non-renewal, or
material change in such comprehensive general liability insurance; if Licensee
does not obtain replacement insurance providing comparable coverage within such
45 day period, or provide self-insurance satisfactory to UFRFI, UFRFI shall have
the right to terminate this Agreement.
(e) Assumption of risk. Each party assumes any and all risks of personal injury
------------------
and property damage attributable to the negligent acts or omissions of that
party and the officers, employees and agents thereof.
(f) Non-exclusive remedies. Except as otherwise provided in this license
----------------------
agreement, nothing contained herein shall be construed or interpreted as denying
to either party any remedy or defense available to such party under the laws of
the State of Florida.
(g) The BDI Building and its University-owned property is protected from
catastrophic loss by the Florida Fire Insurance Trust Fund, a State of Florida
self-insurance fund. In the event of loss of Licensee's equipment and
disposables, replacement will be the sole responsibility of the Licensee.
(h) Licensee or Licensor shall not be responsible to the other, or any other
party for consequential damages.
4
<PAGE>
8. Destruction of Space. If the Licensed Space is totally destroyed (or so
--------------------
substantially damaged as to be inhabitable) by storm, fire, earthquake, or other
casualty, this Agreement shall terminate as of the date of such destruction or
damage, and license fees shall be accounted for as between UFRFI and Licensee as
of that date. If the Licensed Space is damaged but not rendered wholly
inhabitable by any such casualty or casualties, license fees shall abate in
such proportion as the use of the Licensed Space has been destroyed until UFRFI
has restored the Licensed Space to substantially the same condition as before
damage, whereupon full license fees shall commence. Nothing contained herein
shall require UFRFI to make such restoration, however, if not deemed advisable
in its reasonable judgement. UFRFI shall make its intentions to restore or not
to restore said Licensed Space to original condition known to Licensee in
writing, within thirty (30) days of such occurrence. If UFRFI decides against
such reconstruction or fails to provide such notice, Licensee may, at its
option, cancel this Agreement.
9. Maintenance: Survey. The Licensed Space shall be maintained in its original
-------------------
condition to the reasonable satisfaction of UFRFI, normal wear and tear and
damage by fire or other casualty excepted. Prior to the Effective Date, a joint
survey of the Licensed Space and equipment, indicating its exact condition,
shall be made by representatives of both Licensee and UFRFI. A written report of
said survey shall be attached hereto and be made also upon termination of this
Agreement. In the event that the facilities incur any loss or damage caused by
Licensee and not excepted by this section or any other section of this license
agreement, Licensee shall return the Licensed Space to its original condition to
the satisfaction of UFRFI. Otherwise, UFRFI shall make the required repairs or
replacement of damaged property, and shall provide Licensee with an invoice due
and payable within thirty (30) days. Licensee, under this Section, is deemed to
have accepted the Licensed Space in the condition existing on the Effective
Date. Licensee is not liable for losses or damage to the Licensed Space,
furnishings, or equipment to the extent caused by acts or negligence of UFRFI
or the University.
10. Occupancy Fee. Licensee shall pay to UFRFI a non-refundable sum of $200.00
-------------
to cover minor adaptations and other incidental expenses related to the
occupancy of the Licensee. The Occupancy Fee shall be paid as an addition to the
first month's payment.
(a) Additional Occupancy Fee(s). If, at any time, Licensee fails to fully,
---------------------------
faithfully, and punctually perform any of the terms, covenants, and conditions
contained herein, UFRFI shall in no way be precluded from recovering in addition
to the said occupancy fee, any other direct (but not consequential) damages or
expenses that UFRFI may suffer by reason of any violation by Licensee's terms,
covenants, and conditions contained herein.
11. Interruption of Business. Except as specified in Section 8, neither the
-----------------------
University nor UFRFI shall be responsible to Licensee for any damages or
inconvenience caused by interruption of business or inability to occupy the
Licensed Space for any reason whatsoever, providing that, Licensee shall be
credited with the cash license fee and the supplementary license fee on a pro
rata basis for any working day period, of interruption.
12. No Assignment. This Agreement is not assignable without the prior written
-------------
consent of UFRFI, and any attempt to do so shall be void, except the Licensee
may assign its rights hereunder to any entirety controlling, controlled by, or
under common control with Licensee, or to any entity acquiring majority of
Licensees stock or assets.
13. Qualification for Incubator: Non-Interference: Animal or Human Research:
------------------------------------------------------------------------
Toxic Materials. Licensee's admittance to the Incubator Program is based, in
- ---------------
part, on UFRFI's review of Licensee's business concept, objectives, and plans as
presented in the BDI license application and related documents. Use of the
Licensed Space and other facilities, furnishings, equipment, and services made
available to Licensee by UFRFI or the University shall be in furtherance of
Licensee's business concept, objectives, and plans, and shall not be in
furtherance of any illicit or illegal purposes, or purposes not consistent with
Licensee's business concept, objectives, and plans. Licensee's use of the
Licensed Space and the equipment, furnishings, and services available under this
Agreement shall not interfere, in any manner, with use by other licensees or
occupants of nearby facilities and equipment. Research involving the use of
animals, or human subjects, by Licensee is not permitted unless consented to in
writing by BDI, and then only in the manner prescribed by UFRFI.
5
<PAGE>
14. Compliance with University and UFRFI Policies: Requirements. Licensee
-----------------------------------------------------------
shall comply with all applicable UFRFI and University rules and policies,
including policies relating to human and animal subjects, recombinant DNA/RNA
practices, biohazards, and radiation safety, as well as federal, state, or
local laws, ordinances, codes, rules, permits, leasing conditions, and
regulations, including any amendments thereto (collectively, the
"Requirements"), in its use of this Licensed Space, and shall procure, at its
expense, any licenses, permits, insurance, and government approvals necessary to
the operation of its business. The discussion hereunder of specific rules,
regulations and laws shall not be construed to lessen in any way the obligation
of the Licensee to follow all applicable rules, regulations and laws, including
without limitation, the guidelines and policies of the University Division of
Environmental Health and Safety.
(a) Certain Federal Statutes. "Hazardous substance" as used herein includes any
------------------------
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 96011,et seq., including any
amendments thereto ("CERCLA"), any substance, waste, or other material
considered hazardous, dangerous, or toxic under any of the Requirements,
petroleum and petroleum products, and natural gas. "Release" as used herein
means any intentional or unintentional spilling, pumping, emitting, emptying,
discharging, escaping, leading, dumping, disposing, or abandonment of any
hazardous substance. Licensee shall comply with all Requirements governing the
discharge, release, emission, or disposal of any hazardous substance and
prescribing methods for or other limitations on storing, handling, or otherwise
managing hazardous substances including, but not limited to, the then current
versions of the following federal statutes, any Florida analogs, and the
regulations implementing them: the Resource Conservation and Recovery Act (42
U.S.C. (S) 6901, et seq.): CERCLA; the Clean Water Act (33 U.S.C. (S) 1251, et
seq.): the Clean Air Act (42 U.S.C. (S) 7401, et seq,); and the Toxic Substances
Control Act (15 U.S.C. (S) 2601, et seq.). Licensee shall comply with all
requirements of the Animal Welfare Act (7 U.S.C. (S) 2131, et seq.) at the same
may be amended, and all similar federal, state, and local laws, codes,
ordinances, and regulations.
(b) Hazardous Substances; Disposal. Licensee covenants and agrees that it will
------------------------------
not use or allow the Licensed Space to be used for the storage, use, treatment,
disposal, or other handling of any hazardous substance without the prior written
consent of UFRFI. Attached to the License as Attachment D is a list prepared by
Licensee identifying the hazardous substances which Licensee intends to use and
store in the premises and setting forth the quantity, use, and location thereof.
UFRFI hereby permits Licensee to use and store the hazardous substances set
forth on Attachment D within the Licensed Space, provided that Licensee
complies in all respect with the Requirements and this Section and that such
hazardous substances are not disposed of in the sanitary sewer system of the BDI
building unless the Requirements permit and the UFRFI has consented to such
method of disposal in writing, having determined UFRFI's sole and absolute
discretion that such disposal will not harm the sanitary sewer piping. Licensee
shall request in writing UFRFI's written approval before the introduction of any
additional hazardous substance or biological use, handling, treatment, storage,
or disposal in the Licensed Space is undertaken. Such request shall set forth a
description of the hazardous substance or biological involved, the maximum
quantity to be present in the Licensed Space at any time, its location within
the Licensed Space, and its use in Licensee's business. The Incubator Manager or
his or her designee will expedite the request for the introduction of hazardous
substances to the office of Environmental Health and Safety for approval and
will inform the licensee of the outcome for approval as soon as the Incubator
Manager and his or her designee receives notification. Licensee covenants and
agrees to assume the responsibility for the cost and disposal of hazardous
chemicals created by their research during their tenancy at the BDI building,
within 180 days of their initial storage. Designated storage areas will be
provided by UFRFI within the BDI building. Chemicals for disposal must be
labeled and packaged in accordance and compliance with University Environmental
Health and Safety regulations and guidelines for storage and disposal of
hazardous chemicals. UFRFI assumes no liability for hazards or spills created by
the licensees inside or outside of the BDI building, or during the storage of
hazardous chemicals with a private firm or entity after such chemicals are
removed from the BDI building.
(c) Violations. Licensee shall take all steps necessary to remedy any violation
----------
of any Requirements by the Licensee whether or not a citation or other notice of
violation has been issued by a governmental authority. Licensee shall at its own
expense, promptly contain and remediate any release of hazardous substances
arising
6
<PAGE>
from or related to Licensee's hazardous substance activity to the Licensed
Space, the BDI Building, or the environment and remediate any resultant damage
to the property, persons, or the environment.
(d) Environmental Inspections. UFRFI, reserves the right to periodically conduct
-------------------------
an environmental and safety inspection of the Licensed Space and areas beyond
such space, where necessary, such as HVAC system and the laboratory exhaust
venting system. UFRFI will use best efforts to provide advance notice of such
inspections, and coordinate with the Licensee's designee concerning Licensee's
security and operational rules and procedures. The scope of such inspection may
include, but not be limited to, having the fume hoods tested and inspected.
Licensee shall give prompt written notice to UFRFI of any release of any
hazardous substance in the Licensed Space, the BDI Building or the environment
and made in conformance with the Requirements, including a description of
remediation measures and any resulting damage to persons, property, or the
environment. Licensee shall upon expiration or termination of this License,
surrender the Licensed Space to UFRFI free from the presence and contamination
of any hazardous substance. Following any breach by Licensee of the
Requirements of this Section, or any reasonable safety or environmental concern
by UFRFI, UFRFI may withdraw its consent to Licensee's hazardous substance
activity (or any portion thereof) by written notice to Licensee. Licensee shall
terminate its hazardous substance activity immediately upon notice and remove
all hazardous substances from the Licensed Space within 15 days from the date of
such notice unless such breach or concern is promptly addressed and corrected by
Licensee to UFRFI's sole satisfaction. Licensee shall indemnify, hold harmless
and (at UFRFI's option) defend the University or UFRFI, their agents and
employees, from and against all claims, actions, losses, costs and expenses
(including attorneys' and other professional fees), judgments, settlement
payments, and, whether or not reduced to final judgment, all liabilities,
damages, or fines paid, incurred, or suffered by such parties in connection with
loss of life, personal injury, or damage to property or the environment to the
extent arising, wholly or in part, from any conduct, activity, act, omission, or
operation involving the use, handling, generation, treatment, storage, disposal,
other management or release of any hazardous substance at, from, or to the
Licensed Space, whether or not Licensee has acted negligently with respect to
such hazardous substance. Licensee's obligations and liabilities hereunder
shall survive the expiration or other termination of this License.
15. UFRFI's Control of Facilities. Notwithstanding anything to the contrary
-----------------------------
herein, UFRFI reserves the right at all times to enter licensed space for the
purpose of enforcing all applicable necessary laws, rules, and regulations of
the University or the State of Florida. UFRFI will make best effort to provide
advanced notice of such inspections, and coordinate with the Licensee's designee
concerning Licensee's security and operational rules and procedures.
16. Research Program Review. Within ninety (90) days of termination of the
-----------------------
initial terms and each of the two successive renewal terms (if exercised)
Licensee agrees to review its current research program at the BDI with UFRFI.
Such review is intended solely to insure that the Licensee's activities and
operations at the BDI are in material compliance with the Licensee's original
application and intentions as outlined in Attachment C, and are in accord with
the BDI's objectives to support research and development by startup companies
involved in biotechnology. If, in UFRFI's reasonable discretion, the Licensee
is not sufficiently in accord with these requirements, UFRFI may give written
notice of default in accordance with Section 5 above.
17. Locks. UFRFI will install all locks attached to the Licensed Space and
-----
provide two keys for each lock to Licensee. UFRFI and the University will have
keys to all locks, and may enter the Licensed Space at reasonable times, for
inspection, maintenance or repair, or for any other necessary reason. In the
event of an emergency, notice will be given at the first reasonable opportunity,
even after the fact. Licensee may request that UFRFI install an alternate
University approved electronic, controlled access locking system. Such
installation shall be at the Licensees expense.
18. Right to Remove Property. Licensee shall have the right to remove any
------------------------
equipment, goods, fixtures, and other property which it has placed or affixed
within or to the Licensed Space, provided Licensee repairs damage caused by such
removal. Licensee shall not remove improvements made to the facilities or
Licensed Space by UFRFI or on behalf of UFRFI during this Agreement.
7
<PAGE>
19. Use of Names. Licensees shall not use the names of BDI, the University, or
------------
UFRFI not of their employees or agents, nor any adaptation thereof, in any
advertising, promotional, or sales literature without prior written consent
obtained from UFRFI in each case, except that Licensee may state that is a
licensee of UFRFI pursuant to this Agreement and that it is a participant in the
Incubator Program. Licensee will cooperate fully with UFRFI to publicize the
Incubator Program and Licensee's participation in such program.
(a) Request for Consent to Use of Names. Requests for consent to use of names of
-----------------------------------
BDI, the University, or UFRFI or any of their employees or agents shall be sent
to the Incubator Manager. Notwithstanding the foregoing, the University and
UFRFI consent to references to them pursuant to any requirements of applicable
law or governmental regulations, provided that, in the event of any such
disclosure, Licensee shall afford UFRFI the prior opportunity to review the text
of such disclosure. Licensee shall use its best efforts to comply with any
reasonable requests by UFRFI regarding changes.
(b) Consent Deemed Granted. Where consent of a party is required under this
----------------------
Section, such consent shall be deemed granted if no written objection (or oral
objection, confirmed immediately in writing) is received by the requesting party
on or before the twentieth calendar day following the date a written request
for consent was received by the requested party. For the purposes of this
Section only, a item shall be deemed received as follows: (i) if hand delivered
upon delivery; (ii) if sent by electronic mail, upon confirmation by the sending
carrier that the message was deposited to the addressee's mailbox; (iii) if sent
by registered mail, return receipt requested, upon signing by the receiving
party; or (iv) if sent by ordinary mail in the United States, postage prepaid,
and addressed as set forth below, on the fifth calendar day after deposit in the
mail.
20. No Partnership. Nothing contained in this Agreement shall create any
--------------
partnership or joint venture between the parties. Neither party may pledge the
credit of the other or make any binding commitment on the part of the other.
21. Miscellaneous. The parties hereto acknowledge that this Agreement sets
-------------
forth the entire agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change or modification
except by the execution of a written instrument subscribed to by the parties
hereto. The provisions of this Agreement are coverable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof. The titles herein are for convenance only. This
Agreement shall be construed, governed, interpreted, and applied in accordance
with the laws of the State of Florida.
22. Notices. Any payment notice or other communication pursuant to this
-------
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the other
party;
In the case of UFRFI:
President University of Florida Research Foundation, Inc.
109 Grinter Hall
Gainesville, Florida 32611
Please make all checks payable to:
University of Florida Research Foundation, Inc.
109 Grinter Hall
Gainesville, Florida 32611
8
<PAGE>
In the case of Licensee:
Ms. Beth Wheyland
Director of Finance and Administration
CuraGen, Corporation
555 Long Wharf Drive, 11th Floor
New Haven, Ct 06511
23. Intellectual Property Rights. The intellectual property rights of the
----------------------------
parties are governed by the terms of the Memorandum of Understanding between
UFRF, the University of Florida, and Licensee until a superseding research or
other agreement is entered into by Licensee and UFRF or the University.
24. Confidentiality. UFRFI will use its best efforts to prevent the
---------------
dissemination of any properitary information related to work of the Licensee
unless authorized to do so in writing by Licensee. UFRFI shall have, however,
the right to disclose Licensee's activities in a general, descriptive manner, as
approved by Licensee.
25. Change of Licensed Space. UFRI shall relocate Licensee's licensed space
------------------------
only by mutual agreement with Licensee except pursuant to section 25(b)
(a) UFRFI shall within three months from the effective date deliver to
Licensee rooms 148 and 148A In the BDI building where upon Licensee shall
surrender room 180, or at Licensee's election, it may notify UFRFI prior to the
effective date it does not want room 180 but does still require delivery of
rooms 148 and 148A within said three month period.
(b) At such time as the change(s) of Licensed space referred to in section
25(a) occur, the License Fee and supplemental license fee shall be equitably
adjusted based on the new square footage of the licensed space, and attachments
A and B shall be revised accordingly.
IN WITNESS THEREOF, the parties have executed this License Agreement as of the
date first above written.
University of Florida Research Foundation, Inc Licensee: CURAGEN CORPORATION
By: /s/ Dr. Arnold Heggested By: /s/ Gregory Went
----------------------- ----------------
Dr. Arnold Heggested,
Executive Director, UFRFI Title: Executive Vice President
------------------------
Date August 19, 1997
---------------
<PAGE>
ATTACHMENT A
LICENSED SPACE
1) See attached highlighted Floor Plan for office and laboratory location
2) Address: 12085 Research Drive
Alachua, FL 32615
3) Lab Space: Room # 151: 230 square feet
Room # 146: 867 square feet
Room # 150: 867 square feet
Room # 180: 428 square feet temporary assignment, subject to
section 24 (a)
Office Space: Lab Office: Room # 146 A: 84 square feet
Room # 150 A: 84 square feet
Entrepreneurial office: Room # 183: 84 square feet
Room # 110: 152 square feet
Room # 112: 133 square feet
Total Square feet: 2,929 square feet from August 1, 1997 to July 31, 1998
4) a) Lab Space 146: One (1) chemical fume hood
Lab Office Space 146 A: One (1) standard office desk; One (1) standard
office chair; One (1) file cabinet
b) Lab Space 150: One (1) chemical fume hood
Lab Office Space 150 A: One (1) standard office desk; One (1) standard
office chair; One (1) file cabinet
c) Lab Space 151: One (1) standard lab chair
d) Lab Space 180: One (1) horizontal flow hood, One (1) chemical fume hood
d) Entrepreneurial Office 183: One (1) standard Office desk; One (1) standard
Office Chair, One (1) bookcase, One (1)
filing cabinet.
e) Entrepreneurial Office 110: One (1) standard Office desk; One (1) standard
Office Chair, One (1) bookcase, One (1)
filing cabinet.
f) Entrepreneurial Office 112: One (1) standard Office desk; One (1) standard
Office Chair, One (1) bookcase, One (1)
filing cabinet.
10
<PAGE>
EXHIBIT A; BDI Building Space Assignment
[GRAPHIC OF FLOOR PLANS APPEARS HERE]
<PAGE>
ATTACHMENT B
SUPPLEMENTARY LICENSE FEE
1) Licensee elects to pay the supplementary license fee in the form of cash.
This will be added to the routine monthly billing. Licensee will pay a total of
$8.00 per square foot per year, paid in equal monthly installments, payable
together with the license fee in one check to UFRFI. The total monthly fee
payment from August 1, 1997 to July 31, 1998 and for each renewal year, if
Licensee exercises its option(s) therefor will be:
$ 2,684.92 License Fee
+ $ 1,952.67 Supplemental Fee
-----------------------------
$ 4,637.59 Total Monthly Fees
2) Licensee will have the choice to pick another form of supplementary license
fee at the beginning of each renewal term.
<PAGE>
ATTACHMENT C
EXTRACTS FROM BUSINESS PLAN
Reference is made to the business plan of CuraGen Corporation, dated May 1,
1997.
CuraGen Corporation is a genomics discovery company, founded in 1991. CuraGen
has developed a new generation of genomics tools to aid the rapid discovery of
disease specific genes for the development of novel therapeutics and diagnostic
products. The Company's full service genomics program is based upon novel,
powerful and proprietary technologies. CuraGen's component technologies combine
to provide the most rapid and in-depth cataloging of the underlying genetic
makeup (genotype and gene expression of cells and tissues). The resulting
genetic information is stored in CuraGen's GeneScape database or in local client
databases. CuraGen-Gainesville will provide state-of-the-art genomics
technologies and expertise to facilitate the positional cloning of eukaryotic
and prokaryotic disease genes.
11
<PAGE>
ATTACHMENT D
LIST OF HAZARDOUS SUBSTANCES
1) CuraGen Corporation will supply a list of hazardous substances and dangerous
chemicals upon entry into the BDI.
12
<PAGE>
ATTACHMENT E
ANIMAL SAFETY AND COMPLIANCE
1) At present, Curagen is not working with animals, but will apply for IACUC
approval for future projects.
13
<PAGE>
ATTACHMENT F
SUPPLEMENTAL NOTES
1) See attached insurance binder.
14
<PAGE>
Exhibit 10.5
------------
CURAGEN CORPORATION
1993 STOCK OPTION
AND INCENTIVE AWARD PLAN
This Stock Option and Incentive Award Plan (the "Plan") of CURAGEN
CORPORATION, a Delaware corporation (the "Corporation"), enables the Corporation
to design a flexible compensation package in order to attract and retain those
officers and other key employees and other individuals who will most effectively
advance the interests of the Corporation and its shareholders. It is intended
that the Corporation will grant both incentive and nonqualified stock options
under the Plan (collectively, "Options").
I. GENERAL
1. Stock Subject To Plan. The stock subject to the Plan shall be shares
---------------------
of the Corporation's authorized but unissued or reacquired common stock, par
value $.01 per share (the "Common Stock"). The aggregate number of shares for
which Options and awards may be granted pursuant to the Plan shall not exceed
1,500,000 shares of Common Stock. If an Option shall expire or terminate for any
reason without having been exercised in full, including shares for which an
Option was surrendered pursuant to Article II or III, the shares subject to the
unexercised or terminated Option shall not be considered to have been subject to
an Option for purposes of the limitation on the aggregate number of shares
subject to the Plan.
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Corporation or any committee thereof appointed by the Board of
Directors (the "Administrator"). Subject to the provisions of the Plan set forth
herein, the Administrator is authorized to determine the officers and other key
employees of the Corporation and other individuals to whom Options shall be
granted; the number of shares to be covered by each Option; the terms and
conditions of each Option (including restrictions on the sale or other transfer
of shares issued pursuant to the exercise of an Option); and to establish rules
and regulations pertaining to participation and administration of the Plan.
3. Eligibility And Participation. Key employees of the Corporation, or
-----------------------------
any of its subsidiaries ("Subsidiaries"), as such term is defined in Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), including
employees who are officers or directors of the Corporation or its Subsidiaries
and, with respect to non-qualified Options, directors of the Corporation or its
Subsidiaries who are not employees or other individuals affiliated with the
<PAGE>
Corporation who are not employees (such as Members of the Corporation's
Scientific Advisory Board), shall be eligible to be granted Options under this
Plan. An individual who has been granted Options (an "Optionee") may be granted
additional Options. Notwithstanding the foregoing, no member of any committee
administering the Plan may be granted Options under this Plan.
4. Granting Of Options. Options granted under the Plan may be of two
-------------------
types: a non-qualified stock option ("NQO"), or an incentive stock option ("ISO"
and, together with NQO's, "Options"). The Administrator shall have the authority
to grant NQOs, or to grant ISOs, or to grant both types of Options to any
eligible person, provided, however, that only officers and individuals employed
--------- -------
by the Corporation or its Subsidiaries may receive 1505. Directors who are not
employees of the Corporation or its Subsidiaries or other individuals who are
affiliated with the Corporation but who are. not employees may receive only
NQOs. To the extent that any Option is not designated as an ISO, it shall
constitute a separate NQO.
It is intended that the ISOs granted hereunder shall constitute incentive
stock options within the meaning of Section 422 of the Code and shall be subject
to the federal income tax treatment described in Section 421 of the Code.
Anything in the Plan to the contrary notwithstanding, no provision of the Plan
relating to ISOs shall be interpreted, amended or altered so as to disqualify
the Plan under Section 422 of the Code.
II. INCENTIVE STOCK OPTIONS
1. Granting Of Incentive Stock Options. Each ISO granted under the Plan
-----------------------------------
shall be evidenced by a written option agreement (together with written
agreements representing NQO's, the "Option Agreements") containing provisions
that are not inconsistent with the Plan, including the following:
(a) Each ISO shall state the number of shares of Common Stock to which
the ISO pertains and the purchase price of each share of Common Stock subject
thereto, which will be based on the fair market value of the shares of Common
Stock as of the date granted, as determined pursuant to the guidelines contained
in Section 422(c)(1) and (7) of the Code (the "Fair Market Value").
(b) The purchase price of each share of Common Stock subject to an ISO
under this Plan shall be stated in the Option Agreement and, except as otherwise
provided in the second sentence of this subsection, shall be not less than: (i)
the Fair Market Value of such share of Common Stock on the date the ISO is
granted; or (ii) the par value of the Common Stock, whichever is greater. With
respect to employees who, at the time of the granting of the ISO, own, or are
deemed to own by virtue of the attribution rules of Code Section 424(d), more
than 10% of the total combined voting power of all classes of stock of (i) the
Corporation, or (ii) its Subsidiaries, the purchase price of each share subject
to an ISO under this Plan shall be at least 110% of the Fair Market Value of
such share on the date the ISO is granted.
2
<PAGE>
(c) The purchase price shall be paid in cash or by certified check
or, if the Optionee's Representative exercises the ISO as a result of the death
or Disability, as defined in Article V, Section 3(d), of the Optionee, the
purchase price may be paid, at the discretion of the Administrator: (i) by the
Optionee's Representative tendering a promissory note for the full purchase
price, which promissory note shall provide for interest on the unpaid balance,
calculated monthly, equal to the prime or base rate (or its equivalent) of
Shawmut Bank Connecticut N.A. on the date of the note (and thereafter fixed for
the term of the loan), and shall provide for equal monthly payments, consisting
of a portion of the principal balance and accrued interest, for a period of 24
consecutive months commencing on the first day of the month following the
exercise of the Option; (ii) by tendering to the Corporation shares of Common
Stock owned by the Optionee; or (iii) partly by cash, certified check or
promissory note and partly by tendering to the Corporation shares of Common
Stock in accordance with (ii) above. Shares surrendered in accordance with
subsection (c) (ii) or (c) (iii) shall be valued at the Per Share Value at the
date of exercise. Surrender of such shares shall be evidenced by the delivery of
certificate(s) representing such shares in such manner, and endorsed in such
form, or accompanied by stock powers endorsed in such form, as the Administrator
may determine. As used in this Plan, the term "Optionee's Representative" shall
mean: (i) in the event of the Disability of the Optionee, the Optionee or the
Optionee's duly appointed legal guardian or legal representative; and (ii) in
the event of the death of the Optionee, the personal representative of the
Optionee's estate, or any person who acquired the right to exercise an Option by
bequest or inheritance.
(d) No ISO shall be exercisable more than ten (10) years from the
date that the ISO is granted, except that if an Optionee owns or is deemed to
own (by virtue of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Corporation or
its Subsidiaries, such ISO shall not be exercisable more than five (5) years
from the date that the ISO is granted.
(e) No ISO shall be assignable or transferable by an Optionee except
by will or the laws of descent and distribution. An ISO may be exercised only by
the Optionee during the Optionee's life, except in the case of the Disability of
the Optionee, in which case the Optionee's Representative may exercise the ISO.
(f) (1) Each ISO by its terms shall require the Optionee to remain
in the continuous employ of the Corporation or its Subsidiaries for at least a
one-year period from the date of grant of the ISO before the ISO shall be
exercisable, except if the Optionee's employment with the Corporation or its
Subsidiaries terminates as a result of death or Disability, in which case the
provisions of subsection (g) of this Section shall control.
(2) Subsequent to the expiration of the one-year waiting period
referred to in subsection (f) (1), an ISO shall be exercisable by the Optionee
only if at the time of exercise, such Optionee is an employee of the Corporation
or its Subsidiaries, except that, upon termination of employment with the
Corporation or its Subsidiaries (after one year of continuous employment), the
Optionee may exercise an ISO, to the extent that the Optionee was entitled to do
so at the termination of his employment, at any time within three months after
the termination of employment if such termination (i) resulted from a cause
other than death or Disability, and
3
<PAGE>
(ii) was without cause, as defined in Article V, Section 3(b); provided,
--------
however, that if the Administrator determines, subsequent to an Optionee's
- -------
termination of service but prior to the exercise of an Option, that either prior
or subsequent to the Optionee's termination the Optionee engaged in conduct
which would constitute "cause", then the right to exercise any Option is
forfeited.
(3) If the Optionee dies within three months after termination
of employment with the Corporation or its Subsidiaries (other than from a
termination for cause or resulting from a Disability), then the Optionee's
Representative may exercise, to the extent that the Optionee was entitled to do
so on the date of the termination of the Optionee's employment, such Optionee's
ISO at any time within the period ending on the first anniversary of the
Optionee's death.
(g) (1) If the termination of employment of the Optionee
results from death or from Disability and if such death or Disability occurs
while the Optionee is employed by the Corporation or its Subsidiaries, then upon
termination of employment, the Optionee's Representative may exercise any ISO,
to the extent that the Optionee was entitled to do so on the date of the
Optionee's
Disability or death, at any time within one year after Disability or death.
(2) If an Optionee dies within one year after termination of
employment as a result of Disability, the Optionee's Representative may exercise
such Optionee's ISO, to the extent that the Optionee was entitled to do so on
the date of the termination of the Optionee's employment, at any time within the
period ending on the first anniversary of the Optionee's death.
(h) Notwithstanding any of the foregoing, in. no event shall an ISO
be exercisable in whole or in part after the termination date provided in the
Optionee's Option Agreement.
2. $100,000 Per Year Limitation for ISO's. If the aggregate Fair Market
--------------------------------------
Value of Common Stock with respect to which ISO's are exercisable for the first
time by any Optionee or Optionee's Representative during any calendar year
(under all plans of the Corporation or its Subsidiaries) exceeds $100,000,
determined at the time of grant of the ISO, then only the ISO's the exercise of
which would result in the Optionee or Optionee's Representative receiving Common
Stock having an aggregate Fair Market Value in excess of $100,000 shall be
treated as NQO's. This Section shall be applied by taking ISO's into account in
the order in which they were granted.
III. NON-QUALIFIED OPTIONS
1. Granting Of Non-qualified Options. Each NQO granted under the Plan
---------------------------------
shall be evidenced by an Option Agreement containing provisions that are not
inconsistent with the Plan, including the following:
4
<PAGE>
(a) Each NQO shall be for a term of ten years from the date of grant.
In addition, each NQO shall state the number of shares of Common Stock to which
the NQO pertains, and the purchase price of each share of Common Stock subject
thereto, which purchase price may not be less than: (i) 85% of the Fair Market
Value of the shares of Common Stock on the date of grant; or (ii) the par value
of the Common Stock, whichever is greater.
(b) (1) Except for directors and other individuals who are not
employees of the Corporation, each NQO by its terms shall require the Optionee
to remain in the continuous employ of the Corporation or its Subsidiaries for at
least a one-year period from the date of grant of the NQO before the NQO shall
be exercisable, except if the Optionee's employment with the Corporation or its
Subsidiaries terminates as a result of death or Disability, in which case the
provisions of subsection (c) of this Section shall control.
(2) Subsequent to the expiration of the one-year waiting period
referred to in subsection (b) (1) for Optionees who are employees of the
Corporation or its Subsidiaries, a NQO shall be exercisable by the Optionee only
if, at the time of exercise, such Optionee is an employee or director of the
Corporation or its Subsidiaries or a Member of the Scientific Advisory Board,
except that, upon termination of employment (after one year of continuous
employment in the case of employees) or service as a director or a Member of the
Scientific Advisory Board, the Optionee may exercise any NQO, to the extent that
the Optionee was entitled to do so at the termination of his. employment or
service as a director or a Member of the Scientific Advisory Board, at any time
within three months thereafter if the termination of employment or service as a
director or as a Member of the Scientific Advisory Board: (i) resulted from a
cause other than death or Disability; and (ii) was without cause; provided,
--------
however, that if the Administrator determines, subsequent to an Optionee's
- -------
termination of service but prior to the exercise of an Option, that either prior
or subsequent to the Optionee's termination the Optionee engaged in conduct
which would constitute "cause", then the right to exercise any Option is
forfeited.
(3) If an Optionee dies within three months after termination of
employment or service with the Corporation or its Subsidiaries (other than from
a termination for cause or resulting from a Disability), then the Optionee's
Representative may exercise, to the extent that the Optionee was entitled to do
so on the date of the termination of the Optionee's employment or service, such
Optionee's NQO at any time within the period ending on the first anniversary of
the Optionee's death.
(c) (1) If the termination of employment or service of the Optionee
results from death or from Disability and if such death or from Disability
occurs while the Optionee is employed by, or rendering service to, the
Corporation or its Subsidiaries then upon termination of employment or service
with the Corporation or its Subsidiaries, the Optionee's Representative may
exercise any NQO to the extent that the Optionee was entitled to do so on the
date of the Optionee's Disability or death, at any time within one year after
Disability or death.
5
<PAGE>
(2) If an Optionee dies within one year after termination of
employment or service as a result of Disability, the Optionee's Representative
may exercise such Optionee's NQO, to the extent that the Optionee was entitled
to do so on the date of the termination of the Optionee's employment or service,
at any time within the period ending on the first anniversary of the Optionee's
death.
(d) Notwithstanding any of the foregoing, in no event shall a NQO be
exercisable in whole or in part after the termination date provided in the
Optionee's Option Agreement.
(e) A NQO shall not be transferable other than by will or by the laws
of descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee or, if the Optionee has a Disability, by the
Optionee's Representative.
(f) The purchase price shall be paid in cash or by certified check
or, if the Optionee's Representative exercises a NQO as a result of the death or
Disability of the Optionee, the purchase price may be paid, at the discretion of
the Administrator: by the Optionee's Representative tendering a promissory note
for the full purchase price, which promissory note shall provide for interest on
the unpaid balance, calculated monthly, equal to the prime or base rate (or its
equivalent) of Shawmut Bank Connecticut N.A. on the date of the note (and
thereafter fixed for the term of the loan), and shall provide for equal monthly
payments, consisting of a portion of the principal balance and accrued interest,
for a period of 24 consecutive months commencing on the first day of the month
following the exercise of the option; (ii) by tendering to the Corporation
shares of Common Stock owned by the Optionee; or (iii) partly by cash, certified
check or promissory note and partly by tendering to the Corporation shares of
Common stock in accordance with (ii) above. Shares surrendered in accordance
with subsection (f) (ii) or (f) (iii) shall be valued at the Per Share Value at
the date of exercise. Surrender of such shares shall be evidenced by the
delivery of certificate(s) representing such shares in such manner, and endorsed
in such form, or accompanied by stock powers endorsed in such form, as the
Administrator may determine.
2. Granting of Stock Appreciation Rights. Stock Appreciation Rights
-------------------------------------
("SARs") related to all or any portion of a NQO may be granted by the
Administrator to any Optionee in connection with the grant of a NQO or any
unexercised portion thereof held by Optionee at any time and from to time during
the term of the NQO. Each SAR shall be subject to such terms and conditions
(which may include limitations as to the time when such SAR becomes exercisable
and when it ceases to be exercisable that are more restrictive than the
limitations on the exercise of the NQO to which it relates) not inconsistent
with the provisions of this Article III as shall be determined by the
Administrator and included in the Option Agreement relating to such NQO and SAR,
subject in any event, however, to the following terms and conditions of this
Section 2.
(a) No SAR shall be exercisable with respect to such related NQO or
portion thereof unless such NQO or portion thereof shall itself be exercisable
at that time. A SAR shall
6
<PAGE>
be exercised only upon surrender of the related NQO or portion thereof in
respect of which the SAR is then being exercised.
(b) On exercise of a SAR an Optionee shall be entitled to receive an
amount equal to the product of (i) the Appreciated Value on the date of exercise
of the SAR, multiplied by (ii) the number of shares with respect to which the
SAR shall have been exercised (the "Appreciated Amount").
(c) The Administrator shall have the sole discretion either (i) to
determine the form in which payment in settlement of a SAR will be made (i.e.,
cash, shares of Common Stock or any combination thereof), or (ii) to consent to
or disapprove the election by the Optionee to receive cash in full or partial
settlement of the SAR, such consent or disapproval to be given at any time after
the election to which it relates. If settlement of a SAR, or portion thereof, is
to be made in the form of shares of Common Stock, the number of shares of Common
Stock to be distributed shall be the largest whole number obtained by dividing
the cash sum otherwise distributable in respect of such settlement by the Per
Share Value of a share on the date of exercise of the SAR. The value of any
fractional share shall be paid in cash.
(d) If the related NQO is exercised in whole or in part, then the SAR
with respect to the shares of Common Stock purchased pursuant to such exercise
(but not with respect to any unpurchased shares) shall be terminated as of the
date of exercise.
(e) A SAR shall not be transferable or assignable by the Optionee
other than by will or the laws of descent and distribution and shall not be
transferred other than together with the NQO to which it relates. A SAR shall be
exercisable during the Optionee's lifetime only by the Optionee, or, if the
Optionee has a disability, by the Optionee's Representative.
(f) If the Optionee who is an employee of the Corporation ceases to
be an employee of the Corporation or its Subsidiaries for any reason, each
outstanding SAR shall be exercisable for such period and to such extent as the
related NQO or portion thereof to which it relates.
IV. INCENTIVE STOCK AWARD
1. Grant of Incentive Stock Awards. Subject to the provisions of this
-------------------------------
Article IV, the Administrator may from time to time determine those individuals
eligible pursuant to Section 3 of Article I to whom incentive stock awards
("Incentive Stock Awards") shall be granted and the amount and terms and
conditions of such Incentive Stock Awards.
2. Terms and Conditions of Incentive Stock Awards. Each grant of an
----------------------------------------------
Incentive Stock Award shall be evidenced by a written agreement (an "Incentive
Stock Award Agreement") which shall be in such form as the Administrator shall
from time to time approve, and which shall comply with and be subject to the
following terms and conditions:
7
<PAGE>
(a) Amount of Award. Each Incentive Stock Award Agreement shall
---------------
state the number of Shares covered by the agreement which become payable if the
vesting provisions and/or performance criteria specified in the Incentive Stock
Award Agreement are achieved (in the event the Administrator decides to
establish performance criteria).
(b) Performance Criteria. Each time the Administrator approves the
--------------------
granting of Incentive Stock Awards, it may, but is not obligated to, establish
corporate performance goals to be attained by the Corporation or individual
recipients, or both, and the date or dates ("earn-out dates") by which such
goals must be achieved for the participant t6 be entitled to payment of an
Incentive Stock Award.
(c) Disability or Death. No Incentive Stock Award shall be paid for
-------------------
any period after the termination of the participant's employment; provided,
however, that if a participant's employment is terminated by Disability or
death, then the Administrator shall determine the extent to which any shares
covered by an Incentive Stock Award Agreement, but not yet payable, shall become
payable.
(d) Form of Payment. The Administrator shall have the sole discretion
---------------
to determine the form in which payment of the Incentive Stock Award shall be
made (i.e., in cash, in shares, or in any combination thereof). Instead of
distributing the number of shares covered by the Incentive Stock Award Agreement
as of the applicable earn-out date, the Administrator may distribute the cash
equivalent (determined on the basis of the Per Share Value of a share at such
earn-out date) for all or a portion of such shares.
V. MISCELLANEOUS
1. Vesting. Except as the Administrator may otherwise provide in an
-------
Option Agreement, ISOs and NQOs shall vest cumulatively and become exercisable
in five annual installments. For example, if an Optionee is granted 100 ISOs on
January 1, 1994, he can' exercise (but is not required to exercise) up to 20
ISOs on January 1, 1995, up to an aggregate of 40 ISOs on January 1, 1996, up to
an aggregate of 60 1505 on January 1, 1997 and up to an aggregate of 80 ISOs on
January 1, 1998. The Administrator may, in its sole discretion, permit the
acceleration of the time to exercise one or more installments.
2. Exercise of Options.
-------------------
(a) Except as the Administrator may otherwise provide in an Option
Agreement, (i) whenever an Optionee exercises an ISO or NQO, the Optionee must
exercise such option to the extent of at least fifty percent (50%) of the
aggregated vested portion of such option as of the date of exercise; and (ii) an
Optionee may exercise an ISO or NQO, as the case may be, only once per calendar
year.
(b) In lieu of permitting the Optionee to obtain Common Stock
pursuant to the exercise of an ISO or NQO, the Corporation may, in its sole
discretion, pay to the Optionee an
8
<PAGE>
amount equal to the Appreciated Value multiplied by the number of shares of
Common Stock the Optionee is entitled to upon the exercise of an option (the
"Appreciated Amount").
If the Corporation elects to exercise its rights hereunder, the Appreciated
Amount shall be payable to the Optionee within thirty (30) days of receipt by
the Corporation of the notice from the Optionee that the Optionee intends to
exercise the Option.
3. Definitions
-----------
As used herein, the following terms shall have the following meanings:
(a) "Appreciated Value" shall mean the amount by which (i) the Per
Share Value on the date of exercise of the Option, or, in the event of a SAR,
the related NQO, exceeds (ii) the option price per share set forth in the
related Option Agreement.
(b) "cause" shall mean (but is not limited to): (i) willful
misconduct; (ii) negligence, to the material detriment of the Corporation, in
carrying out the Optionee's duties as an employee, director or member of the
Scientific Advisory Board; (iii) if the Optionee is an employee, failure of the
Optionee to follow the directions of the Board of Directors or senior officers
in performing the Optionee's duties as an employee of the Company; (iv) failure
of the Optionee to satisfactorily perform the Optionee's duties as an employee,
director or member of the Scientific Advisory Board and the continuation of such
failure for ten (10) days after notice from the Corporation; (v) any
unauthorized disclosure of confidential information; or (vi) conviction of a
crime or any other similar activity which may have an adverse effect on the
business or reputation of the Corporation or the Optionee. The determination of
the Administrator as to the existence of cause will be conclusive on the
Optionee and the Corporation. Cause is not limited to events which have occurred
prior to an Optionee's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination.
(c) "control" shall have the meaning set forth in Section 203(c)(4)
of the Delaware General Corporation Law, or any amendments thereto.
(d) "Disability" shall have the meaning set forth in Section 22(e)
(3) of the' Code and shall be determined, together with the date of its
occurrence, by the Administrator. If requested, the Optionee shall be examined
by a physician selected or approved by the Administrator, the cost of which
examination shall be paid for by the Corporation.
(e) "Net Income" shall mean the net income of the Corporation for the
last four (4) completed fiscal quarters for which financial information is
available at the time of the calculation, determined in accordance with
generally accepted accounting principles (except that, for such purpose, any
interest upon debt for borrowed money that was incurred during such four (4)
quarters shall, to the extent that it was not incurred to refinance or
substitute for other debt for borrowed money, be annualized and shall thereby
reduce such net income for the purposes hereof)
9
<PAGE>
(f) "Per Share Preference" shall mean the quotient of (1) the
aggregate amount of the preference that any class of stock of the Corporation,
excluding convertible preferred stock, would have over the Common Stock in the
event of the liquidation of the Corporation, divided by (2) the total number of
outstanding shares of all Common Stock.
(g) "Per Share Value" shall mean: (i) if the Common Stock is listed
on a securities exchange or is quoted on the NASDAQ National Market System, the
closing price of the Common Stock on the date on which the Per Share Value must
be determined; or (ii) if subsection (i) is not applicable, the most recent
price per share paid for the Common Stock by a purchaser which does not control,
and is not controlled by or under common control with the Corporation, provided
that (A) such purchaser paid cash for such Common Stock, (B) the purchase is not
pursuant to the exercise of any stock option, warrant, right or convertible
preferred stock, and (C) such price was paid within the six month period
preceding the date on which the Per Share Value must be determined; or (iii) if
subsections (i) and (ii) are not applicable, the greater of (A) $1.00 per share,
or (B) 15 multiplied by the amount by which (y) the quotient of (1) Net Income,
divided by (2) the total number of outstanding shares of all Common Stock,
exceeds (z) the Per Share Preference, or (C) 1.5 multiplied by the amount by
which (y) the quotient of (1) Net Revenues, divided by (2) the total number of
outstanding shares of all Common Stock, exceeds (z) the Per Share Preference.
For purposes of calculating the total number of shares of Common Stock
outstanding, Common Stock subject to being issued pursuant to options, warrants,
convertible preferred stock and convertible debt shall be deemed to be
outstanding.
(h) "Net Revenues" shall mean the net revenues of the Corporation for
the last four (4) completed fiscal quarters for which financial information is
available at the time of the calculation, determined in accordance with
generally accepted accounting principles.
4. Purchase For Investment.
-----------------------
Unless the offering and sale of the Common Stock to be issued upon the
particular exercise of an Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the "1933
Act"), the Corporation shall be under no obligation to issue the Common Stock
covered by such exercise unless and until the following conditions have been
fulfilled:
(a) The person(s) who exercise such Option shall warrant to the
Corporation, at the time of such exercise or receipt, as the case may be, that
such person(s) are acquiring such Common Stock for their own respective
accounts, for investment, and not with a view to, or for sale in connection
with, the distribution of any such Common Stock, in which event the person(s)
acquiring such Common Stock shall be bound by the provisions of the following
legend which shall be endorsed upon the certificate(s) evidencing their Common
Stock issued pursuant to such exercise or such grant:
10
<PAGE>
The shares represented by this certificate have been purchased for
investment purposes and they may not be sold or otherwise transferred
by any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be effective
under the Securities Act of 1933, as amended, or (b) the Corporation
shall have received an opinion of counsel satisfactory to it that an
exemption from registration under such Act is then available, and (2)
there shall have been compliance with all applicable state securities
laws.
(b) The Corporation shall have received an opinion of its counsel
that the Common Stock may be issued upon such particular exercise in compliance
with the 1933 Act without registration thereunder.
The Corporation may delay issuance of the Common Stock until completion of
any action or obtaining of any consent which the Corporation deems necessary
under any applicable law (including, without limitation, state securities or
"blue sky" laws)
5. Dissolution or Liquidation of the Corporation.
---------------------------------------------
Upon the dissolution or liquidation of the Corporation, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of an
Optionee or an Optionee's Representative have not otherwise terminated and
expired, the Optionee or the Optionee's Representative will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the right to purchase Common Stock has accrued under the Plan as
of the date immediately prior to such dissolution or liquidation.
6. Adjustments.
-----------
Upon the occurrence of any of the following events, an Optionee's rights
with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the Option Agreement between the
Optionee and the Corporation relating to such Option:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Corporation shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of such Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Corporation is to be
-------------------------
consolidated with or merged into another entity (such that the Corporation is
not the surviving entity), or upon sale of all or substantially all of the
Corporation's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Corporation
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate
11
<PAGE>
provision for the continuation of such Options by substituting on an equitable
basis for the Common Stock then subject to such Options either the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition or securities of any successor or acquiring entity; or (ii)
upon written notice to the Optionees, provide that all Options must be
exercised, to the extent then exercisable (as the Options may have been
amended), within a specified number of days of the date of such notice, at the
end of which period the Options shall terminate; or (iii) terminate all Options
in exchange for a cash payment equal to the excess of the Per Share Value of the
shares subject to such Options (to the extent then exercisable as the Options
may have been amended) over the exercise price thereof.
(c) Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Corporation (other than a transaction
described in subsection (b) above) pursuant to which securities of the
Corporation or of another corporation are issued with respect to the outstanding
shares of Common Stock, an Optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the securities he or
she would have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subsection (a), (b) or (c) with respect to ISOs
shall be made only after the Administrator, after consulting with counsel for
the Corporation, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holders of such ISOs.
If the Administrator determines. that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
7. Issuance of Securities.
----------------------
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the
Corporation.
8. Use Of Proceeds. All proceeds received by the Corporation under the
---------------
Plan shall be used for its general corporate purposes.
9. Fractional Common Stock.
-----------------------
12
<PAGE>
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Corporation cash in lieu of such
fractional share equal to the Per Share Value thereof determined in good faith
by the Board of Directors of the Corporation.
10. Conversion of ISOs Into Non-Qualified Options: Termination of ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Optionee, may in its
discretion take such actions as may be necessary to convert such Optionee's ISOs
(or any portions thereof) that have not been exercised on the date of conversion
into Non-Qualified Options at any time prior to the expiration of such ISOs,
regardless of whether the Optionee is an employee of the Corporation or any
Subsidiary at the time of such conversion. Such actions may include, but not be
limited to, extending the exercise period or reducing the exercise price of the
appropriate installments of such Options. At the time of such conversion, the
Administrator (with the consent of the Optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Administrator in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
Optionee the right to have such Optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Administrator
takes appropriate action. The Administrator, with the consent of the Optionee,
may also terminate any portion of any ISO that has not been exercised at the
time of such termination.
11. Withholding.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Optionee's salary, wages or other renumeration in connection with the
exercise of an Option or a Disqualifying Disposition (as defined in Section 12
below), the Optionee shall advance in cash to the Corporation, or to any
Subsidiary of the Corporation which employs or employed the Optionee, the amount
of such withholdings unless a different withholding arrangement, including the
use of Common Stock, is authorized by the Administrator (and permitted by law);
provided, however, that with respect to persons subject to Section 16 of the
1934 Act, any such withholding arrangement shall be in compliance with any
applicable provisions of Rule 16b-3 promulgated under Section 16 of the 1934
Act. For purposes hereof, the value of the shares withheld for purposes of
payroll withholding shall be the Per Share Value thereof, as of the most recent
practicable date prior to the date of exercise. If the Per Share Value of the
shares withheld is less than the amount of payroll withholdings required, the
Optionee may be required to advance the difference in cash to the Corporation or
its Subsidiary. The Administrator in its discretion may condition the exercise
of an Option for less than the then Per Share Value on the Optionee's payment of
such additional withholding.
12. Notice to Corporation of Disqualifying Disposition.
--------------------------------------------------
Each Optionee who receives an ISO must agree to notify the Corporation in
writing immediately after the Optionee. makes a Disqualifying Disposition of any
shares acquired
13
<PAGE>
pursuant to the exercise of an ISO. As used herein, the term "Disqualifying
Disposition" shall mean any disposition (including any sale) of such shares
before the later of (i) two years after the date the Optionee was granted the
ISO, or (ii) one year after the date the Optionee acquired shares by exercising
the ISO. If the Optionee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
13. Effective Date Of Plan. The Plan shall not become effective until
----------------------
approved by the Board of Directors of the Corporation and the holders of a
majority of the voting power of Common Stock and entitled to vote thereon.
14. Termination of the Plan.
-----------------------
The Plan will terminate on the date which is ten (10) years from the
earlier of the date of its adoption by the Board of Directors of the Corporation
- -------
or the date of its approval by the stockholders of the Corporation. The Plan may
be terminated at an earlier date by vote of the stockholders of the Corporation;
provided, however, that any such earlier termination will not affect any Options
granted or Option Agreements executed prior to the effective date of such
termination.
15. Amendment of the Plan
---------------------
The Plan may be amended by the stockholders of the Corporation. The Plan
may also be amended, revised, suspended or terminated by the Administrator
including, without limitation, to the extent necessary to qualify any or all
outstanding Options granted under the Plan or Options to be granted under the
Plan for favorable federal income tax treatment (including deferral of taxation
upon exercise) as may be afforded incentive stock options under Section 422 of
the Code, to the extent necessary to ensure the qualification of the Plan under
Rule 16b-3, and to the extent necessary to qualify the shares issuable upon
exercise of any outstanding Options granted, or Options to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers; provided, however,
that no amendment changing the provisions of Section 3 of Article I hereof or
increasing the aggregate number of shares of Common Stock subject to the Plan
shall be made without the approval of a majority of the voting power of the
Common Stock entitled to vote thereon. In addition, any amendment approved by
the Administrator which is of a scope that requires stockholder approval in
order to ensure favorable federal income tax treatment for any incentive stock
options or requires stockholder approval in order to ensure the compliance of
the Plan with Rule 16b-3 shall be subject to obtaining such stockholder
approval. Any modification or amendment of the Plan shall not, without the
consent of an Optionee, affect his or her rights under an Option previously
granted to him or her. With the consent of the Optionee affected, the
Administrator may amend outstanding Option Agreements in a manner not
inconsistent with the Plan.
16. Employment or other Relationship.
--------------------------------
14
<PAGE>
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Corporation or any Subsidiary from terminating the employment, director status
or status as a member of the Scientific Advisory Board of an Optionee, nor to
prevent an Optionee from terminating his or her own employment, director status
or member status of the Scientific Advisory Board, nor to give any Optionee a
right to be retained in employment or other service by the Corporation or any
Subsidiary for any period of time.
17. Governing Law.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
18. Stockholder's Agreement The grant of an Option, or Incentive Stock Award
-----------------------
hereunder shall be contingent on the agreement of the Optionee or the recipient
of an Incentive Stock Award to execute a Stockholder's Agreement with the
Corporation in form and substance satisfactory to the Corporation prior to the
exercise of any Option or the receipt of any Common Stock pursuant to any
Incentive Stock Award.
15
<PAGE>
Exhibit 10.6
------------
CURAGEN CORPORATION
-------------------
Action by Directors
Without a Meeting May 12, 1997
- -------------------
Pursuant to Section 141(f) of the General Corporation Law of the State of
Delaware, the undersigned, being all of the members of the Board of Directors of
Curagen Corporation, a Delaware corporation (the "Corporation"), do hereby
consent to the following actions, which shall constitute a special meeting of
the Board of Directors of the Corporation.
The adoption of the following resolutions:
RESOLVED: That the Non-Statutory Stock Option Agreements (the "Agreements")
between the Corporation and Gregory Went attached hereto as
Exhibits A, B, and C be amended as follows:
1. The first paragraph of Section 4 of each of the Agreements
shall be amended to eliminate the requirements that (i) at least
50% of the vested portion of the option be exercised on any
exercise date, and (ii) the option only be exercised once per
calendar year. As amended, the first paragraph of Section 4 of
each of the Agreements shall read as follows:
4. Exercise of Option. During the Option Period, the
------------------
Optionee shall be entitled to purchase from the Corporation
the shares of Stock subject to the Option in whole at any
time or in part from time to time, to the extent that the
Option is vested (or to the extent that the Option is
otherwise exercisable pursuant to Section 5 below), by
giving written notice of exercise to the Corporation.
2. Section 6 of each the Agreements shall be amended to provide
hat the option shall be transferable under certain conditions
and, as amended, shall read as follows:
6. Transferability of Option. This Option may be
-------------------------
transferred in whole or part, by the Optionee to (i) the
spouse, children, step-children or any other issue of the
Optionee ("Family Members"), (ii) any trust for the
exclusive benefit of Family Members, (iii) any partnership
of which Family Members are the only partners, or (iv) any
limited liability company of which Family Members are the
only shareholders; provided, however, that any subsequent
<PAGE>
transfers of this Option, or any part thereof, shall be
prohibited except by will or by the laws of descent and
distribution. The Administrator may permit transfers in
addition to those described above in its discretion .
In the event of the Optionee's death or disability, the
Option may be exercised by the Optionee's Representative.
Following any transfer hereunder, the Option shall continue
to be subject to the terms and conditions of this Agreement
as if the Transferee were the Optionee; provided, however,
that the events of (i) vesting based on continued employment
in Section 2 hereof and (ii) termination of employment in
Sections 5 and 13 hereof shall continue to be applied to the
original Optionee, and following termination of employment
the Option shall be exercisable by any transferee only to the
extent and for the periods specified in Section 5 hereof. The
original Optionee will also remain subject to withholding
taxes upon exercise of the Option pursuant to Section 12
hereof. The original Optionee agrees to notify the
Corporation in writing upon the completion of any transfer
pursuant to this Section, such notice to include the name and
address of the transferee and the date of transfer. The
Company undertakes no obligation to notify any transferee of
any event affecting the employment status of the original
Optionee or otherwise affecting this Option which may have
the effect of limiting or terminating the Option .
RESOLVED: To amend Section III.1.(e) of the Corporation's 1993 Stock Option
and Incentive Award Plan attached hereto as Exhibit D (the
"Plan") to allow for the granting of transferable options
pursuant to the Plan. As amended, Section III.1.(e) shall read as
follows:
(e) A NQO shall not be transferable by an Optionee other
than (i) by will or by the laws of descent and distribution
or (ii) pursuant to a qualified domestic relations order as
defined by the Code or Title 1 of the Employee Retirement
Income Security Act or the rules thereunder or (iii) as
otherwise determined by the Administrator and set forth in
the applicable Option Agreement. The designation of a
beneficiary of an Option by an Optionee shall not be deemed
a transfer prohibited by this paragraph. Except as provided
above, a NQO shall be exercisable, during the Optionee's
lifetime, only by the Optionee (or by the Optionee's
Representative).
RESOLVED: That the officers of the Corporation be, and each hereby is,
authorized in the name and on behalf of the Corporation to take
any and all actions
-2-
<PAGE>
which any of said officers deem necessary or advisable in order to
effect the intent of the foregoing Resolutions.
DIRECTORS:
---------
/s/ Vincent T. DeVita
-------------------------------
Vincent T. DeVita, Jr.
/s/ Jonathan M. Rothberg
-------------------------------
Jonathan M. Rothberg
-3-
<PAGE>
Exhibit 10.7
------------
February 20, 1997
Mr. Gregory T. Went
34 Scotland Avenue
Madison, CT 06443
Dear Greg:
Reference is made to my previous letter to you dated February 19, 1997,
with respect to the subject matter of this letter. This letter is in lieu, and
should be deemed to be a substitute for, my February 19, 1997, letter.
As we proceed into our 1997 fiscal year it is appropriate that we revisit
your position with CuraGen and your compensation.
Needless to say, your efforts on behalf of CuraGen this past fiscal year,
and your acceptance of designated responsibilities going forward have earned you
the admiration of all those connected with CuraGen, especially me. Fiscal 1997
should be a milestone year for CuraGen, and your leadership, hard work and
ingenuity will play a large part in the success CuraGen achieves. I know that
you, like me, are confident that we will achieve great success.
The purpose of this letter is to summarize CuraGen's current understanding
with you with respect to your position and level of compensation, as follows:
1. Position.
--------
Commencing immediately, you shall have the title of Executive
Vice President. You and I will share CuraGen's most senior
policy -making positions, as we have in the past.
2. Compensation.
------------
Commencing March 1, 1997, you shall be compensated at an annual
rate of $125,000, plus such bonuses as the Board of Directors
may, in its discretion, award you from time to time.
As you are aware, it is contemplated that CuraGen will conclude
an initial public offering ("IPO") during the current fiscal
year. The IPO will
<PAGE>
require an extraordinary level of effort on your behalf, and,
once concluded, will cause expanded responsibilities to be placed
upon you. Accordingly, in contemplation of the IPO, the Board of
Directors will review with you during the IPO process your
compensation, and, together with you, define an enhanced
compensation package to be effective upon conclusion of the IPO.
3. Loan.
----
You have indicated that you and Marjorie have certain personal
plans that require approximately $50,000 of funding. In order
that you may more fully concentrate on CuraGen's efforts to
proceed with, and consummate various strategic relationships and
a successful IPO, CuraGen will loan you the sum of $50,000,
payable on the fourth anniversary date of the extension of the
loan, together with interest at the rate of 8% per annum (i.e.,
no cash shall be due until the fourth anniversary date),
provided, however, upon the successful conclusion of an IPO with
net proceeds in excess of $25,000,000, the entire principal and
accrued interest shall be forgiven.
4. Incentive Compensation.
----------------------
In order to provide a further incentive for you to continue to
extend your best efforts on behalf of CuraGen, the Board of
Directors granted to you an option to purchase 114,000 shares of
CuraGen Common Stock, exercisable at a price of $4.10 per share.
We have requested our counsel, Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., to prepare an option agreement for your
review and execution, which option agreement shall provide for
certain restrictions on your ability to exercise such option, or
to sell the underlying shares of stock if exercised, in order to
better insure your continued employment with CuraGen.
Greg, I need not say again how thankful I personally am for your support,
your tireless energies, your creative input, and your leadership. You have been
a major factor in making CuraGen what it is today, and what it will become in
the not too distant future.
Very truly yours,
CURAGEN CORPORATION
/s/ Jonathan Rothberg
Its: President
2
<PAGE>
Exhibit 10.8
------------
July 18, 1997
Mr. David M. Wurzer
311 Hartford Avenue
Wethersfield, CT 06109
Dear David:
We are thrilled that you have accepted our offer to join CuraGen. CuraGen has
great strengths and enormous potential, both scientific and financial, and your
addition to the policy-making team will enhance our ability to achieve our goals
in a timely and professional manner.
The purpose of this letter is to confirm the terms of our offer to you, as
follows:
1. POSITION.
--------
As of September 1, 1997, or thirty days subsequent to the closing
of the acquisition of Value Health by Columbia, whichever occurs
later, you shall commence your employment with CuraGen as
CuraGen's Executive Vice President and Chief Financial Officer.
You, Greg Went, and I will share CuraGen's primary executive and
policy-making functions.
2. CASH COMPENSATION.
-----------------
You shall receive cash compensation at the annual rate of
$125,000, plus such bonuses (which may represent a sizable portion
of your annual salary rate) as the Board of Directors may, in its
discretion, award from time to time.
As you are aware, it is contemplated that CuraGen will conclude an
initial public offering in the near future. The IPO, once
concluded, will cause expanded responsibilities to be placed upon
you. Accordingly, in contemplation of the `P0, the Board of
Directors will review with you during the `P0 process your
compensation package to be effective upon conclusion of the IPO.
1
<PAGE>
3. INCENTIVE COMPENSATION.
----------------------
In order to provide a further incentive for you to extend your
best efforts on behalf of CuraGen, the Board of Directors will
grant to you an option to purchase 100,000 shares of CuraGen
Common Stock, exercisable at a price of $7.50 per share. The stock
option plan and a form of option agreement accompany this letter.
The option agreement will provide for certain restrictions in your
ability to exercise such option and in particular will provide
that the options will vest as follows: you will have the right to
elect to purchase 20,000 shares immediately upon commencement of
your employment, and 20,000 shares on each of the four subsequent
anniversary dates of the commencement of your employment. Further,
the option agreement shall provide that in the event of a change
of control of CuraGen (for example, an acquisition of CuraGen),
the remaining non-vested options shall vest.
In the future, options may be granted to you by the Board of
Directors taking into account CuraGen's and your respective
performance, which options may equal, in terms of exercise price,
up to 100% of your then current annual rate of cash compensation.
Please feel free to call me, Greg, or Ford Goldman (617-348-1708) if you have
further comments or inquiries.
As we continually point out to you and others, we are striving to make CuraGen
not only a tremendous business success, but a tremendous scientific and
engineering success as well, something that we can all be proud of.
If the foregoing is in conformity with your understanding, would you kindly sign
below where indicated.
Very truly yours,
CURAGEN CORPORATION
/s/ Jonathan M. Rothberg
President
The foregoing is in conformity with my understanding as of this 18th day of
July, 1997.
/s/ David M. Wurzer
2
<PAGE>
Exhibit 10.9
------------
August 21, 1997
Mr. Peter Fuller
8008 Maple Drive
Urbandale, IA 50322
Dear Peter:
I enjoyed speaking with you today and we are excited by the prospect of having
you join us. Our vision is to make CuraGen nothing less than the world's leading
genomics company, supported by a strong financial base and a world-class team of
scientists and engineers. When I speak of a strong financial base", I am
speaking of achieving an envious revenue flow through strategic alliances that
assure our long-term viability and success. As we proceed in the months and
years ahead, initially with our strategic alliances and initial public offering,
your talents and experience will be an integral part of our success.
The purpose of this letter is to make a formal offer to you, as follows:
1. POSITION.
--------
Commencing October 1, 1997 (or as soon as possible), you shall
have the title of Vice President of Corporate Development. Initial
responsibilities will be to structure and execute a majority of
CuraGen's strategic alliances, in close collaboration with
Jonathan and me.
2. COMPENSATION.
------------
We offer an initial salary of $115,000, plus such bonuses (which
may represent a sizable portion of compensation) as the Board of
Directors may, in its discretion, award from time to time.
As you are aware, it is contemplated that CuraGen will conclude an
initial public offering in the near future. The IPO, once
concluded, will cause expanded responsibilities to be placed upon
you. Accordingly, in contemplation of the IPO, the Board of
Directors will review with you during the IPO process your
compensation, and, together with you, define an enhanced
compensation package to be effective upon conclusion of the IPO.
3. INCENTIVE COMPENSATION.
----------------------
In order to provide a further incentive for you to extend your
best efforts on behalf of CuraGen, the Board of Directors would
grant to you an option
<PAGE>
to purchase 80,000 shares of CuraGen Common Stock, exercisable at
a price of $7.50 per share. The stock option plan and a form of
option agreement, as prepared by our counsel, will be forwarded to
you for your review, if so requested. The option agreement will
provide for certain restrictions in your ability to exercise such
option (for example, vesting of 10,000 shares upon commencement of
employment, 15,000 shares on each of the first three anniversary
dates of your commencement of employment and 25,000 on the fourth
anniversary date) or to sell the underlying shares of stock if
exercised, in order to better insure your continued employment
with CuraGen.
4. OTHER.
CuraGen will provide for your reasonable expenses in relocating to
Connecticut, including those costs associated with house hunting
(hotel, etc.), closing costs, and other related expenses. You will
be eligible for our standard benefit package.
I trust that you will want to take some time to consider this offer, to talk to
family and friends and perhaps to further discuss the terms with us. We believe
your addition to CuraGen will enhance our success and CuraGen's management team.
I look forward to your response.
Very truly yours,
CURAGEN CORPORATION
/s/ Gregory T. Went Accepted as Proposed: /s/ Peter A. Fuller
- --------------------
Gregory T. Went, Ph.D. August 26, 1997
Executive Vice President
2
<PAGE>
Exhibit 10.10
-------------
August 22, 1997
Stephen Kingsmore, M.D.
8919S.W.44th Lane
Gainesville, FL 32608
Dear Stephen:
We are excited by the prospect of having you join us full time. Our vision is to
make CuraGen nothing less than the world's leading genomics company, supported
by a world-class team of scientists and engineers and a strong financial base.
As we proceed in the months and years ahead your talents and experience will be
an integral part of our success.
The purpose of this letter is to make a formal offer to you, as follows:
1. POSITION.
--------
Commencing October 1, 1997 (or as soon as possible), you shall
have the title of Vice President of Research. Initial
responsibilities will be for all ongoing Discovery Programs:
internal, academic and corporate collaborations. CuraGen's
discovery staff will report directly to you. The direction and
choice of programs will be decided by you in close consultation
with Jonathan and me and through regular review with CuraGen's
SAB.
2. COMPENSATION.
------------
We offer an initial salary of $125,000, plus such bonuses (which
may represent a sizable portion of compensation) as the Board of
Directors may, in its discretion, award from time to time.
As you are aware, it is contemplated that CuraGen will conclude an
initial public offering in the near future. The IPO, once
concluded, will cause expanded responsibilities to be placed upon
you. Accordingly, in contemplation of the IPO, the Board of
Directors will review with you during the IPO process your
compensation, and, together with you, define an enhanced
compensation package to be effective upon conclusion of the IPO.
3. INCENTIVE COMPENSATION.
----------------------
<PAGE>
In order to provide a further incentive for you to extend your
best efforts on behalf of CuraGen, the Board of Directors would
grant to you an option to purchase 80,000 shares of CuraGen Common
Stock, exercisable at a price of $7.50 per share. The stock option
plan and a form of option agreement, as prepared by our counsel,
will be forwarded to you for your review, if so requested. The
option agreement will provide for certain restrictions in your
ability to exercise such option (for example, vesting of 20,000
shares upon commencement of employment and 15,000 shares on each
of the next four anniversary dates of your commencement of
employment) or to sell the underlying shares of stock if
exercised, in order to better insure your continued employment
with CuraGen.
4. LOAN.
----
You have indicated that you have certain personal plans that
require approximately $50,000 of funding. In order that you may
more fully concentrate on commencing your new responsibilities
with CuraGen as Vice President of Research, CuraGen will loan you
the sum of $50,000, payable on December 31, 1998, together with
interest at the rate of 8% per annum (i.e., no cash shall be due
until December 31, 1998); provided, however, so long as you are
employed by CuraGen, the loan shall be extended until you are no
longer employed by CuraGen; further provided, however, if you have
been continuously employed by CuraGen through and including
September 30, 2001, the entire principal and accrued interest
shall be forgiven.
5. OTHER.
-----
CuraGen will provide for your reasonable expenses in relocating to
Connecticut, including those costs associated with house hunting
(hotel, etc.), closing costs, and other related expenses. You will
be eligible for our standard benefit package.
I trust that you will want to take some time to consider this offer, to talk to
family and friends and perhaps to further discuss the terms with us. We believe
your addition to CuraGen will enhance our success and CuraGen' management team.
I look forward to your response.
Very truly yours,
CURAGEN CORPORATION
/s/ Gregory T. Went /s/ Stephen Kingsmore
- --------------------
Gregory T. Went, Ph.D.
Executive Vice President
2
<PAGE>
Exhibit 10.11
-------------
CuraGen Corporation has omitted from this Exhibit 10.11 portions of the
Agreement for which CuraGen Corporation has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
Agreement No.95-0191
OPTION AND EXCLUSIVE LICENSE AGREEMENT
--------------------------------------
This Agreement is made effective the 4th day of October, 1996, by and
between Wisconsin Alumni Research Foundation (hereinafter called "WARF"), a
nonstock, nonprofit Wisconsin corporation, and CuraGen Corporation (hereinafter
called "CuraGen"), a corporation organized and existing under the laws of
Delaware;
WHEREAS, WARF owns certain inventions that are described in the "Licensed
Patents" defined below, and WARF is willing to grant a license to CuraGen under
any one or all of the Licensed Patents and CuraGen desires a license under all
of them;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties covenant and agree as follows:
Section 1. Definitions.
-----------
For the purpose of this Agreement, the Appendix A definitions shall apply.
Section 2. Grant.
-----
A. Option.
------
(i) WARF hereby grants to Curagen and its Affiliates an option
to obtain set out in this Agreement in the Licensed Field and Licensed Territory
under the option shall expire on October 4, 1999.
(ii) In order to exercise its option under this Section 2A,
CuraGen must not WARF in writing, prior to the expiration of the option, that
CuraGen is exercising its option and include with such notification a
development plan and the License Fee due under Section 3 C. Upon such exercise
of the option, the license granted under Section 2B will become effective.
B. License.
-------
Upon CuraGen's exercise of the option in Section 2A, WARF will hereby grant
to CuraGen an exclusive license, limited to the Licensed Field and the Licensed
Territory, under the Licensed Patents to make, have made, use, sell, offer for
sale, and import Products.
C. Sublicenses.
-----------
(i) Upon CuraGen's exercise of the option in Section 2A,
CuraGen may grant written, nonexclusive sublicenses to third parties. Any
agreement granting a sublicense shall state that the sublicense is subject to
the termination of this Agreement. CuraGen shall have the same responsibility
for the activities of any sublicensee as if the activities were directly those
of CuraGen.
1 of 11
<PAGE>
(ii) In respect to sublicenses granted by CuraGen under this
Section 2C, CuraGen shall pay to WARF an amount equal to what CuraGen would have
been required to pay to WARF had CuraGen sold the amount of Products sold by
such sublicensee.
Section 3. Consideration.
--------------
A. Development.
------------
Upon CuraGen's exercise of the option in Section 2A, CuraGen agrees to use
diligent efforts in the exercise of its reasonable business judgment to develop,
produce and market Products, and to pursue the development plan set forth in the
Gantt Chart submitted by CuraGen upon exercise of the option in Section 2A, and
thereafter will provide WARF with an annual letter describing the progress made
therein. WARF agrees to keep such letter confidential pursuant to Section 13.
B. Option Fee.
-----------
CuraGen agrees to pay to WARF an option fee of [XXXXXX] upon execution of
this Agreement. Such option fee will be credited against the license fee due
under Section 3C upon exercise of the option.
C. License Fee.
------------
Upon exercise of its option granted in Section 2A, CuraGen agrees to pay to
WARF a license fee of [XXXXXXX].
D. Royalty.
--------
If CuraGen exercises its option in Section 2A, in addition to the Section
3C license fee, CuraGen or its sublicensee(s) agree to pay to WARF as "earned
royalties" a royalty calculated as a percentage of the Selling Price of Products
made, used or sold by CuraGen and its Affiliates or its sublicensee(s) in the
United States subject however to any credits permitted hereunder. If the Product
is made and sold outside the United States, no royalties shall be payable on
such Products. The royalty is deemed earned as of the date the Product is
actually sold and paid for. The royalty shall remain fixed while this Agreement
is in effect at a rate of [XXXXXXXXXXXXXXXXXXXXX] of the Selling Price.
E. Minimum Royalty.
----------------
CuraGen further agrees to pay to WARF a minimum royalty for each calendar
year or part thereof during which this Agreement is in effect, starting in the
third calendar year after exercise of the option, against which any earned
royalty paid for the same calendar year will be credited. The minimum royalty
shall be [XXXXXX] per calendar year. The minimum royalty for a given year shall
be due at the time payments are due for the calendar quarter ending on December
31. It is understood that the minimum royalties will apply on a calendar year
basis, and that sales of Products requiring the payment of earned royalties made
during a prior or subsequent calendar year shall have no effect on the annual
minimum royalty due WARF for any given calendar year.
2 of 11
[Confidential treatment requested]
<PAGE>
F. Accounting: Payments.
--------------------
(i) Amounts owing to WARF under Sections 2C and 3D shall be
paid on a quarterly basis, with such amounts due and received by WARF on or
before the sixtieth day following the end of the calendar quarter ending on
March 31, June 30, September 30 or December 31 in which such amounts were
earned. The balance of any amounts which remain unpaid more than sixty (60)days
after they are due to WARF shall accrue interest until paid at the rate of the
lesser of one percent (1%) per month or the maximum amount allowed under
applicable law. However, in no event shall this interest provision be construed
as a grant of permission for any payment delays.
(ii) Except as otherwise directed, all amounts owing to WARF
under this Agreement shall be paid in U.S. dollars to WARF at the address
provided in Section 15(a). All royalties owing with respect to Selling Prices
stated in currencies other than U.S. dollars shall be converted at the rate
shown in the Federal Reserve Noon Valuation - Value of Foreign Currencies on the
day preceding the payment.
(iii) A full accounting showing how any amounts owing to WARF
under Sections 2C and 3D have been calculated shall be submitted to WARF on the
date of each such payment. Such accounting shall be on a per-country and product
line, model or tradename basis and shall be summarized on the form shown in
Appendix B of this Agreement. In the event no payment is owed to WARF, a
statement setting forth that fact shall be supplied to WARF.
Section 4. Certain Warranties of WARF.
---------------------------
A. WARF warrants that except as otherwise provided under Section 12
of this Agreement with respect to U.S. Government interests, it is the owner of
the Licensed Patents and has the right to grant the option and upon exercise of
such option the licenses granted to CuraGen in this Agreement. However, nothing
in this Agreement shall be construed as:
(i) a warranty or representation by WARF as to the validity or
scope of any of Licensed Patents;
(ii) a warranty or representation that anything made, used, sold
or otherwise disposed of under the license granted in this Agreement will or
will not infringe patents of third parties; or
(iii) an obligation to bring or prosecute actions or suits
against third parties for infringement of Licensed Patents:
B. EXCEPT AS EXPRESSLY SET FORTH HEREIN, WARF MAKES NO REPRESENTATIONS,
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND ASSUMES NO
RESPONSIBILITIES WHATSOEVER WITH RESPECT TO USE, SALE, OR OTHER DISPOSITION BY
CURAGEN, ITS SUBLICENSEES OR THEIR VENDEES OR OTHER TRANSFEREES OF PRODUCTS
INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED UNDER THIS AGREEMENT.
3 of 11
<PAGE>
Section 5. Recordkeeping.
-------------
A. CuraGen and its sublicensee(s) shall keep books and records
sufficient to verify the accuracy and completeness of CuraGen's and its
sublicensee(s)'s accounting referred to above, including without limitation
inventory, purchase and invoice records relating to the Products or their
manufacture. Such books and records shall be preserved for a period not less
than five years after they are created during and after the term of this
Agreement.
B. CuraGen and its sublicensee(s) shall take all steps necessary so
that WARF may within thirty days of its request review and copy all the books
and records at a single U.S. location to verify the accuracy of CuraGen's and
its sublicensee(s)'s accounting. Such review shall be made not more than once
each calendar year, upon reasonable notice and during regular business hours, at
the expense of WARF by a Certified Public Accountant to whom CuraGen has no
reasonable objection.
C. If a royalty payment deficiency is determined, CuraGen or its sub
licensee(s) shall. pay the royalty deficiency outstanding within thirty (30)
days of receiving written notice thereof, plus interest on outstanding amounts
as described in Section 3F(i).
Section 6. Term and Termination.
--------------------
A. The term of this Agreement shall begin on the effective date of
this Agreement and continue until the expiration of the option granted in
Section 2A or, if the option is exercised, until the expiration of the last to
expire of the Licensed Patents.
B. CuraGen may terminate this Agreement at any time by giving at
least sixty (60) days' prior written and unambiguous notice of such termination
to WARF.
C. In the event either party shall materially breach any of the
terms, conditions and agreements contained in this Agreement to be kept,
observed and performed by it, then the other party may terminate this Agreement,
at its option and without prejudice to any of its other legal and equitable
rights and remedies, by giving the party who committed the breach sixty (60)
days notice in writing, particularly specifying the breach, unless the notified
party within such sixty (60) day period shall have rectified the breach.
D. Upon the termination of this Agreement, CuraGen shall remain
obligated to provide an accounting for and to pay royalties earned up to the
date of the termination and any minimum royalties shall be prorated as of the
date of termination by the number of days elapsed in the applicable calendar
year.
Section 7. Assignability.
-------------
This Agreement may not be transferred or assigned by either party without
the prior written consent of the other party, except that CuraGen may freely
assign this Agreement to an Affiliate or to an entity acquiring substantially
all of its business to which Products relate.
4 of 11
<PAGE>
Section 8. Enforcement.
------------
Upon CuraGen's exercise of the option in Section 2A, the following
provisions shall take effect.
A. In the event that either party believes there is infringement of
any Licensed Patent under this Agreement, the party shall provide the other
party with notification thereof. During the term of this Agreement, CuraGen
shall have the right, but not the obligation, to prosecute at its own expense
any such infringement of the Licensed Patents. Before filing any such legal
action against such infringement, CuraGen shall have obtained the opinion of
outside counsel that such infringement is occurring and shall have provided WARF
with a copy of such opinion. If CuraGen elects to prosecute such infringement,
the total cost of any infringement action shall be borne by CuraGen and CuraGen
shall keep any recovery or damages for past infringement derived therefrom. WARF
agrees to cooperate with CuraGen in connection with said action and shall have
the right to join in such action upon prompt notification to CuraGen.
B. If CuraGen is unwilling or: unable to bring a suit against any
alleged infringer, then, and in those events only, WARF shall have the right,
but not the obligation, to prosecute at its own expense any infringement of the
Licensed Patents. If WARF elects to prosecute any such infringement, the total
cost of any infringement action shall be borne by WARF and WARF shall keep any
recovery or damages for patent infringement derived therefrom.
Section 9. Patent Marking.
--------------
Upon CuraGen's exercise of the option in Section 2A, CuraGen shall insure
that it and its sublicensee(s) apply patent markings that meet all requirements
of U.S. law, 35 U.S.C. 287, with respect to all Products subject to this
Agreement.
Section 10. Product Liability Conduct of Business.
--------------------------------------
Upon CuraGen's exercise of the option in Section 2A, the following
provisions shall take effect.
A. CuraGen shall, at all times during the term of this Agreement and
thereafter, indemnify, defend and hold WARF and the inventors of the Licensed
Patents harmless against all claims and expenses, including legal expenses and
reasonable attorneys fees, arising out of the death of or injury to any person
or persons or out of any damage to property and against any other claim,
proceeding, demand, expense and liability of any kind whatsoever (other than
patent infringement claims) resulting from the production, manufacture, sale,
use, lease, consumption or advertisement of Products arising from any right or
obligation of CuraGen or any sublicensee hereunder. Notwithstanding the above,
WARF at all times reserves the right to retain counsel of its own to defend
WARF's interests.
B. CuraGen warrants that it now maintains and will continue to
maintain liability insurance coverage appropriate to the risk involved in
marketing the products subject to this Agreement and that such insurance
coverage lists WARF and the inventors of the Licensed Patents as additional
insureds. Within ninety (90) days after CuraGen's exercise of the option in
Section 2A and thereafter annually between January 1 and January 31 of each
year, CuraGen will
5 of 11
<PAGE>
present evidence to WARF that the coverage is being maintained with WARF and its
inventors listed as additional insureds if the Licensed Product has an in vivo
effect. In addition, CuraGen shall provide WARF with at least 30 days prior
written notice of any change in or cancellation of the insurance coverage.
Section 11. Use of Names.
-------------
CuraGen and its sublicensee(s) shall not use WARF's name, the name of any
inventor of inventions governed by this Agreement, or the name of the University
of Wisconsin in sales promotion, advertising, or any other form of publicity
without the prior written approval of the entity or person whose name is being
used. Notwithstanding the foregoing, CuraGen may state in written materials that
CuraGen has obtained an option or a license, as appropriate, from WARF to the
technology which is the subject of this Agreement.
Section 12. United States Government Interests.
-----------------------------------
It is understood that if the United States Government (through any of its
agencies or otherwise) has funded research, during the course of or under which
any of the inventions of the Licensed Patents were conceived or made, the United
States Government is entitled, as a right, under the provisions of 35 U.S.C. (S)
200-212 and applicable regulations. of Chapter 3,7. of the Code of Federal
Regulations, to a nonexclusive'; nontransferable, `irrevocable paid-up license
to practice or have practiced the invention of such Licensed Patents for
governmental purposes. Any license granted to CuraGen in this Agreement shall be
subject to such right.
Section 13. Confidential Information.
-------------------------
The following provisions relate to restrictions on the disclosure and use
of Confidential Information by the parties:
A. Confidentiality. CuraGen and WARF each agree to treat as
---------------
confidential and to use only in the conduct of its business, all Confidential
Information disclosed to it by the other party.
B. Non-Disclosure and Non-Use. CuraGen and WARF each agrees not to
--------------------------
disclose any of the Confidential Information received from the other party to
any unauthorized third party and not to use any of the Confidential Information
except in the conduct of its business until the later of (a) five years from the
effective date of this Agreement; or (b) two years from the effective date of
termination.
C. Release from Restrictions. All information which is
-------------------------
characterized as Confidential Information shall cease to be confidential and
CuraGen and/or WARF shall be released from their respective obligations under
Sections 13A and 13B hereof on the date when, through no fault or omission of
the party seeking such release, such information becomes (a) disclosed in
published literature; (b) generally available to industry; or (c) obtained by
the party seeking such release from a third party without binder of secrecy,
provided. however that such third party has no confidentiality obligations to
- --------- -------
the other party.
6 of 11
<PAGE>
Section 14. Miscellaneous.
--------------
This Agreement shall be construed in accordance with the internal laws of
the State of Wisconsin. If any provisions of this Agreement are or shall come
into conflict with the laws or regulations of any jurisdiction or any
governmental entity having jurisdiction over the parties or this Agreement,
those provisions shall be deemed automatically deleted, if such deletion is
allowed by relevant law, and the remaining terms and conditions of this
Agreement shall remain in full force and effect. If such a deletion is not so
allowed or if such a deletion leaves terms thereby made clearly illogical or
inappropriate in effect, the parties agree to substitute new terms as similar in
effect to the present terms of this Agreement as may be allowed under the
applicable laws and regulations. The parties hereto are independent contractors
and not joint ventures or partners.
Section 15. Notices.
--------
Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the time when actually received as a consequence of any effective
method of delivery, including but not limited to hand delivery, transmission by
telecopier, or delivery by a professional courier service or the time when sent
by certified or registered mail addressed to the party for whom intended at the
address below or at such changed address as the party shall have specified by
written notice, provided that any notice of change of address shall be effective
only upon actual receipt.
(a) Wisconsin Alumni Research Foundation
Attn: Managing Director
614 Walnut Street
Madison, Wisconsin 53705
(b) CuraGen Corporation
Attn: Jonathan M. Rothberg, Ph.D.
322 East Main Street
Branford, Connecticut 06405
Section 16. Integration.
-----------
This Agreement constitutes the full understanding between the parties with
reference to the subject matter hereof, and no statements or agreements by or
between the parties, whether orally or in writing, made prior to or at the
signing hereof, shall vary or modify the written terms of this Agreement.
Neither party shall claim any amendment, modification, or release from any
provisions of this Agreement by mutual agreement, acknowledgement, or otherwise,
unless such mutual agreement is in writing, signed by the other party, and
specifically states that it is an amendment to this Agreement.
Section 17. Benefits.
---------
All terms and provisions of this Agreement shall bind and inure to the
benefit of the parties hereto, and upon their respective successors and assigns
as those are permitted under the terms of this Agreement.
7 of 11
<PAGE>
Section 18. Contract Formation and Authority.
---------------------------------
The persons signing on behalf of WARF and CuraGen hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
/s/ Richard H. Leazer Date: November 13, 1996
- ----------------------
Richard H. Leazer, Managing Director
CURAGEN CORPORATION
/s/ Jonathan M. Rothberg Date: October 30, 1996
- -------------------------
Jonathan M. Rothberg, President
Reviewed by WARF's Attorney:
/s/ Attorney Date: October 3, 1996
- ------------
(WARF's attorney shall not be deemed a signatory to this Agreement.)
8 of 11
<PAGE>
APPENDIX A
A. "Licensed Patents" shall refer to and mean [XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXX], and reissues and extensions of such patent; and
United States and foreign patents granted thereon, and reissues and extensions
thereof.
B. "Affiliates" shall mean any corporation, company, partnership, joint
venture or other entity which controls, is controlled or under common control
with CuraGen or WARF as the case may be. For the purposes of this definition,
control shall mean the direct or indirect ownership of at least fifty percent
(50%) or, if less than fifty percent (50%), the maximum percentage as allowed by
applicable law of (a) the stock shares entitled to vote for the election of
directors; or (b) ownership interest.
C. "Products" shall refer to and mean [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXX]. For the purposes of calculating the selling Price; "Products" shall
include [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
D. "Selling Price" shall mean, in the case of Products that are sold, the
invoice price to the retail customer of Products (regardless of uncollectible
accounts) less any discounts, shipping costs, allowances because of returned
Products, or sales taxes. In the event of a sale to a previous purchaser of
Products of a component that incorporates the technology of the Licensed
Patents, the "Selling Price" will be the price of solely the component.
E. "Licensed Field" shall be limited to the field of [XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
F. "Licensed Territory" shall be worldwide.
G. "Confidential Information" shall mean this Agreement, the Development
Plan and Development Reports, and any and all books, records, opinions of
counsel and business information required to be supplied to WARF by CuraGen
under the terms of this Agreement.
9 of 11
[Confidential treatment requested]
<PAGE>
APPENDIX B
WARF ROYALTY REPORT
-------------------
Licensee:_______________________________ Agreement No.___________________
INVENTOR:_______________________________ P#: P
-----------------------------
Period Covered: From: / 199 THROUGH: / / 199
-------------------- ------------------------
Prepared By:___________________________ DATE:__________________________
Approved By:___________________________ DATE:__________________________
If license covers several major product LINES, please prepare a separate
report for each line. Then combine all product lines into a summary report.
Report Type: [_] Single Product Line Report:
[_] Multiproduct Summary Report Page I of ______ PAGES
[_] Product Line Detail. Line:______TRADENAME:_______PAGE:______
Report Currency:[_] U.S. Dollars ID Other
==============================================================================
County Gross Less Net Royalty Period Royalty Amount
Sales Allowances Sales Rate This Year Last Year
- ------------------------------------------------------------------------------
U.S.A.
- ------------------------------------------------------------------------------
Canada
- ------------------------------------------------------------------------------
Europe:
- ------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Japan
- ------------------------------------------------------------------------------
Other:
- -----
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
==============================================================================
TOTAL:
==============================================================================
10 of 11
<PAGE>
Total Royalty:_____________Conversion Rate: ____________ Royalty in U.S.
Dollars:_____________
The following royalty forecast is non-binding and for WARF's internal planning
purposes only
Royalty Forecast Under This Agreement: Next Quarter:______ Q2_____ Q3:______
Q4______:
- --------------------------------------------------------------------------------
On a separate page, please indicate the reasons for returns or other
adjustments if significant.
Also note any unusual occurrences that affected royalty amounts during this
period.
To assist WARF's forecasting, please comment on any significant expected
trends in sales volume.
- --------------------------------------------------------------------------------
11 of 11
<PAGE>
Exhibit 10.12
-------------
CuraGen Corporation has omitted from this Exhibit 10.12 portions of the
Agreement for which CuraGen Corporation has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
Agreement No. 96-0126
STANDARD NONEXCLUSIVE LICENSE AGREEMENT - BRUMLEY TECHNOLOGY
------------------------------------------------------------
This Agreement is made effective the 1st day of July, 1996, by and between
Wisconsin Alumni Research Foundation (hereinafter called "WARF"), a nonstock,
nonprofit Wisconsin corporation, and CuraGen Corporation(hereinafter called
("CuraGen"), a corporation organized and existing under the laws of Delaware;
WHEREAS, WARF owns certain inventions that are described in the "Licensed
Patents" defined below and the Technology, and WARF is willing to grant a
license to CuraGen under any one or all of the Licensed Patents and/or the
Technology and CuraGen desires a license under all of them.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties covenant and agree as follows:
Section 1. Definitions.
-----------
For the purpose of this Agreement, the Appendix A definitions shall apply.
Section 2. Grant.
-----
A. License.
-------
WARF hereby grants to CuraGen a nonexclusive license, limited to the
Licensed Field and the Licensed Territory, under the Licensed Patents and under
the Technology to make, have made, use, sell, offer for sale, and import
Products.
B. Standstill.
----------
WARF agrees it will not grant any other party a license under the Licensed
Patents in the Licensed Field in the Licensed Territory through August 30, 2002
if CuraGen pays the following standstill fees:
<TABLE>
<CAPTION>
Standstill Fees Date
--------------- ----
<S> <C>
[XXXXXXX] [XXXXXXX]
[XXXXXXX] [XXXXXXX]
[XXXXXXX] [XXXXXXX]
[XXXXXXX] [XXXXXXX]
[XXXXXXX] [XXXXXXX]
</TABLE>
In the event CuraGen elects not to pay any or all of the standstill fees, the
standstill provision shall expire and WARF may license other parties under the
Licensed Patents in the Licensed Field and the Licensed Territory. WARF agrees
to discuss and reasonably negotiate extension of the standstill period beyond
the August 30, 2002 expiration date. Upon termination of the
[Confidential treatment requested]
<PAGE>
standstill provision set forth in this Section 2B, all other terms of this
Agreement shall remain in full force and effect
Section 3. Consideration.
-------------
A. Development.
-----------
CuraGen agrees to use diligent efforts in the exercise of its reasonable
business judment to develop, produce and market Products, and to pursue the
development plan set forth in the Gantt Chart submitted by CuraGen upon
execution of this Agreement and attached as Appendix C, and will provide WARF
with an annual letter describing the progress made therein. WARF agrees to keep
such letter confidential pursuant to Section 12.
B. License Fee.
-----------
CuraGen agrees to pay to WARF a license fee of [XXXXXXXX]. The first
installment shall be due and payable on or before August 30, 1996. The second
installment shall be due and payable on or before August 30, 1997. The final
installment shall be due and payable on or before August. 30, 1998.
C. Royalty.
-------
(i) In addition to the Section 3B license fee, CuraGen agrees
to pay to WARF as earned royalties" a royalty calculated as a percentage of the
Selling Price of Products in accordance with the terms and conditions of this
Agreement subject however to any credits permitted hereunder. The royalty is
deemed earned as of the date the Product is actually sold and paid for. The
royalty shall remain fixed while this Agreement is in effect at a rate of
[XXXXXXXX] of the Selling Price.
(ii) Notwithstanding the foregoing, WARF hereby grants to
CuraGen the right to sell as many as [XXXXXXXX].
D. Offset Against Royalties.
------------------------
In the event that CuraGen or its Affiliate(s) cannot manufacture or sell a
particular Product without infringing the patent of a third party, CuraGen shall
have the right to negotiate with the third party for a license under the third
party's patent rights; and then CuraGen shall have the right to reduce CuraGen
`s royalty payments to WARF by up to [XXXXXXXXXXXXXXXXX] of the amount which
CuraGen is obligated to pay such third party for such patent license. However,
in no event shall this offset for third party licensing costs exceed [XXXXX
XXXXXXXXXXXX] of the royalties owed to WARF in any given calendar year.
2
[Confidential Treatment Requested]
<PAGE>
E. Accounting: Payments.
--------------------
(i) Amounts owing to WARF under Section 3C shall be paid on
a quarterly basis, with such amounts due and received by WARF on or before the
sixtieth day following the end of the calendar quarter ending on March 31, June
30, September 30 or December 31 in which such amounts were earned. The balance
of any amounts which remain unpaid more than sixty (60) days after they are due
to WARF shall accrue interest until paid at the rate of the lesser of one
percent (1%) per month or the maximum amount allowed under applicable law.
However, in no event shall this interest provision be construed as a grant of
permission for any payment delays.
(ii) Except as otherwise directed, all amounts owing to WARF
under this Agreement shall be paid in U.S. dollars to WARF at the address
provided in Section 14(a). All royalties owing with respect to Selling Prices
stated in currencies other than U.S. dollars shall be converted at the rate
shown in the Federal Reserve Noon Valuation - Value of Foreign Currencies on the
day preceding the payment.
(iii) A full accounting showing how any amounts owing to WARF
under Section 3C have been calculated shall be submitted to WARF on the date of
each such payment. Such accounting shall be on a per-country and product line,
model or tradename basis and shall be summarized on the form shown in Appendix C
of this Agreement. In the event no payment is owed to WARF, a statement setting
forth that fact shall be supplied to WARF.
Section 4. Certain Warranties of WARF.
--------------------------
A. WARF warrants that except as otherwise provided under Section
11 of this Agreement with respect to U.S. Government interests, it .is the owner
of the Licensed Pa tents and has the right to grant the licenses granted to
CuraGen in this Agreement. However, nothing in this Agreement shall be construed
as:
(i) any of Licensed Patents; a warranty or representation
by WARF as to the validity or scope of
(ii) a warranty or representation that anything made, used,
sold or otherwise disposed of under the license granted in this Agreement will
or will not infringe patents of third parties; or
(iii) an obligation to furnish any know-how not provided in
Licensed Patents or any services other than those specified in this Agreement.
B. EXCEPT AS EXPRESSLY SET FORTH HEREIN, WARF MAKES NO
REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO USE, SALE, OR OTHER
DISPOSITION BY CURAGEN OR ITS VENDEES OR OTHER
3
<PAGE>
TRANSFEREES OF PRODUCTS INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED
UNDER THIS AGREEMENT.
Section 5. Recordkeeping.
-------------
A. CuraGen shall keep books and records sufficient to verify the
accuracy and completeness of CuraGen's accounting referred to above, including
without limitation inventory, purchase and invoice records relating to the
Products or their manufacture. Such books and records shall be preserved for a
period not less than five years after they are created during and after the term
of this Agreement.
B. CuraGen shall take all steps necessary so that WARF may within
thirty days of its request review and copy all the books and records at a single
U.S. location to verify the accuracy of CuraGen's accounting. Such review shall
be made not more than once each calendar year, upon reasonable notice and during
regular business hours, at the expense of WARF by a Certified Public Accountant
to whom CuraGen has no reasonable objection.
C. deficiency outstanding outstanding amounts as If a royalty
payment deficiency is determined, CuraGen shall pay the royalty within thirty
(30) days of receiving written notice thereof, plus interest on described in
Section 3E(i).
Section 6. Term: Termination.
-----------------
A. The term of this license shall begin on the effective date of
this Agreement and continue until the expiration of the last to expire of the
Licensed Patents.
B. CuraGen may terminate this Agreement at any time by giving at
least sixty (60) days' prior written and unambiguous notice of such termination
to WARF.
C. In the event either party shall materially breach any of the
terms, conditions and agreements contained in this Agreement to be kept,
observed and performed by it, then the other party may terminate this Agreement,
at its option and without prejudice to any of its other legal and equitable
rights and remedies; by giving the party who committed the breach sixty (60)
days notice in writing, particularly specifying the breach, unless the notified
party within such sixty (60) day period shall have rectified the breach.
D. Upon the termination of this Agreement, CuraGen shall remain
obligated to provide an accounting for and to pay royalties earned up to the
date of the termination and any minimum royalties shall be prorated as of the
date of termination by the ., number of days elapsed in the applicable calendar
year.
4
<PAGE>
Section 7. Assignability.
-------------
This Agreement may not be transferred or assigned by either party without
the prior written consent of the other party, except that CuraGen may freely
assign this Agreement to an Affiliate or to an entity acquiring substantially
all of its business to which Products relate.
Section 8. Patent Marking.
--------------
CuraGen shall insure that it applies patent markings that meet all
requirements of U.S. law, 35 U.S.C. 287, with respect to all Products subject to
this Agreement.
Section 9. Product Liability: Conduct of Business.
--------------------------------------
A. CuraGen shall, at all times during the term of this Agreement
and thereafter, indemnify, defend and hold WARF, and the inventors of the
Licensed Patents and the authors and inventors of the Technology harmless
against all claims and expenses, including legal expenses and reasonable
attorneys fees, arising out of the death of or injury to any person or persons
or out of any damage to property and against any other claim, proceeding,
demand, expense and liability of any kind whatsoever (other than patent
infringement claims) resulting from the production, manufacture, sale, use,
lease, consumption or advertisement of Products arising from any right or
obligation of CuraGen hereunder. WARF at all times reserves the right to select
and retain counsel of its own to defend WARF's interests.
B. CuraGen warrants that it now maintains and will continue to
maintain liability insurance coverage appropriate to the risk involved in
marketing the products subject to this Agreement and that such insurance
coverage lists WARP and the inventors of the Licensed Patents and the authors
and inventors of the Technology as additional insureds. Within ninety (90) days
after the execution of this Agreement and thereafter annually between January 1
and January 31 of each year, CuraGen will present evidence to WARF that the
coverage is being maintained with WARF and its inventors listed as additional
insureds if the Licensed Product has an in vivo effect. In addition, CuraGen
shall provide WARF with at least 30 days prior written notice of any change in
or cancellation of the insurance coverage.
Section 10. Use of Names.
------------
CuraGen shall not use WARF's name, the name of any inventor or author of
inventions or technology governed by this Agreement, or the name of the
University of Wisconsin in sales promotion, advertising, or any other form of
publicity without the prior written approval of the entity or person whose name
is being used. Notwithstanding the foregoing, CuraGen may state in written
materials that CuraGen has obtained a license from WARF to the technology which
is the subject of this Agreement.
5
<PAGE>
Section 11. United States Government Interests.
----------------------------------
It is understood that the United States Government (through any of its
agencies or otherwise) has funded research, during the course of or under which
any of the inventions of the Licensed Pa' tents were conceived or made, the
United States Government is entitled, as a right, under the provisions of 35
U.S.C. (S) 200-212 and applicable regulations of Chapter 37 of the Code of
Federal Regulations, to a nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced the invention of such Licensed Patents for
governmental purposes. Any license granted to CuraGen in this Agreement shall be
subject to such right.
Section 12. Confidential Information.
------------------------
The following provisions relate to restrictions on the disclosure and use
of Confidential Information by the parties:
A. Confidentiality. CuraGen and WARF each agree to treat as
confidential and to use only in the conduct of its business, all Confidential
Information disclosed to it by the other party.
B. Non-Disclosure and Non-Use. CuraGen and WARF each agrees not to
disclose any of the Confidential Information received from the other party to
any unauthorized third party and not to use any of the Confidential Information
except in the conduct of its business until the later of (a) five years from the
effective date of this Agreement; or (b) two years from the effective date of
termination.
C. Release from Restrictions. All information which is
characterized as Confidential Information shall cease to be confidential and
CuraGen and/or WARF shall be released from their respective obligations under
Sections 1 2A and 1 2B hereof on the date when, through no fault or omission of
the party seeking such release, such information becomes (a) disclosed in
published literature; (b) generally available to industry; `or `(c) obtained by
the party seeking such release from a third party without binder of secrecy,
provided, however, that such third party has no confidentiality obligations to
the other party.
Section 13. Miscellaneous.
-------------
This Agreement shall be construed in accordance with the internal laws of
the State of Wisconsin. If any provisions of this Agreement are or shall come
into conflict with the laws or regulations of any jurisdiction or any
governmental entity having jurisdiction over the parties or this Agreement,
those provisions shall be deemed automatically deleted, if such deletion is
allowed by relevant law, and the remaining terms and conditions of this
Agreement shall remain in ,full force and effect. If such a deletion is not so
allowed or if such a deletion leaves terms thereby made clearly illogical or
inappropriate in effect, the parties agree to substitute new terms as similar in
effect to the present terms of this Agreement as may be allowed under the
applicable laws and regulations. The parties hereto are independent contractors
and not joint venturers or partners.
6
<PAGE>
Section 14. Notices.
-------
Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and shall, be deemed to have been given at, the
earlier of the time when actually received as a' consequence of any effective
method of delivery, including but not limited to hand delivery, transmission by
telecopier, or delivery by a professional courier service or the time when sent
by certified or registered mail addressed to the party for whom intended at the
address below or at such changed address as the party shall have specified by
written notice, provided that any notice of change of address shall be effective
only upon actual receipt.
(a) Wisconsin Alumni Research Foundation
Attn: Managing Director
614 Walnut Street
Madison, Wisconsin 53705
(b) CuraGen Corporation
Attn: Jonathan M. Rothberg, Ph.D.
322 East Main Street
Branford, Connecticut 06405
Section 15. Integration.
-----------
This Agreement constitutes the full understanding between the parties with
reference to the subject matter hereof, and no statements or agreements by or
between the parties, whether orally or in writing, made prior to or at the
signing hereof, shall vary or modify the written terms of this Agreement.
Neither party shall claim any amendment, modification, or release from any
provisions of this Agreement by mutual agreement, acknowledgement, or otherwise,
unless such mutual agreement is in writing, signed by the other party, and
specifically states that it is an amendment to this Agreement.
Section 16. Benefits.
--------
All terms and provisions of this Agreement shall bind and inure to the benefit
of the parties hereto, and upon their respective successors and assigns as those
are permitted under the terms of this Agreement.
Section 17. Contract Formation and Authority.
--------------------------------
The persons signing on behalf of WARF and CuraGen hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: /s/ Richard H. Leazer Date: August 20, 1996
------------------------------------
Richard H. Leazer, Managing Director
CURAGEN CORPORATION
By: /s/ Jonathan M. Rothberg Date: August 13, 1996
------------------------------------
Jonathan M. Rothberg, President
________________________________________________________________________________
Reviewed by WARF's Attorney:
/s/ Elizabeth L. R. Donley
- ----------------------------------------
Elizabeth L. R. Donley, Esq.
August 17, 1996
(WARF's attorney shall not be deemed a signatory to this Agreement.)
8
<PAGE>
APPENDIX A
A. "Licensed Patents" shall refer to and mean those patents and patent
applications listed on Appendix B hereto, and reissues and extensions of such
patents, and continuations, continuations-in-part, divisions, and renewals of
such applications; and United States and foreign patents granted thereon, and
reissues and extensions thereof.
B. "Affiliates" shall mean any corporation, company, partnership, joint
venture or other entity which controls, is controlled or under common' control
with CuraGen or WARF as the case may be. For the purposes of this definition,
control shall mean the direct or indirect ownership of at least fifty percent
(50%) or, if less than fifty percent (50%), the maximum percentage as allowed by
applicable law of (a) the stock shares entitled to vote for the election of
directors; or (b) ownership interest.
C. "Products" shall refer to and mean [XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
D. "Date of First Commercial Sale" shall mean the date when cumulative
sales to the retail market of Products exceeds [XXXXXXXXX].
E. "Selling Price" shall mean, in the case of Products that are sold, the
invoice price to the retail customer of Products (regardless of uncollectible
accounts) less any discounts, shipping costs, allowances because of returned
Products, or `sales taxes. In the event of a sale to a previous purchaser of
Products of a component that incorporates the technology of the Licensed
Patents, the "Selling Price" will be the price of solely the component.
F "Licensed Field" shall be limited to the field of [XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
G. "Licensed Territory" shall be worldwide.
H. "Confidential Information" shall mean this Agreement, the Development
Plan and Development Reports, and any and all books, records and business
information required to be supplied to WARF by CuraGen under the terms of this
Agreement.
9
[Confidential Treatment Requested]
<PAGE>
APPENDIX B
LICENSED PATENTS AND PATENT APPLICATIONS
----------------------------------------
<TABLE>
<CAPTION>
REFERENCE PATENT ISSUE APPLIC. SERIAL
NUMBER COUNTRY NUMBER DATE NUMBER
- --------------------------------------------------------------------------------
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
<S> <C> <C> <C> <C>
XXXXXXXX XXXX XXXXXXXXX XXXXXXX
XXXXXXXX XXXX XXXXXXXXX XXXXXXX
XXXXXXXX XXXXXX XXXXXXX
XXXXXXXX XXX XXXXXXXXXX
XXXXXXXX XXXXX XXXXXXXX
</TABLE>
10
[Confidential Treatment Requested]
<PAGE>
WARF ROYALTY REPORT
-------------------
CuraGen:____________________________ Agreement No.:_________________
Inventor:___________________________ P#: P
-------------------------------------
Period Covered: From: / /199 Through: / /199
------------- --------------------------
Prepared By: _____________ Date: _______________________________
Approved By: _____________ Date: _______________________________
If license covers several major lines, please
prepare a separate report for each line.
Then combine all product lines into a summary
report.
Report Type: Single Product Line Report:______________________________
Multiproduct Summary Report. Page 1 of ____ Pages
Product Line Detail. Line:________ Tradename:_______
Page:____________
Report Currency: U.S. Dollars Other______________________________________
<TABLE>
<CAPTION>
==============================================================================================
Gross * Less: Net Royalty Period Royalty Amount
Country Sales Allowances Sales Rate
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
This Year Last Year
- ----------------------------------------------------------------------------------------------
U.S.A.
- ----------------------------------------------------------------------------------------------
Canada
==============================================================================================
Europe
- ------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
==============================================================================================
Japan
==============================================================================================
Other
- -----
==============================================================================================
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
==============================================================================================
TOTAL:
==============================================================================================
</TABLE>
Total Royalty:______________ Conversion Rate:_______________ Royalty in U.S.
Dollars: $______________
The following royalty forecast is non-binding and for WARF's internal
planning purposes only:
Royalty Forecast Under This Agreement: Next Quarter:_____Q2:_____Q3:_____Q4:___
________________________________________________________________________________
* On a separate page, please indicate the reasons for returns or other
adjustments if significant.
Also note any unusual occurrences that affected royalty amounts during this
period.
To assist WARF's forecasting, please comment on any significant expected trends
in sales volume.
________________________________________________________________________________
<PAGE>
APPENDIX D
DEVELOPMENT PLAN
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[Confidential Treatment Requested]
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Exhibit 10.13
CuraGen Corporation has omitted from this Exhibit 10.13 portions of the
Agreement for which CuraGen Corporation has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
PIONEER HI-BRED INTERNATIONAL, INC.
AND
CURAGEN CORPORATION
May 16, 1997
<PAGE>
5/16/97
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement")
is entered into as of May 16, 1997 by and between PIONEER HI-BRED INTERNATIONAL,
INC. ("PIONEER"), an Iowa corporation having its registered office at 700
Capital Square, 400 Locust Street, Des Moines, Iowa 50309-2340 , and CURAGEN
Corporation ("CURAGEN"), a Delaware corporation, having its registered office at
555 Long Wharf Drive, 11th Floor, New Haven, CT 06511, U.S.A.
WHEREAS, CURAGEN has expertise in the discovery and characterization
of genes utilizing proprietary technologies; and
WHEREAS, PIONEER has expertise in the breeding and development of
proprietary crop species and proprietary planting seed; and
WHEREAS, PIONEER and CURAGEN wish to enter into this Agreement in
order to collaborate in the performance of research to discover and develop
genes associated with plant growth and development; and
WHEREAS, CURAGEN will perform research which will be funded and
supported by PIONEER in order to discover and develop such genes and will
license the results of such research to PIONEER in the Territory for the purpose
of the development, testing, manufacture and sale of products in the PIONEER
Commercialization Field (as hereinafter defined); and
WHEREAS, PIONEER will perform research in order to develop products
and technology based on the genes and other research results discovered by
CURAGEN and will grant to CURAGEN an option to license the results of such
research in the territory for the purpose of the development, testing,
manufacture and sale of products in the CURAGEN Commercialization Field (as
hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the parties hereby agree
as follows:
1. DEFINITIONS
-----------
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Whenever used in this Agreement with an initial capital letter, the
terms defined in this Section 1 shall have the meanings specified.
1.1 "Affiliate" means any corporation, firm, limited liability
company, partnership or other entity which directly or indirectly controls or is
controlled by or is under common control with a party to this Agreement.
"Control" means ownership, directly or through one or more Affiliates, of forty
percent (40%) or more of the shares of stock entitled to vote for the election
of directors, in the case of a corporation, or forty percent (40%) or more of
the equity interests in the case of any other type of legal entity, status as a
general partner in any partnership, or any other arrangement whereby a party
controls or has the right to control the Board of Directors or equivalent
governing body of a corporation or other entity.
1.2 "Agent" shall mean any corporation, firm, limited liability
company, partnership or other entity through which PIONEER and/or any Affiliate
produces and/or markets Licensed Products. An Agent shall not be deemed a
sublicensee hereunder.
1.3 "Agricultural Chemical" means a chemical or non-chemical Licensed
Product other than a Seed Product or a Non-Seed Plant Product that is used
directly in crop production, including but not limited to fertilizers and
pesticides.
1.4 "Confidential Information" means all information (including but
not limited to information about any element of Proprietary Know-How) which is
disclosed by one party to the other hereunder or under the Superseded
Confidentiality Agreement (as defined in Section 13.13) except to the extent
that such information (i) as of the date of disclosure is demonstrably known to
the party receiving such disclosure or its Affiliates, as shown by written
documentation, other than by virtue of a prior confidential disclosure from the
other party to such party or its Affiliates; (ii) as of the date of disclosure
is in, or subsequently enters, the public domain, through no fault or omission
of the party receiving such disclosure; or (iii) as of the date of disclosure or
thereafter is obtained from a third party free from any obligation of
confidentiality.
1.5 "CURAGEN Commercialization Field" means all human healthcare and
pharmaceutical (including, without limitation, therapeutic, prophylactic and
diagnostic) applications, animal health applications and microbial applications.
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1.6 "Development Program" has the meaning set forth in Section 2.4.1
1.7 "Effective Date" means June 1, 1997 unless another date is agreed
upon by unanimous decision of the RDSC.
1.8 "Fiscal Quarter" means one quarter of a Fiscal Year.
1.9 "Fiscal Year" means the twelve month period beginning September 1
and ending August 31.
1.10 "FTE" means the equivalent of a full year of effort on a full
time basis of a scientist or other professional possessing skills and experience
necessary to carry out the R&D Program, determined in accordance with CURAGEN's
normal policies and procedures.
1.11 "Full-Price Unit" means units (i.e., packages) of seed that are
invoiced or otherwise transferred to Third Parties by PIONEER, its Affiliates,
Agents, licensees and/or sublicensees at full price or full price discounted for
volume, pre-pay or other trade discounts.
1.12 "Genomics Research" means the discovery and analysis of genes,
the discovery and analysis of the expression of genes, the discovery and
analysis of the function of genes, and discovery and analysis of mutations and
the pathways in which genes interact.
1.13 "Genomics Technology" means hardware, software and methods,
together with any copyright, patent application or patent with claims thereto,
relating to techniques and technologies for Genomics Research developed or
invented by CURAGEN, PIONEER or any PIONEER Affiliate, solely or jointly, in the
course of performance of the R&D Program, but shall not include Improvements to
the GeneScape(TM) database and software. "CURAGEN Genomics Technology" means
Genomics Technology developed or invented by CURAGEN. "PIONEER Genomics
Technology" means Genomics Technology developed or invented by PIONEER. "Joint
Genomics Technology" means Genomics Technology developed or invented jointly by
both parties.
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1.14 An item will be considered "jointly" developed or invented by
both parties if employees and/or consultants of both parties made an Inventive
Contribution to the invention or development thereof.
1.15 A party or a party's employees or consultants will be deemed to
have made an "Inventive Contribution":
A. to a patentable invention or copyrightable work if such employee
or consultant would be considered an inventor or author under 35
U.S.C. et. seq. or 17 U.S.C. et. seq., and as interpreted by the
U.S. Patent and Trademark Office and the U.S. Copyright Office,
respectively, and the United States courts, or
B. to any item, if the Confidential Information, Proprietary
Intellectual Property, or Research Results of such party were
actually used in the development or invention of the item in
question in a substantive manner, or if the development or
invention of the item was actually based in a substantive manner
on such party's Confidential Information, Proprietary
Intellectual Property, or Research Results.
1.16 "Improvements" means Pioneer-developed enhancements to the
GeneScape(TM) database and software that are uniquely applicable to the
GeneScape(TM) database and software and are not useful in databases or software
other than GeneScape(TM) database and software.
1.17 "Licensed Product" means any product or any part thereof, that
(i) the development, production, use or sale of which would infringe any issued
and unexpired claim contained in or any copyright included in CURAGEN Patent
Rights or Joint Patent Rights but for the license granted hereunder, or (ii)
which incorporates, or the discovery, development or production of which
incorporates or uses CURAGEN or Joint Proprietary Know-How.
1.18 "License Term" means the time period referenced in Section
8.2(a).
1.19 "Net Sales" means, with respect to a Licensed Product that is a
Seed Product within PIONEER Crop Species, [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
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[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx
xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
1.20 "Non-PIONEER Crop Species" means [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
1.21 "Non-Seed Plant Product" means any Licensed Product other than a
Seed Product which is (i) a plant, (ii) a part of a plant, or (iii) an extract
from a plant, in each case whether in unprocessed or processed form, including
feed, food, industrial materials and fibers. Non-Seed Plant Product shall not
include any product produced in a plant or extracted from a plant which is
within the CURAGEN Commercialization Field or the Other Commercialization Field.
For example, a human protein produced in a plant shall not be a Non-Seed Plant
Product.
1.22 "Other Commercialization Field" means all fields other than the
PIONEER Commercialization Field and the CURAGEN Commercialization Field.
1.23 "Patent Coordinator" has the meaning set forth in Section 6.3
1.24 "Patent Rights" means the rights and interests in and to (i) issued
patents and pending patent applications in any country, including, but not
limited to, all provisional
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applications, substitutions, continuations, continuations-in-part, divisions,
and renewals, all letters patent granted thereon, and all reissues,
reexaminations and extensions thereof, whether owned solely or jointly by a
party or licensed in by a party now or in the future, with the right to
sublicense, wherein at least one claim of such patent right is directly based,
in whole or in part, on Research Results other than Genomics Technology, and
(ii) copyrights with respect to Research Data and Proprietary Know-How, other
than Genomics Technology. "CURAGEN Patent Rights" shall mean Patent Rights with
respect to CURAGEN Proprietary Know-How and CURAGEN Research Results. "PIONEER
Patent Rights" shall mean Patent Rights with respect to PIONEER Proprietary
Know-How and PIONEER Research Results. "Joint Patent Rights" shall mean Patent
Rights with respect to Joint Proprietary Know-How and Joint Research Results.
1.25 "PIONEER Commercialization Field" means (i) Seed Products; (ii)
Non-Seed Plant Products and (iii) Agricultural Chemicals.
1.26 "PIONEER Crop Species" means [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
1.27 "PIONEER Proprietary Material" means tissue samples or germplasm
provided by PIONEER to CURAGEN in order for CURAGEN to perform the R&D Program
and shall also be deemed to include the actual nucleic acids and other
substances contained in such tissue samples or germplasm.
1.28 "Proprietary Intellectual Property" means all Patent Rights and
Proprietary Know-How. "CURAGEN Proprietary Intellectual Property" shall mean
CURAGEN Patent Rights and CURAGEN Proprietary Know-How. "PIONEER Proprietary
Intellectual Property" shall mean PIONEER Patent Rights and PIONEER Proprietary
Know-How. "Joint Proprietary Intellectual Property" shall mean Joint Patent
Rights and Joint Proprietary Know-How.
1.29 "Proprietary Know-How" means, without limitation, all Research
Results and all non-patented inventions, improvements, discoveries, proprietary
materials, biological substances, data, know-how and trade secrets based on
Research Results. Proprietary Know-How shall not include Genomics Technology.
"CURAGEN Proprietary Know-How shall mean Proprietary Know-How invented or
developed by CURAGEN. "PIONEER Proprietary Know-
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How" shall mean Proprietary Know-How invented or developed by PIONEER. "Joint
Proprietary Know-How" shall mean Proprietary Know-How invented or developed
jointly by both parties.
1.30 "R&D Field" means PIONEER Crop Species and Non-PIONEER Crop
Species.
1.31 "R&D Program" means the research and development program to be
conducted by CURAGEN and PIONEER pursuant to Section 2 and reflected in the Work
Plans.
1.32 "R&D Steering Committee" or "RDSC " means the committee created
pursuant to Section 2.2 hereof.
1.33 "Research Data" means all differential expression and sequence
data and any other information obtained, developed or derived in the course of
performance of the R&D Program, but excluding Genomics Technology.
1.34 "Research Materials" mean all tangible property invented,
obtained, discovered, developed or derived, or the function or utility of which
is discovered or determined, in the course of performance of the R&D Program
including, without limitation, all cDNAs cloned and/or sequenced in the course
of performance of the R&D Program, but excluding Genomics Technology.
1.35 "Research Results" means all Research Data and Research
Materials, collectively. "CURAGEN Research Results" means Research Results
invented or developed by CURAGEN. "PIONEER Research Results" means Research
Results invented or developed by PIONEER. "Joint Research Results" means
Research Results invented or developed jointly by both parties.
1.36 "Research Term" has the meaning set forth in Section 2.3.1.
1.37 "Royalty Reduction Date" has the meaning set forth in Section
8.4.4.
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1.38 "Sample Unit" means units (i.e., packages) of seed that are
invoiced or otherwise transferred to Third Parties by PIONEER, its Affiliates,
Agents, licensees and/or sublicensees for promotional purposes at no value.
1.39 "Seed Product" means a Licensed Product that is a seed of any
plant for use as planting seed.
1.40 "Staffing Level" has the meaning set forth in Section 2.1.1.
1.41 "Target Trait" means a Trait selected by PIONEER for which
CURAGEN will endeavor to identify and confirm associated genes in the course of
performance of the R&D Program.
1.42 "Territory" means all the countries of the world.
1.43 "Third Party" shall mean any party who is not a party hereto, or
an Affiliate, Agent, licensee or sublicensee thereof.
1.44 "Trait" means a characteristic of a product associated with one
or more genes which is manipulated (either through continued selection or
transgenic intervention) and tracked (as evidenced by recorded notes) by PIONEER
as part of the product development process. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
1.45 "Work Plan" means the written plan describing the activities to
be carried out during each semi-annual period of the R&D Program pursuant to
this Agreement. Each Work Plan will be set forth in a written document prepared
by CURAGEN and PIONEER and approved by the R&D Steering Committee.
2. R&D PROGRAM
-----------
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2.1 Implementation of R&D Program.
-----------------------------
2.1.1 Basic Provisions of Program.
---------------------------
(a) The objective of the R&D Program shall be the discovery and
characterization of genes associated with plant growth and development,
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]. CURAGEN and PIONEER shall each use
commercially reasonable efforts to perform such tasks as are set forth to be
performed by it in the Work Plans, including the provision of such facilities,
materials (including PIONEER Proprietary Materials), equipment and consultants
as each deems necessary to the achievement of such Work Plans. In carrying out
the R&D Program, CURAGEN shall devote an average of at least [XXXXXXXX] FTEs per
year, including [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] to the R&D Program
over its five year duration (the "Staffing Level") unless PIONEER has requested
an increase in the Staffing Level as provided in (b) below. At least one FTE,
who shall be an individual reasonably acceptable to PIONEER, shall be devoted to
the R&D Program on a full-time basis.
(b) PIONEER may, at its sole discretion, request an increase in the
Staffing Level of up to [XXXXXX] additional FTEs per year to be devoted to the
R&D Program by giving [XXXXXXXXXXXXXX] prior notice to CURAGEN, which notice may
not be given more than [XXXXXXXXXXXXXXXXXXXXXXX]. CURAGEN will use commercially
reasonable efforts to increase the staffing level as requested as promptly as
practical. Once the Staffing Level is increased, it may not be decreased during
the Research Term without the consent of CURAGEN, which consent may be withheld
at CURAGEN's sole discretion.
2.1.2 Collaborative Efforts and Reports.
---------------------------------
(a) The parties agree that the successful execution of the R&D
Program will require the collaborative use of both parties' areas of expertise.
The parties shall keep the RDSC fully informed about the status of the portions
of the R&D Program they respectively perform. In particular, without limitation,
each party shall furnish to the RDSC and each other semi-annual written reports
within thirty (30) days after the end of each semi-annual period, describing the
progress of its activities in reasonable detail, including (x) a detailed
accounting of the FTEs used and actual allocation of FTEs, and (y) a description
of Proprietary Intellectual Property arising
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from (i) CURAGEN's research efforts and accomplishments and (ii) PIONEER's
research programs, breeding programs and field tests. The RDSC shall also be
kept informed of any efforts by PIONEER or the parties jointly to (x) pursue
commercialization partners in the PIONEER Commercialization Field or (y) pursue
research partners for the purpose of facilitating additional research within the
R&D Field beyond the scope of the research on Target Traits described in the
Work Plan. Any such expansion of the research efforts in the R&D Field shall
include additional research funding for CURAGEN and may include additional
payments to the parties in the form of additional up front fees, milestone fees,
royalties or license fees which shall be shared by the parties in a mutually
agreeable manner so as to reflect each party's contribution to any such expanded
collaboration.
(b) Scientists at CURAGEN and PIONEER shall cooperate in the
performance of the R&D Program and, subject to any confidentiality obligations
to third parties, shall exchange information and materials as necessary to carry
out the R&D Program, subject to the provisions of Section 5. Each party will
attempt to accommodate any reasonable request of the other party to send or
receive personnel for purposes of collaborating or exchanging information under
the R&D Program. Such visits and/or access will have defined purposes and be
scheduled in advance. The requesting party will bear the travel and lodging
costs of any such personnel.
(c) CURAGEN shall set up and maintain, throughout the Research
Term, a secure partition of its GeneScape(TM) database and software and provide
online E-mail and telephone help in the use thereof to PIONEER. CURAGEN and
PIONEER shall jointly set up and maintain a secure connection to said partition
of the GeneScape(TM) database and software in order to give PIONEER on-line
access thereto. PIONEER shall have no rights to use the GeneScape(TM) database
and software except as set forth above and in Section 8.1.1(b). The parties
recognize that PIONEER may desire to include other data in GeneScape(TM)
database and software and/or that PIONEER may wish to analyze Research Data with
other data analysis tools not available in GeneScape(TM) database and software
or in conjunction with other data owned or controlled or accessed by PIONEER. In
recognition of this desire, the Parties may cooperate in an effort to
incorporate other data and/or data analysis tools into the GeneScape(TM)
database and software.
(d) After the first six (6) months of the R&D Program, but before
the first anniversary of the R&D Program, CURAGEN and PIONEER shall discuss
strategies and the resources needed to import a copy of Research Data to
PIONEER, if necessary for efficiency, and to keep
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it updated. Any such Research Data imported to PIONEER may be used by PIONEER
only for activities pursuant to Section 8.8.
2.1.3 Work Plans.
----------
The Work Plan for the first six months of the R&D Program will be
agreed upon by the parties within one (1) month of the Effective Date and will
include plans to implement the installation of access to the GeneScape(TM)
database and software for PIONEER. For each subsequent semi-annual period of the
R&D Program, the Work Plan shall be prepared by CURAGEN and PIONEER and approved
by the RDSC no later than thirty (30) days before the end of the prior
semi-annual period. The Work Plan shall set forth specific research and
development objectives, milestones and resource allocation requirements and
shall be designed to facilitate the earliest practical identification of genes
associated with Target Traits selected by PIONEER. Each Work Plan shall be in
writing and shall set forth with reasonable specificity tasks for the period
covered by the Work Plan. The RDSC may make adjustments in the Work Plan as it
may determine.
2.1.4 Exclusivity.
-----------
(a) CURAGEN agrees that during the Research Term CURAGEN will
not collaborate in the performance of research in the R&D Field with any other
commercial party or will not undertake activities for the benefit of any other
commercial party in the R&D Field, except as otherwise permitted hereby.
Notwithstanding the foregoing, nothing contained in this Agreement shall in any
way restrict CURAGEN's right to perform research or collaborate with third
parties outside of the R&D Field and to grant to third parties the right to
exploit the results of any such research or collaborations without restriction.
(b) PIONEER agrees that for the duration of this Agreement,
PIONEER will not utilize any CURAGEN Proprietary Intellectual Property or
CURAGEN Research Results for any purpose other than as provided herein. CURAGEN
agrees that CURAGEN will not use and/or replicate any PIONEER Proprietary
Materials or utilize any PIONEER Proprietary Intellectual Property or PIONEER
Research Results for any purpose other than as provided herein.
2.2 R&D Steering Committee.
----------------------
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2.2.1 Establishment and Functions of RDSC.
-----------------------------------
(a) CURAGEN and PIONEER shall establish an "R&D Steering
Committee" (the "RDSC"). The RDSC will act on behalf of the two companies and
will be responsible for the planning and monitoring of the R&D Program and for
setting forth specific research and development objectives, milestones and
resource allocation requirements. In particular, the activities of the RDSC
shall include reviewing progress in the R&D Program and recommending necessary
adjustments to the R&D Program, including any study substitutions deemed
desirable based on results and on PIONEER's commercial interest, as the research
and development progresses, and considering and evaluating potential
collaborations with third parties in the R&D Field or the PIONEER
Commercialization Field.
(b) In planning and monitoring the R&D Program, the RDSC shall
assign tasks and responsibilities taking into account each party's respective
specific capabilities and expertise in order in particular to avoid duplication
and enhance efficiency and synergies.
2.2.2 RDSC Membership.
---------------
CURAGEN and PIONEER each shall appoint, in their sole discretion,
three members to the RDSC, which shall include a Co-Chair to be designated by
PIONEER and a Co-Chair to be designated by CURAGEN. Substitutes or alternates
for the Co-Chairs or other RDSC members may be appointed at any time by notice
in writing to the other party. The parties may mutually agree to change the size
of the RDSC as long as there shall be an equal number of representatives of each
party on the RDSC. The initial Co-Chairs and other RDSC members shall be
designated by the parties upon execution of this Agreement. CURAGEN shall
appoint a Project Coordinator, who shall be reasonably satisfactory to PIONEER,
to serve as the principal liaison with PIONEER for the R&D Program.
Such Project Coordinator will be one of CURAGEN's members of the RDSC.
2.2.3 Meetings.
--------
The RDSC shall meet at least semi-annually, with such meetings to be
held, alternately, in New Haven, Connecticut, and Des Moines, Iowa, unless the
parties agree otherwise. Any
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additional meetings shall be held at places and on dates selected by the Co-
Chairs of the RDSC. In addition, the RDSC may act without a formal meeting by a
written memorandum signed by the Co-Chairs of the RDSC. Whenever any action by
the RDSC is called for hereunder during a time period in which the RDSC is not
scheduled to meet, the Co-Chairs of the RDSC shall cause the RDSC to take the
action in the requested time period by calling a special meeting or by action
without a meeting. Subject to the obligations set forth in Section 5,
representatives of each party or of its Affiliates, in addition to the members
of the RDSC, may attend RDSC meetings at the invitation of either party with the
prior approval of the other party, which shall not be unreasonably withheld.
2.2.4 Minutes.
-------
The RDSC shall keep accurate minutes of its deliberations which
record all proposed decisions and all actions recommended or taken. Drafts of
the minutes shall be delivered to the Co-Chairs of the RDSC within twenty (20)
days after the meeting. The party hosting the meeting shall be responsible for
the preparation and circulation of the draft minutes. Draft minutes shall be
edited by the Co-Chairs and shall be issued in final form only with their
approval and agreement as evidenced by their signatures on the minutes.
2.2.5 Quorum; Voting; Decisions.
-------------------------
At each RDSC meeting, at least two (2) member(s) appointed by each
party shall constitute a quorum and decisions shall be made by majority vote.
Each RDSC member shall have one vote on all matters before the RDSC, provided
that the member or members of each party present at an RDSC meeting shall have
the authority to cast the votes of any of such party's members on the RDSC who
are absent from the meeting. Notwithstanding the foregoing, the objective of the
parties to this Agreement is that decisions of the RDSC shall be made by
consensus. However, except as otherwise set forth herein, in the event that the
RDSC is unable to resolve any matter before it as set forth above, such matter
shall be resolved by PIONEER, taking into reasonable consideration the best
interests of both PIONEER and CURAGEN.
2.2.6 Expenses.
--------
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CURAGEN and PIONEER shall each bear all expenses of their respective
RDSC members related to their participation on the RDSC and attendance at RDSC
meetings.
2.3 Research and Development Term.
-----------------------------
2.3.1 Term of the R&D Program.
-----------------------
The R&D Program shall expire five (5) years after the Effective Date
unless extended as provided below or unless earlier terminated by either party
pursuant to the provisions in Section 2.3.3 and/or Article 9 (the "Research
Term").
2.3.2 Extension of the Research Phase of the R&D Program.
--------------------------------------------------
The Research Term may be extended upon six (6) months prior written
notice by mutual agreement of the parties on terms to be agreed upon between the
parties.
2.3.3 Early Termination of the R&D Program.
------------------------------------
(a) PIONEER may terminate the R&D Program at its sole
discretion upon three (3) months prior written notice, such notice to be given
at any time after eighteen months have elapsed from the Effective Date, if
[XXXXXXXX] prior to the time notice is given; provided, however, that such
notice shall be deemed automatically withdrawn if [XXXXXXX], and provided,
further, that for any such termination which would take effect prior to the
third anniversary of the Effective Date, PIONEER shall pay to CURAGEN upon such
termination an amount equal to the lesser of (i) nine months of research funding
at levels existing at the time of such termination, or (ii) the balance of the
research funding due through the third anniversary of the Effective Date at
levels existing at the time of such termination. Any such payments shall be made
within thirty (30) days of such termination. This Agreement shall terminate
simultaneously with the termination of the R&D Program under this Section
2.3.3(a) and all remaining PIONEER Proprietary Material provided to CURAGEN
under this Agreement shall be returned to PIONEER or destroyed.
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(b) Either party may terminate the R&D Program after the third
anniversary of the Effective Date upon three (3) months prior written notice;
provided, however, that CURAGEN shall have no such rights to terminate if the
Staffing Level is, or has been duly requested by PIONEER to be, set at
[XXXXXXXX] FTEs prior to the giving of any such termination notice by CURAGEN.
(c) Any termination of the R&D Program under Section 2.3.3(b)
shall be without prejudice to the rights of either party against the other, then
accruing or otherwise accrued under this Agreement and upon any such
termination, all remaining PIONEER Proprietary Material provided to CURAGEN
under this Agreement shall be returned to PIONEER or destroyed.
2.3.4 Post Research Term Cooperation.
------------------------------
At least three months prior to the expiration or termination pursuant
to Section 2.3.3 of the Research Term, the parties shall meet to agree on
mechanisms for coordinating and managing activities which shall occur after the
expiration of the Research Term which would otherwise be addressed by the RDSC
hereunder including but not limited to (i) reporting on the development of
Proprietary Intellectual Property; (ii) decisions with respect to patent filing
and prosecution; (iii) resolution of inventorship disputes; and (iv) other items
as needed.
2.4 Product Development.
-------------------
2.4.1 Development Obligations.
-----------------------
PIONEER agrees that it will use reasonable efforts to develop and
market Licensed Products in the PIONEER Commercialization Field throughout the
Territory at its own expense (the "Development Program"), but only to the extent
that the development and commercialization of such Licensed Products is
economically practicable and the market for such Licensed Products justifies, in
PIONEER's reasonable determination, such development and sale.
2.4.2 Reports.
-------
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After expiration or early termination pursuant to Section 2.3.3(b) of
the Research Term, PIONEER will keep CURAGEN fully informed concerning the
status of the Development Program for each Licensed Product. In particular,
without limitation, PIONEER shall (a) report to CURAGEN on an annual basis with
respect to all aspects of such development and commercialization activities; (b)
provide CURAGEN with summaries of all governmental filings filed in connection
with such Licensed Products in the United States and other countries; and (c)
provide such other information concerning such development and commercialization
activities as CURAGEN shall reasonably request.
3. EQUITY INVESTMENT
-----------------
In conjunction with the execution of this Agreement, PIONEER will
make an equity investment in CURAGEN of $7.5 million upon execution of this
Agreement. The equity investment will be in the form of a purchase of One
Million (1,000,000) shares of Series D Convertible Preferred Stock at a price of
$7.50 per share (the "Preferred Stock") pursuant to the provisions of a Stock
Purchase Agreement of even date herewith.
4. RESEARCH FUNDING
----------------
In partial consideration of the work to be done by CURAGEN in the R&D
Program, PIONEER will pay CURAGEN non-refundable research payments of
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] per year per FTE in the Staffing
Level during the first three years of the Research Term, commencing as of the
Effective Date. During the fourth and fifth years of the Research Term, PIONEER
will pay CURAGEN [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] per year per FTE, adjusted
for inflation occurring during the prior three year or four year term,
respectively, at the greater of (i) four percent (4%) per annum or (ii)
inflation as indicated by the Consumer Price Index for New Haven, Connecticut
for All Urban Consumers (CPI-U) (1982-84=100) published by the U.S. Department
of Labor, Bureau of Labor Statistics since the Effective Date. Such payments
will be made in advance, on or before the first day of each calendar quarter,
with the first and last payments prorated in the event that the Effective Date
is not the first day of a calendar quarter. In the event that the Staffing Level
is to change in any calendar quarter, such payment shall be pro-rated
accordingly based on the above-specified level of funding per FTE. The first
research payment shall be made simultaneously with the execution of this
Agreement and shall include all amounts necessary to
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make PIONEER current in research payments due since the Effective Date. PIONEER
will fund its own activities under the R&D Program.
5. TREATMENT OF CONFIDENTIAL INFORMATION
-------------------------------------
5.1 Confidentiality.
---------------
5.1.1 General.
-------
CURAGEN and PIONEER each recognize that the other party's
Confidential Information constitutes highly valuable and proprietary
confidential information. For the purposes hereof, PIONEER Proprietary Material
shall be deemed PIONEER Confidential Information. Subject to the terms and
conditions of Section 8, CURAGEN and PIONEER each agree that, except as required
by applicable law or regulation (including the filing and prosecution of patent
applications) or judicial or administrative order, during the term of this
Agreement and for five (5) years thereafter, (i) it will keep confidential, and
will cause its employees, consultants, Affiliates, licensees and sublicensees to
keep confidential, all Confidential Information of the other party that is
disclosed to it, or to any of its employees, consultants, Affiliates and
licensees and sublicensees, pursuant to or in connection with this Agreement;
and (ii) neither it nor any of its respective employees, consultants, Affiliates
and licensees and sublicensees shall use Confidential Information of the other
party for any purpose whatsoever except as expressly permitted in this
Agreement. Notwithstanding the foregoing, (i) either party may disclose
Confidential Information to its sublicensees as long as such sublicensees
execute a confidentiality agreement providing protections similar to those
contained herein, and (ii) PIONEER will reasonably cooperate with CURAGEN in the
making of reasonable disclosures of Confidential Information, CURAGEN Research
Results, Joint Research Results, CURAGEN Proprietary Intellectual Property and
Joint Proprietary Intellectual Property to investment bankers, investors and
potential investors of CURAGEN; provided, however, that such disclosures shall
only be made under the terms of a confidentiality agreement providing
protections similar to those contained herein.
5.1.2 Restricted Access.
-----------------
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CURAGEN and PIONEER each agree that any disclosure of the other
party's Confidential Information to any of its officers, employees, consultants
or agents or those of any of its Affiliates and licensees and sublicensees shall
be made only if and to the extent necessary to carry out its rights and
responsibilities under this Agreement, shall be limited to the maximum extent
possible consistent with such rights and responsibilities and shall only be made
to persons who are bound by written confidentiality agreements to maintain the
confidentiality thereof and not to use such Confidential Information except as
expressly permitted by this Agreement. Each party, upon the other's request,
will return all the Confidential Information disclosed to it by the other party
pursuant to this Agreement, including all copies and extracts of documents,
within sixty (60) days of the request of the disclosing party following the
expiration or termination of this Agreement; provided that a party may retain
Confidential Information of the other party relating to any license or right to
use Proprietary Intellectual Property which survives such termination and one
copy of all other Confidential Information may be retained in confidential and
inactive archives solely for the purpose of establishing the contents thereof.
5.1.3 Employee Confidentiality Agreements.
-----------------------------------
CURAGEN and PIONEER each represent that all of its employees and all
of the employees of its Affiliates, and any consultants to such party or its
Affiliates, participating in the R&D Program or who shall otherwise have access
to Confidential Information of the other party are bound by written agreements
to maintain such information in confidence and not to use such information
except as expressly permitted herein. Each party agrees to enforce
confidentiality obligations to which its employees and consultants (and those of
its Affiliates) are obligated.
5.2. Publicity.
---------
Neither party may disclose the existence or terms of this Agreement
without the prior written consent of the other party; provided, however, that
either party may make such a disclosure to the extent required by law and that
CURAGEN may make a disclosure of the existence and terms of this Agreement to
investors, prospective investors, lenders and other financing sources, and to
strategic partners or licensees for products in the CURAGEN Commercialization
Field; provided, however, that such disclosures shall only be made under the
terms of a confidentiality agreement providing protections similar to those
contained herein. The parties, upon the execution of this Agreement, will agree
to a news release for publication in
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general circulation periodicals and news wires. Once any written statement is
approved for disclosure by both parties, either party may make subsequent public
disclosures limited to the specific contents of such prior statement without the
further approval of the other party.
5.3. Publication.
-----------
It is expected that each party may wish to publish the results of its
research under this Agreement. In order to safeguard intellectual property
rights, the party wishing to publish or otherwise publicly disclose the results
of its research hereunder shall first submit a draft of the proposed manuscripts
to the RDSC for review, comment and consideration of appropriate patent action
at least thirty (30) days prior to any submission for publication or other
public disclosure. Within thirty (30) days of receipt of the prepublication
materials, the RDSC will advise the party seeking publication as to whether a
patent application will be prepared and filed or whether trade secret protection
should be pursued and, if so, the RDSC will, in cooperation with both parties,
determine the appropriate timing and content of any such publications.
5.4. Prohibition on Hiring.
---------------------
Neither PIONEER nor its Affiliates shall, during the Research Term,
but in any event for at least five (5) years from the Effective Date, hire any
person who was employed by CURAGEN or its Affiliates during such period, whether
such person is hired as an employee, investigator, independent contractor or
otherwise, without the express written consent of CURAGEN.
5.5 Consultants.
-----------
Prior to retaining any consultant who shall have access to any
Confidential Information of the other party or who shall participate in the
performance of the R&D Program, each party shall use reasonable efforts to
determine if such consultant has or will have any potential conflict of interest
with respect to the other party as a result of any other relationships of such
consultant and will not retain any consultant known to have such a conflict
without the consent of the other party, such consent to not be unreasonably
withheld.
6. INTELLECTUAL PROPERTY RIGHTS
----------------------------
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6.1 Disclosure of Inventions.
------------------------
Each party shall promptly inform the other and the RDSC about all
Research Results, Proprietary Intellectual Property and Genomics Technology. The
following provisions shall apply to rights in Research Results, Proprietary
Intellectual Property, and Genomics Technology.
6.2 Ownership.
---------
6.2.1 CURAGEN Intellectual Property Rights.
------------------------------------
CURAGEN shall have sole and exclusive ownership of all right, title
and interest on a worldwide basis in and to any Research Results, Proprietary
Intellectual Property, and Genomics Technology developed or invented solely by
employees or consultants of CURAGEN.
6.2.2 PIONEER Intellectual Property Rights.
------------------------------------
PIONEER shall have sole and exclusive ownership of all right, title
and interest on a worldwide basis in and to any Research Results, Proprietary
Intellectual Property, and Genomics Technology developed or invented solely by
employees or consultants of PIONEER.
6.2.3 Joint Intellectual Property Rights.
----------------------------------
PIONEER and CURAGEN shall jointly own all Research Results,
Proprietary Intellectual Property, and Genomics Technology jointly developed or
invented by employees or consultants of both CURAGEN and PIONEER.
6.3 Patent Coordinators.
-------------------
CURAGEN and PIONEER shall each appoint a patent coordinator (a
"Patent Coordinator") who shall serve as such party's primary liaison with the
other party on matters relating to patent filing, prosecution, maintenance and
enforcement. Each party may replace its Patent Coordinator at any time by notice
in writing to the other party. The initial Patent Coordinators shall be
designated by the parties upon execution of this Agreement.
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6.4 Inventorship.
------------
In case of dispute between CURAGEN and PIONEER over inventorship or
authorship, the RDSC, with the advice of the Patent Coordinators and counsel,
shall, at its next meeting following the disclosure of any Research Results,
Proprietary Intellectual Property or Genomics Technology pursuant to Section
6.1, make a determination of the inventor(s) or author(s) by application of the
standards embodied in United States patent and copyright law. The RDSC, with the
advice of the Patent Coordinators and counsel, shall also, in the case of
dispute, make any determination as to whether an invention is Genomics
Technology or an Improvement to GeneScape(TM) database and software.
7. PROVISIONS CONCERNING THE FILING, PROSECUTION
---------------------------------------------
AND MAINTENANCE OF PATENT RIGHTS
--------------------------------
The following provisions relate to the filing, prosecution and
maintenance of Patent Rights during the term of this Agreement:
7.1 Filing of Patents.
-----------------
7.1.1 Primary Responsibilities.
------------------------
In consultation with the Patent Coordinators, the RDSC will
coordinate the determination of what patents will be filed on Research Results
developed under the R&D Program. PIONEER will be responsible for the filing,
prosecution and maintenance (including the defense of interferences and similar
proceedings) of any patents on such Research Results, provided that PIONEER
shall use reasonable efforts to obtain patent coverage that is as broad as
possible to cover all potential commercial applications thereof, and provided
that CURAGEN will have the opportunity to provide substantive review and comment
on any such prosecution. Additionally, CURAGEN shall have a period of fifteen
(15) business days from receipt of any draft patent application to add any
proper claims and specifications outside of the PIONEER Commercialization Field.
7.1.2 Elective Termination of Rights.
------------------------------
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If at any time PIONEER wishes to discontinue the prosecution or
maintenance of any Patent Rights filed in accordance with Section 7.1.1, PIONEER
shall promptly give notice of such intention to CURAGEN. CURAGEN shall have the
right, but not the obligation, to assume responsibility for the prosecution of
any such Patent Rights at its own expense, by giving notice to PIONEER of such
intention within thirty (30) days and such Patent Rights shall thereafter be
treated as Patent Rights of CURAGEN. PIONEER shall transfer ownership of such
Patent Rights to CURAGEN, and PIONEER shall no longer have any rights hereunder
to such Patent Rights.
7.2 Expenses.
--------
PIONEER will bear the costs of the filing, prosecution and
maintenance of all Patent Rights for which it has responsibilities pursuant to
Section 7.1, provided, however, that if CURAGEN desires, at its sole discretion,
to add any claims to any Patent Rights which are outside of the PIONEER
Commercialization Field as provided in Section 7.1, CURAGEN shall pay for the
drafting and prosecution of any such claims, which drafting and prosecution
shall be performed by patent counsel designated by CURAGEN, who shall cooperate
with PIONEER's patent counsel as necessary.
8. LICENSE RIGHTS
--------------
8.1 License Grants.
--------------
8.1.1 Licenses to PIONEER.
-------------------
(a) CURAGEN hereby grants to PIONEER a sole and exclusive
license in the Territory, including the right to grant sublicenses, to develop,
have developed, make, have made, use, have used, distribute for production
and/or sale, offer for sale, sell, have sold, and import Licensed Products in
the PIONEER Commercialization Field under any and all CURAGEN and/or Joint
Research Results and Proprietary Intellectual Property. PIONEER shall have the
right to assign or otherwise transfer its rights in the license granted herein
(or any part thereof) to certain Affiliates such as PIONEER Overseas Corporation
for the purposes of conducting PIONEER's business. Notwithstanding any such
assignment, PIONEER shall be responsible for
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the activities, including all reporting and royalty obligations, of such
Affiliates as if they were PIONEER.
(b) As set forth in Section 2.1.2(c), during the Research Term,
CURAGEN hereby agrees to continue to maintain its GeneScape(TM) database and
software and to use such database and software in the R&D Program; provided
that, for a period starting at expiration or termination of the Research Term
and for three years thereafter, CURAGEN shall license the GeneScape(TM) database
and software to PIONEER under reasonable terms and conditions which, for
clarity, shall be based on CURAGEN's reasonable costs for maintenance and
support under such license, all in accordance with a GeneScape(TM) License
Agreement to be negotiated in good faith by the parties. Further, CURAGEN hereby
agrees that, at PIONEER's option and expense, CURAGEN shall export a licensed
copy of GeneScape(TM) database and software to PIONEER, along with the Research
Data if not already resident at PIONEER pursuant to Section 2.1.2(d), upon
request made within twelve (12) months after the expiration of the Research
Term.
8.1.2 Licenses to CURAGEN.
-------------------
(a) PIONEER hereby grants to CURAGEN, to the extent it has
rights to do so, an exclusive, worldwide, royalty-free license of perpetual
duration to any Improvements made to the GeneScape(TM) database and software by
PIONEER or by the parties jointly during the Research Term or during the period
of any license to PIONEER as set forth in Section 8.1.1(b). PIONEER hereby
agrees to execute and deliver any documents as requested by CURAGEN in order to
achieve the intent of this Section 8.1.2(a).
(b) PIONEER hereby grants to CURAGEN, to the extent PIONEER has
the right to grant such licenses, a worldwide, royalty-free (except for the
consideration set forth in Section 8.4.3) license of perpetual duration to
commercialize products or services based on Genomics Technology under PIONEER's
ownership interest in such Genomics Technology. Such license shall be exclusive
with respect to Joint Genomics Technology, subject only to [XXXXXXXX]. The
license granted herein may be exploited by CURAGEN in all fields and at all
times with the sole exception that CURAGEN will not exploit such license for the
benefit of any Third Party in the R&D Field during the Research Term.
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8.1.3 Rights in the Other Commercialization Field.
-------------------------------------------
Neither party shall have the right, including rights under any of the
other party's solely-owned Research Results or Proprietary Intellectual Property
or jointly owned Research Results or Proprietary Intellectual Property, to
develop, have developed, make, have made, use, distribute for sale, sell, offer
for sale or import any Licensed Product in the Other Commercialization Field, or
to grant any licenses to any third parties to do the same. If either party
wishes to develop and commercialize Licensed Products in the Other
Commercialization Field alone, in collaboration with the other party, or in
conjunction with any third party, it shall notify the other party. All such
opportunities shall only be pursued upon terms mutually agreeable to both
parties, such agreement to not be unreasonably withheld.
8.2 Term of License and Royalty Periods.
-----------------------------------
The License Term with respect to any rights licensed to PIONEER in
Section 8.1.1(a) for any Licensed Product shall commence upon the Effective Date
and shall continue on a country-by-country basis until the royalty obligation
set forth in Section 8.4 expires for such Licensed Product. Thereafter, PIONEER
shall have a fully paid-up license of perpetual duration to all CURAGEN Research
Results, all CURAGEN Proprietary Intellectual Property and CURAGEN's interest in
all Joint Research Results and Joint Proprietary Intellectual Property with
respect to such Licensed Product.
8.3 Licenses and Sublicenses to Third Parties.
-----------------------------------------
If PIONEER grants a license or sublicense to a Third Party with
respect to any CURAGEN Research Results, Joint Research Results, CURAGEN
Proprietary Intellectual Property and/or Joint Proprietary Intellectual
Property, PIONEER shall guarantee that such licensee or sublicensee will fulfill
all of PIONEER's obligations under this Agreement; provided, however, that
PIONEER shall remain directly liable for the fulfillment of all such obligations
unless otherwise consented to in writing by CURAGEN.
8.4 Payment of Royalties, Royalty Rates, Accounting for
---------------------------------------------------
Royalties and Records
---------------------
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8.4.1 Payment of Royalties to CURAGEN.
-------------------------------
PIONEER recognizes and acknowledges that each of the following,
separately and together, has substantial economic benefit to PIONEER:
(i) CURAGEN's expertise and know-how concerning the discovery
and characterization of genes in the R&D Field,
(ii) the performance by CURAGEN of the R&D Program on the
terms specified herein,
(iii) the disclosure to PIONEER of results obtained in the R&D
Program by CURAGEN,
(iv) access to CURAGEN's informatics capabilities and software,
(v) the licenses granted to PIONEER hereunder with respect to
CURAGEN Proprietary Know-How and Joint Proprietary Know-How
which are not within the claims of any letters patent owned
or controlled by CURAGEN,
(vi) the licenses granted to PIONEER under letters patent owned
or controlled by CURAGEN,
(vii) the foundation afforded to PIONEER for its internal program
of research, development, manufacturing and marketing of
products in the PIONEER Commercialization Field using gene
discovery and characterization technology by each of the
elements set forth in subparagraphs (i) through (v) above,
(viii) CURAGEN's commitment not to collaborate with any other
party in the R&D Field during the Research Term, as set
forth in Section 2.1.4(a), and
(ix) the "head start" afforded to PIONEER, whether or not any
patents issue with respect to any CURAGEN Proprietary Know-
How and whether or not any or all unpatented CURAGEN Know-
How becomes a part of the public domain, by each of the
elements set forth in subparagraphs (i) through (viii)
above,
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and in consideration of each, separately and together, and in consideration of
the fact that CURAGEN is relying upon PIONEER to produce Licensed Products in
the PIONEER Commercialization Field, PIONEER agrees to pay to CURAGEN earned
royalties with respect to sales by PIONEER, its Affiliates, Agents, licensees
and sublicensees of Licensed Products as follows:
PIONEER shall pay CURAGEN a royalty based on the Net Sales of
Licensed Products pursuant to Section 8.4.1(a) in each country until the royalty
obligation ceases as set forth in Section 8.4.4; provided, however, that a
royalty shall not be payable with respect to any Licensed Product which is
within the definition of Licensed Product solely under clause (ii) of Section
1.17 unless CURAGEN has made an Inventive Contribution to such Licensed Product.
For each Licensed Product, the royalty shall be as follows:
(a) For Licensed Products in the PIONEER Commercialization
Field that are Seed Products within PIONEER Crop Species that are invoiced or
otherwise transferred to a Third Party, the royalty shall be [XXXXXXXX].
(b) For all other Licensed Products in the PIONEER
Commercialization Field not covered in (a) above, PIONEER and CURAGEN will share
revenues from the commercialization of such Licensed Products using a mutually
agreeable formula to be negotiated upon request of PIONEER, such negotiation to
be conducted in good faith over a period of not more than ninety (90) days,
prior to commercialization by PIONEER or the execution of any agreement with
third parties or the granting of any license or sublicense for such Licensed
Products. Such formula shall recognize the relative value contributed by CURAGEN
to the Licensed Product and the relative value contributed by PIONEER's plant
genetic business and expertise existing outside the R&D Program. The parties
recognize that PIONEER has substantial expertise and investment in plant
genomics research and product development, and that the relative value of
CURAGEN's contribution may be comparatively small. If the parties cannot agree
on the formula or the valuation during such good faith negotiation, the parties
will submit to dispute resolution as provided in Article 12.
8.4.2 Alternate Net Sales Calculation.
-------------------------------
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The parties agree that prior to the first commercialization of a
Licensed Product by PIONEER or its Affiliates, Agents, licensees or sublicensees
pursuant to Section 8.4.1(a), the parties will meet to discuss in good faith an
amendment to this Agreement which would provide for an alternative definition of
Net Sales for such Licensed Product which may be based on the gross amount
invoiced, less the average over a prior period of the deductions set forth in
Section 1.19(a) through (d).
8.4.3 Royalty Reductions Due to Other Commercial Activities.
-----------------------------------------------------
The royalty specified in Section 8.4.1(a) [XXXXXXXX] may be
reduced as a result of good faith negotiations between the parties (i) in the
event that technologies or intellectual properties owned by third parties are
essential for commercialization of [XXXXXXXX] Licensed Products and depending
on the relative contribution of the third party technology [XXXXXXXX] and/or
(ii) in the event that exclusive or non-exclusive rights granted to CURAGEN as
set forth in Section 8.1.2(b) have enabled CURAGEN to develop material business
opportunities; provided, however, that the [XXXXXXXX] minimum royalty will not
be reduced [XXXXXXXX] and that such discussions shall occur only once with
respect to (i) or (ii) above. Any reduction based on (ii) above will recognize
the value contributed by PIONEER relative to the overall value contributed by
CURAGEN's Genomics Technology and CURAGEN's genomics technology and expertise
existing outside the R&D Program. The parties recognize that CURAGEN has
substantial expertise and investment in genomics and Genomics Research, and that
the relative value of the rights granted to CURAGEN in Section 8.1.2(b) may be
comparatively small.
8.4.4 Royalties After the Royalty Reduction Date.
------------------------------------------
For the reasons set forth in Section 8.4.1, for each Licensed Product
specified in Section 8.4.1(a), for exclusive use of CURAGEN Proprietary Know-How
and Joint Proprietary Know-How, PIONEER also hereby agrees to pay royalties to
CURAGEN on a country-by-country [XXXXXXXX] basis, [XXXXXXXX], after the Royalty
Reduction Date, as defined below, in such country. For purposes hereof, the
"Royalty Reduction Date" for a Licensed Product in each country shall be
[XXXXXXXX]
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[XXXXXXXX]
8.4.5 Payment Dates and Reports.
-------------------------
Royalties shall be paid by PIONEER on Net Sales within thirty (30)
days after the end of each of the first three Fiscal Quarters in the Fiscal Year
in which such Net Sales are made, and within sixty (60) days of the end of the
final Fiscal Quarter in any Fiscal Year; provided, however, that royalties for
the first three Fiscal Quarters of each Fiscal Year shall be based on
seventy-five percent (75%) of Net Sales in such Fiscal Quarters, with royalties
for the fourth quarter to be adjusted to account for actual Net Sales for the
entire Fiscal Year. Such payments shall be accompanied by a report showing the
quantity and Net Sales of each Licensed Product sold by PIONEER or any
Affiliate, licensee or sublicensee in each country, the applicable royalty rate
for such Licensed Product, any credits or offsets to be applied, and a
calculation of the amount of royalty due.
8.4.6 Accounting.
----------
The Net Sales used for computing the royalties payable to CURAGEN
hereunder shall be computed, and royalties shall be paid, in U.S. dollars. For
purposes of determining the amount of royalties due, the amount of Net Sales in
any foreign currency shall be computed by converting such amount into U.S.
dollars at the prevailing commercial rate of exchange for purchasing dollars
with such foreign currency as reported in The Wall Street Journal on the last
business day of the period to which a royalty payment relates.
8.4.7 Records.
-------
PIONEER, its Affiliates, licensees and sublicensees shall keep for
three (3) years from the date of each payment of royalties complete and accurate
records of sales by PIONEER and its Affiliates, licensees and sublicensees of
each Licensed Product in sufficient detail to allow the
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accruing royalties to be determined accurately. CURAGEN shall have the right for
a period of three (3) years after receiving any report or statement with respect
to royalties due and payable to appoint an independent certified public
accountant reasonably acceptable to PIONEER to inspect the relevant records of
PIONEER and its Affiliates, licensees and sublicensees to verify such report or
statement. PIONEER and its Affiliates, licensees and sublicensees shall make its
records available for inspection by such independent certified public accountant
during regular business hours at such place or places where such records are
customarily kept, upon reasonable notice from CURAGEN, solely to verify the
accuracy of the reports and payments. Such inspection right shall not be
exercised more than once in any Fiscal Year nor more than once with respect to
sales of any Licensed Product in any given payment period. CURAGEN agrees to
hold in strict confidence all information concerning royalty payments and
reports, and all information learned in the course of any audit or inspection,
except to the extent necessary for CURAGEN to reveal such information in order
to enforce its rights under this Agreement or if disclosure is required by law,
regulation or judicial order. CURAGEN shall pay for such inspections, except
that in the event there is any upward adjustment in aggregate royalties payable
for any Fiscal Year of the inspected party shown by such inspection of more than
four percent (4%) of the amount paid, PIONEER shall pay for such inspection.
8.4.8 Overdue Royalties.
-----------------
Royalties not paid within the time period set forth in Section 8.4.5
shall bear interest at a rate of one percent (1%) per month from the due date
until paid in full.
8.5 Legal Action.
------------
8.5.1 Actual or Threatened Infringement.
---------------------------------
(a) In the event either party becomes aware of any possible
infringement or unauthorized possession, knowledge or use of any Patent Rights
or Proprietary Know-How licensed hereunder (collectively, an "Infringement"),
that party shall promptly notify the other party and provide it with full
details. The parties will meet to determine the appropriate course of action,
and will collaborate in pursuing such course or action.
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(b) Notwithstanding the foregoing, if the parties do not
otherwise agree on a course of action, PIONEER shall have primary responsibility
for the prosecution, prevention or termination of any Infringement in the
PIONEER Commercialization Field at PIONEER's expense and with the sharing of
recoveries as specified below and CURAGEN shall have primary responsibility for
the prosecution, prevention or termination of any Infringement in the CURAGEN
Commercialization Field or the Other Commercialization Field at CURAGEN's
expense and with the sharing of recoveries as specified below. If either PIONEER
or CURAGEN, respectively, does not commence an action to prosecute, or otherwise
take steps to prevent or terminate an Infringement of a Patent Right for which
it has primary responsibility hereunder within sixty (60) days from such notice,
then the other party shall have the right and option to take such reasonable
action as it considers appropriate to prosecute, prevent or terminate such
Infringement. If either party determines that it is necessary or desirable for
the other to join any such suit, action or proceeding, the second party shall
execute all papers and perform such other acts as may be reasonably required in
the circumstances.
(c) PIONEER shall bear the cost of any proceeding or suit
under this Section 8.5.1 brought by PIONEER and CURAGEN shall bear the cost of
any proceeding or suit under this Section 8.5.1 brought by CURAGEN. In each such
case, the responsible party shall have the right first to reimburse itself out
of any sums recovered in such suit or in its settlement for all reasonable costs
and expenses, including reasonable attorney's fees, related to such suit or
settlement. The remainder is next to be used to reimburse the other party for
its costs and expenses so incurred. Any remaining amounts which are in the form
of compensatory damages in the PIONEER Commercialization Field shall be treated
as Net Sales hereunder; any remaining amounts which are in the form of
compensatory damages in the CURAGEN Commercialization Field shall be the
property of CURAGEN; and any punitive damages shall be shared equally by CURAGEN
and PIONEER. Any non-monetary recovery or award shall be shared as mutually
agreed between the parties hereto. Each party shall always have the right to be
represented by counsel of its own selection and at its own expense in any suit
instituted under this Section by the other party for an Infringement. If either
party lacks standing and the other party has standing to bring any such suit,
action or proceeding as specified above, then the other party shall do so at the
request of the responsible party and at the responsible party's expense.
(d) In any action under this Section 8.5.1, the parties shall
fully cooperate with and assist each other. No suit under Section 8.5.1
regarding CURAGEN or Joint Proprietary Intellectual Property may be settled by
PIONEER without CURAGEN's consent. No suit under
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Section 8.5.1 regarding PIONEER or Joint Proprietary Intellectual Property may
be settled by CURAGEN without PIONEER's consent.
8.5.2 Defense of Claims Asserted by Third Parties.
-------------------------------------------
(a) Notwithstanding anything to the contrary in this Agreement,
in the event that any action, suit or proceeding is brought against CURAGEN or
PIONEER or any Affiliate, Agent, licensee or sublicensee of PIONEER alleging the
infringement of the intellectual property rights of a third party by reason of
the discovery, development, manufacture, use, sale, importation or offer for
sale of a Licensed Product by PIONEER or its Affiliates, Agents, licensees or
sublicensees, PIONEER will have the obligation to defend itself and CURAGEN and
such Affiliate, Agent, licensee or sublicensee in such action, suit or
proceeding at PIONEER's expense, except if the action, suit or proceeding is
brought primarily due to the actions of CURAGEN in its discovery and
characterization of genes, including but not limited to the use of CURAGEN's
proprietary technologies. (In such case, PIONEER shall have no obligation to
defend CURAGEN.) CURAGEN shall have the right to separate counsel at its own
expense in any such action or proceeding and PIONEER will reimburse CURAGEN for
all reasonable expenditures incurred in connection therewith. The parties will
cooperate with each other in the defense of any such suit, action or proceeding.
The parties will give each other prompt written notice of the commencement of
any such suit, action or proceeding or claim of infringement and will furnish
each other a copy of each communication relating to the alleged infringement.
PIONEER shall not compromise, litigate, settle or otherwise dispose of any such
suit, action or proceeding which involves CURAGEN Proprietary Intellectual
Property or Joint Proprietary Intellectual Property without CURAGEN's advice and
prior consent, provided that CURAGEN shall not unreasonably withhold its consent
to any settlement which does not have a material adverse effect on CURAGEN or
CURAGEN's business.
(b) Notwithstanding anything to the contrary in this
Agreement, in the event that any action, suit or proceeding is brought against
PIONEER or CURAGEN or any Affiliate, licensee or sublicensee of CURAGEN alleging
the infringement of the intellectual property rights of a third party by reason
of the discovery, development, manufacture, use, sale, importation or offer for
sale of a Licensed Product by CURAGEN or its Affiliates, licensees or
sublicensees, CURAGEN will have the obligation to defend itself and PIONEER and
such Affiliate, licensee or sublicensee in such action, suit or proceeding at
CURAGEN's expense, except if the action, suit or proceeding is brought primarily
due to the use by CURAGEN of PIONEER developed
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technologies. (In such case, CURAGEN is under no obligation to defend or to pay
for PIONEER's defense.) PIONEER shall have the right to separate counsel at its
own expense in any such action or proceeding and CURAGEN will reimburse PIONEER
for all reasonable expenditures incurred in connection therewith. The parties
will cooperate with each other in the defense of any such suit, action or
proceeding. The parties will give each other prompt written notice of the
commencement of any such suit, action or proceeding or claim of infringement and
will furnish each other a copy of each communication relating to the alleged
infringement. CURAGEN shall not compromise, litigate, settle or otherwise
dispose of any such suit, action or proceeding which involves PIONEER
Proprietary Intellectual Property or Joint Proprietary Intellectual Property
without PIONEER's advice and prior consent, provided that PIONEER shall not
unreasonably withhold its consent to any settlement which does not have a
material adverse effect on PIONEER or PIONEER's business.
8.6 CURAGEN License Option.
----------------------
8.6.1 Option.
------
PIONEER hereby grants to CURAGEN an option to obtain a worldwide
exclusive license in the CURAGEN Commercialization Field with the right to grant
sublicenses (to the extent PIONEER has the right to grant such license) under
(i) all PIONEER Research Results and PIONEER Proprietary Intellectual Property
and (ii) PIONEER's rights to Joint Research Results and Joint Proprietary
Intellectual Property.
8.6.2 Exercise of Option.
------------------
In the event that CURAGEN wishes to exercise its option to obtain an
exclusive license as provided in Section 8.6.1, CURAGEN shall give written
notice to PIONEER specifying in reasonable detail the rights that CURAGEN
desires to license (the "Notice"). The parties shall execute a license in a form
to be agreed upon within ninety (90) days of the date hereof, with the
definition of "Licensed Intellectual Property" completed to specify the Research
Results and/or Proprietary Intellectual Property specified in CURAGEN's Notice.
Such license (i) shall define Licensed Products and Net Sales in a manner
substantially similar to the definitions herein, (ii) shall require royalties to
be paid at a rate of [XXXXXXXX] of Net Sales for a period determined in a manner
substantially similar to the period determined pursuant to Section 8.4.4, and
(iii) shall
33
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contain other provisions substantially similar to the provisions regarding
licensing, royalties, record keeping and reporting, confidentiality, prosecution
and maintenance of patent rights, legal action, default and warranties and
indemnifications set forth herein. Any license requested in the Notice to any
Research Results or Proprietary Intellectual Property other than PIONEER
Proprietary Intellectual Property shall be royalty free.
8.6.3 Third Party Licenses.
--------------------
PIONEER shall not offer any licenses to any third parties in the
CURAGEN Commercialization Field under its rights in any PIONEER Proprietary
Intellectual Property or PIONEER Research Results or Joint Proprietary
Intellectual Property or Joint Research Results during the Research Term and for
a period of one year thereafter. After such period, PIONEER shall only be
permitted to offer any such licenses to any third parties which would limit its
ability to grant the licenses to CURAGEN as specified in Section 8.6.1 or 8.6.2
after giving CURAGEN sixty days prior written notice of its intent to do so in
order to give CURAGEN an opportunity to exercise its option with respect thereto
as set forth in Section 8.6.2.
8.7 Use of Research Results and Proprietary Intellectual
----------------------------------------------------
Property.
--------
CURAGEN shall use Research Results and Proprietary Intellectual
Property for the sole purpose of performing the R&D Program and shall keep all
Research Results and Proprietary Intellectual Property confidential as set forth
in Section 5, provided, however, that CURAGEN will have the right to use
Research Results and Proprietary Intellectual Property to pursue its research
and development and commercialization goals in the CURAGEN Commercialization
Field and will have the right to disclose or transfer Research Results and
Proprietary Intellectual Property for uses related to the CURAGEN
Commercialization Field; provided, however, that such disclosures shall only be
made under the terms of a confidentiality agreement providing protections
similar to those contained herein. CURAGEN recognizes that such disclosure may
compromise the value of Proprietary Know-How and Proprietary Intellectual
Property to PIONEER, and as such, CURAGEN agrees to use discretion to reasonably
protect against such compromise when making such disclosure.
8.8 Research Rights.
---------------
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CURAGEN shall have the sole and exclusive right to use all
Proprietary Intellectual Property and Research Results to conduct Genomics
Research in the CURAGEN Commercialization Field. PIONEER shall have the sole and
exclusive right to use all Proprietary Intellectual Property and Research
Results to conduct Genomics Research in the PIONEER Commercialization Field.
Both parties shall have the right to use all Proprietary Intellectual Property
and Research Results to conduct Genomics Research in the Other Commercialization
Field.
9. Termination and Disengagement
-----------------------------
9.1 Material Breach.
---------------
(a) A material breach of this Agreement by a party shall occur:
i) upon the failure of such party to pay, when
due, any amount due hereunder to the other party, effective
thirty (30) days after receiving written notice from the
other party of such failure to pay; or
ii) upon the material breach by such party of the
provisions of Section 5 effective sixty (60) days after
receiving written notice from the other party of such
breach; or
iii) upon breach of any material obligation or
condition by such party, effective sixty (60) days after
receiving written notice from the other party of such
breach.
(b) The foregoing notwithstanding, if the default or breach is
cured or shown to be non-existent within the aforesaid thirty (30) or sixty (60)
day period, the notice shall be deemed automatically withdrawn and of no effect.
(c) The foregoing notwithstanding, in the event that CURAGEN is
acquired by any material competitor of PIONEER, only a breach by PIONEER as set
forth in Section 9.1(a)(i) shall be deemed a material breach.
9.2 Effect of Breach.
----------------
(a) Effect of Material Breach by PIONEER. After the expiration
------------------------------------
of the date for curing any material breach by PIONEER under Section 9.1, without
the cure of such breach, the
35
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exclusive license granted by CURAGEN to PIONEER under Section 8.1.1 shall
convert to a non-exclusive license, without the right to sublicense. PIONEER
shall continue to pay royalties to CURAGEN at the rate as set forth in Section
8.4. In addition, the limitation imposed on CURAGEN under Section 8.1.3 shall
cease and CURAGEN shall be free to commercially exploit CURAGEN Research
Results, Joint Research Results, CURAGEN Proprietary Intellectual Property and
Joint Proprietary Intellectual Property in the Other Commercialization Field.
(b) Effect of Material Breach by CURAGEN. After the expiration
------------------------------------
of the date for curing any material breach by CURAGEN under Section 9.1, without
the cure of such breach, the royalties due by PIONEER to CURAGEN shall be
reduced commensurately with the impact of the breach by CURAGEN on PIONEER's
profitability from Licensed Products, as determined by mediation, as described
in Section 12.2.
9.3 Termination Upon Bankruptcy.
---------------------------
(a) If either party files for protection under bankruptcy
laws, makes an assignment for the benefit of creditors, appoints or suffers
appointment of a receiver or trustee over its property, files a petition under
any bankruptcy or insolvency act or has any such petition filed against it which
is not discharged within sixty (60) days of the filing thereof, then the other
party may terminate this Agreement by notice to such party.
(b) All rights and licenses granted under or pursuant to this
Agreement by CURAGEN to PIONEER, and by PIONEER to CURAGEN, are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy
Code, licenses or rights to "intellectual property" as defined under Section
101(52) of the U.S. Bankruptcy Code. The parties agree that each party, as a
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code, subject
to performance by the licensee of its preexisting obligations under this
Agreement. The parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against the licensor under the U.S. Bankruptcy Code,
the licensee shall 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 its possession, shall be
promptly delivered to the licensee (a) upon any such commencement of a
bankruptcy proceeding
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upon written request therefor by the licensee, unless the licensor elects to
continue to perform all of its obligations under this Agreement, or (b) if not
delivered under (a) above, upon the rejection of this Agreement by or on behalf
of the licensor upon written request therefor by the licensee, provided,
however, that upon the licensor's (or its successor's) written notification to
the licensee that it is again willing and able to perform all of its obligations
under this Agreement, the licensee shall promptly return all such tangible
materials to the licensor, but only to the extent that the licensee does not
require continued access to such materials to enable the licensee to perform its
obligations under this Agreement.
9.4 Surviving Provisions.
--------------------
Expiration or termination of this Agreement for any reason shall be
without prejudice to:
(a) the rights and obligations of the parties provided in
Article 3, Article 5, Sections 6.1, 6.2, 6.4, 7.1, 7.2, 8.1.2, 8.1.3, 8.4.6,
8.4.7, 8.4.8, 8.5, 8.7, 8.8, 10.1, 10.2, Article 11 and Article 12, all of which
shall survive such termination;
(b) CURAGEN's right to receive all payments earned and/or
accrued prior to expiration or termination hereunder; and
(c) any other rights or remedies which either party may
otherwise have against the other.
10. REPRESENTATIONS AND WARRANTIES
------------------------------
10.1 Mutual Representations.
----------------------
CURAGEN and PIONEER each represents and warrants as follows:
10.1.1 Organization.
------------
It is a corporation duly organized, validly existing and is in good
standing under the laws of the State of Delaware and of Iowa, respectively, is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the performance of its obligations
37
<PAGE>
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hereunder requires such qualification and has all, requisite power and
authority, corporate or otherwise, to conduct its business as now being
conducted, to own, lease and operate its properties and to execute, deliver and
perform this Agreement.
10.1.2 Authorization.
-------------
The execution, delivery and performance by it of this Agreement have
been duly authorized by all necessary corporate action and do not and will not
(a) require any consent or approval of its stockholders or (b) violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to it or
any provision of its charter documents.
10.1.3 Binding Agreement.
-----------------
This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions.
10.1.4 No Inconsistent Obligation.
--------------------------
It is not under any obligation to any person, or entity, contractual
or otherwise, that is conflicting or inconsistent in any respect with the terms
of this Agreement or that would impede the diligent and complete fulfillment of
its obligations hereunder.
10.1.5 Warranty Disclaimer.
-------------------
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS
OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING.
10.1.6 Limited Liability.
-----------------
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NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER
CURAGEN NOR PIONEER WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR (I) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES OR LOST PROFITS OR (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY OR SERVICES.
10.2 PIONEER Representation.
----------------------
PIONEER represents to CURAGEN that no withholding tax is due on any
payment required to be made hereunder and that PIONEER will not withhold any
amounts on account of any tax or withholding.
11. INDEMNIFICATION
---------------
11.1 Indemnification of CURAGEN by PIONEER.
-------------------------------------
PIONEER shall indemnify, defend and hold harmless CURAGEN, its
Affiliates and their respective directors, officers, employees, and agents and
their respective successors, heirs and assigns (the "CURAGEN Indemnitees"),
against any liability, damage, loss or expense (including reasonable attorneys'
fees and expenses of litigation) incurred by or imposed upon the CURAGEN
Indemnitees, or any of them, in connection with any claims, suits, actions,
demands or judgments of third parties, including without limitation personal
injury and product liability matters (except in cases where such claims, suits,
actions, demands or judgments result from a willful material breach of this
Agreement, gross negligence or willful misconduct on the part of CURAGEN)
arising directly out of any actions of PIONEER in the performance of the R&D
Program or arising out of the development, testing, production, manufacture,
promotion, import, sale or use by any person of any Licensed Product
manufactured or sold by PIONEER or by an Affiliate, Agent, licensee,
sublicensee, distributor or agent of PIONEER.
11.2 Indemnification of PIONEER by CURAGEN.
-------------------------------------
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CURAGEN shall indemnify, defend and hold harmless PIONEER, its
Affiliates, Agents and their respective directors, officers, employees, and
agents and their respective successors, heirs and assigns (the "PIONEER
Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorneys' fees and expenses of litigation) incurred by or imposed
upon the PIONEER Indemnitees, or any one of them, in connection with any claims,
suits, actions, demands or judgments of third parties, (except in cases where
such claims, suits, actions, demands or judgments result from a willful material
breach of this Agreement, gross negligence or willful misconduct on the part of
PIONEER), arising directly out of any actions of CURAGEN in the performance of
the R&D Program.
12. DISPUTE RESOLUTION
------------------
12.1 Senior Officials.
----------------
The parties recognize that a bona fide dispute as to certain matters
may from time to time arise during the term of this Agreement which relates to
either party's rights and/or obligations hereunder. In the event of the
occurrence of such a dispute, either party may, by notice to the other party,
have such dispute referred to their respective senior officials designated as
set forth below or their successors, for attempted resolution by good faith
negotiations within thirty (30) days after such notice is received. Said senior
officials shall be designated by the parties upon execution of this Agreement.
12.2 Formal Dispute Resolution.
-------------------------
12.2.1 General.
-------
In the event of any dispute, difference or question arising between
the parties in connection with this Agreement, the construction thereof, or the
rights, duties or liabilities of either party, and which dispute cannot be
amicably resolved by the good faith efforts of the persons designated under
Section 12.1, then such dispute shall (i) be resolved by non-binding mediation
conducted in the manner set forth in Section 12.2.2, and (ii) in the event that
such dispute is not amicably resolved by such non-binding mediation, it may be
resolved by a lawsuit filed in a court of competent jurisdiction.
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12.2.2 Mediation.
---------
In the event of the occurrence of a dispute which cannot be amicably
resolved by the good faith efforts of the persons designated under Section 12.1,
either party may, by notice to the other party, commence a non-binding mediation
to resolve such dispute by providing written notice to the other party, which
notice (a "Mediation Notice") shall inform the other party of such dispute and
the issues to be resolved and shall contain a list of five (5) recommended
individuals to serve as the mediator. Within ten (10) business days after the
receipt of such Mediation Notice, the other party shall respond by written
notice to the party initiating mediation, which notice shall contain a list of
five (5) recommended individuals to serve as the mediator and which may add
additional issues to be resolved. The recommended mediators shall be individuals
with experience in the biotechnology and/or agriculture industry and shall not
be an employee, director, shareholder or agent of either party or of an
Affiliate or subsidiary of either party, or otherwise involved (whether by
contract or otherwise) in the affairs of either party. If, within twenty (20)
business days after receipt of such Mediation Notice, the parties shall have
been unable to mutually agree upon an individual to serve as a mediator, then
such dispute may be settled by lawsuit. If, within twenty (20) business days
after receipt of such Mediation Notice, the parties shall have mutually agreed
upon an individual to serve as a mediator, then the mediator shall conduct a
mediation in an effort to resolve such dispute as follows:
(a) Within thirty (30) business days after selection, the
mediator shall hold a hearing to resolve each of the issues identified by the
parties. Each party shall be represented at the hearing by up to two (2)
employees of such party, one of whom is an officer of such party, and may be
represented by counsel. The hearing shall be held in a mutually agreeable
location. No discovery will be conducted, unless the parties otherwise mutually
agree.
(b) At least ten (10) business days prior to the date set for
the hearing, each party shall submit to the other party and the mediator a
proposed ruling on each issue to be resolved, which writing (A) may, in addition
to containing the proposed rulings, contain arguments or analyses of the facts
or issues and (B) shall be limited to not more than twenty (20) pages.
(c) Each party shall be entitled to no more than three (3)
hours of hearing time to present oral testimony. The oral testimony of both
parties shall be presented during the same calendar day. Such time limitation
shall include any direct, cross or rebuttal testimony, but such time limitation
shall only be charged against the party conducting such direct, cross or
rebuttal
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testimony. It shall be the responsibility of the mediator to determine whether
the parties have had the presentation time to which they are entitled.
(d) At the hearing, the mediator shall attempt to resolve each
issue in dispute between the parties. If the mediator shall be unable to resolve
any issue, the mediator shall provide the parties with the mediator's non-
binding ruling on each such issue. The mediator shall, in rendering his
decision, apply the substantive law of the State of Delaware, without giving
effect to its principles of conflicts of law, and without giving effect to any
rules or laws relating to arbitration.
(e) If the mediator has not been able to resolve each issue,
each issue remaining in dispute may be settled by lawsuit. At any subsequent
legal proceeding, neither any rulings of the mediator, any admissions or
settlement offers made by any party at the mediation nor any other information
disclosed at the mediation may be introduced into evidence. The mediation
proceeding shall be confidential. Except as required by law, regulation or
judicial order, no party shall make (or instruct the mediator to make) any
public announcement with respect to the proceedings or rulings of the mediator
without the prior written consent of each other party. The existence of any
dispute submitted to mediation, and the rulings of the mediator, shall be kept
in confidence by the parties and the mediator, except as required by applicable
law, regulation or judicial order.
(f) Each party shall pay its own costs (including, without
limitation, attorneys fees) and expenses in connection with such mediation. The
fees and expenses of the mediator shall be shared equally by the parties.
13. MISCELLANEOUS
-------------
13.1 Payment Method.
--------------
Each payment to CURAGEN under this Agreement shall be paid by PIONEER
in U.S. currency by wire transfer of funds to an account of CURAGEN in
accordance with instructions provided by CURAGEN.
13.2 Notices.
-------
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All notices shall be in writing mailed via certified mail, return
receipt requested, courier providing evidence of delivery, addressed as follows,
or to such other address as may be designated by notice so given from time to
time:
If to PIONEER: PIONEER HI-BRED INTERNATIONAL, INC.
7300 NW 62nd Avenue
Johnson, Iowa 50131-1004
Attention: Director, Research Technology
Services
With a copy to: PIONEER HI-BRED INTERNATIONAL, INC.
700 Capital Square
400 Locust Street
Des Moines, Iowa 50309-2340
Attention: General Counsel
If to CURAGEN: CURAGEN CORPORATION
555 Long Wharf Drive, 11th Floor
New Haven, CT 06511
Attention: Executive Vice President
With a copy to: Jeffrey M. Wiesen, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
One Financial Center
Boston, MA 02111
If to the RDSC: To the Chair and Co-Chair at their respective
addresses furnished in writing to the parties
If to the Patent
Coordinators: To the two Patent Coordinators at their
respective addresses furnished in writing to
the parties
Notices shall be deemed given as of the date received.
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13.3 Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut, U.S.A., without regard to the application
of principles of conflicts of law.
13.4 Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted
assigns.
13.5 Headings.
--------
Section and subsection headings are inserted for convenience of
reference only and do not form a part of this Agreement.
13.6 Counterparts.
------------
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
13.7 Amendment; Waiver.
-----------------
This Agreement may be amended, modified, superseded or canceled, and
any of the terms may be waived, only by a written instrument executed by each
party or, in the case of waiver, by the party or parties waiving compliance. The
delay or failure of any party at any time or times to require performance of any
provisions shall in no manner affect the rights at a later time to enforce the
same. No waiver by any party of any condition or of the breach of any term
contained in this Agreement, whether by conduct, or otherwise, in any one or
more instances, shall be deemed to be, or considered as, a further or continuing
waiver of any such condition or of the breach of such term or any other term of
this Agreement.
13.8 No Third Party Beneficiaries.
----------------------------
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Except as set forth in Section 10, no third party, including any
employee of any party to this Agreement, shall have or acquire any rights by
reason of this Agreement.
13.9 No Agency or Partnership.
------------------------
Nothing contained in this Agreement shall give either party the right
to bind the other, or be deemed to constitute the parties as agents for the
other or as partners with each other or any third party.
13.10 Assignment and Successors.
-------------------------
This Agreement may not be assigned by either party without the
consent of the other, which shall not be unreasonably withheld, except that each
party may, without such consent, assign this Agreement and the rights,
obligations and interests of such party, in whole or in part, to any of its
Affiliates, to any purchaser of all or substantially all of its assets in the
line of business to which this Agreement pertains or to any successor
corporation resulting from any merger or consolidation of such party with or
into such corporations.
13.11 Force Majeure.
-------------
Neither PIONEER nor CURAGEN shall be liable for failure of or delay
in performing obligations set forth in this Agreement, and neither shall be
deemed in breach of its obligations, if such failure or delay is due to natural
disasters or any causes beyond the reasonable control of PIONEER or CURAGEN. In
event of such force majeure, the party affected thereby shall use reasonable
efforts to cure or overcome the same and resume performance of its obligations
hereunder.
13.12 Interpretation.
--------------
The parties hereto acknowledge and agree that: (i) each party and its
counsel reviewed and negotiated the terms and provisions of this Agreement and
have contributed to its revision; (ii) the rule of construction to the effect
that any ambiguities are resolved against the drafting party shall not be
employed in the interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in a favor of
45
<PAGE>
5/16/97
or against any party, regardless of which party was generally responsible for
the preparation of this Agreement.
13.13 Integration: Severability.
-------------------------
This Agreement is the sole agreement with respect to the subject
matter hereof and supersedes all other agreements and understandings between the
parties with respect to same, including but not limited to the Confidentiality
Agreement between CURAGEN and PIONEER dated October 3, 1996 (the "Superseded
Confidentiality Agreement"). If any provision of this Agreement is or becomes
invalid or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties that the remainder of this
Agreement shall not be affected.
13.14 Export Controls.
---------------
This Agreement is made subject to any restrictions concerning the
export of Licensed Products or Research Results or Proprietary Intellectual
Property ("Technology") from the United States which may be imposed upon or
related to either party to this Agreement from time to time by the Government of
the United States. Neither party will export, directly or indirectly, any
Technology or any Licensed Products utilizing such Technology to any countries
for which the United States Government or any agency thereof at the time of
export requires an export license or other governmental approval, without first
obtaining the written consent to do so from the Department of Commerce or other
agency of the United States Government when required by applicable statute or
regulation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed this 16th day of May, 1997 by their duly authorized representatives.
PIONEER HI-BRED INTERNATIONAL, INC.
By: /s/ Anthony Cavalieri
------------------------------------
Name: Anthony Cavalieri
----------------------------------
Title: Vice President
---------------------------------
46
<PAGE>
5/16/97
CURAGEN CORPORATION
By: /s/ Jonathan M. Rothberg
---------------------------------------
Name: Jonathan M. Rothberg
-------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
47
<PAGE>
EXHIBIT 11.1
------------
SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ---------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Loss Attributable to
Common Stockholders..... $ (956,029) $ (940,744) $ (413,265) $ (193,244) $ (1,687,402)
========== ========== ========== ============ =============
Weighted Average Number
of Shares Outstanding
During the Period....... 4,681,256 4,915,086 5,097,073 5,071,454 5,581,351
Add:
Common Stock Equivalent
Shares Represented by
Stock Options Granted
Related to stock
Plans(1).............. 793,031 793,031 793,031 793,031 793,031
Assumed Conversion of
Series A, C, D & E
Preferred Shares to
Common Shares(2)........ -- -- -- -- 1,299,942
---------- ---------- ---------- ------------ -------------
5,474,287 5,708,117 5,890,104 5,864,485 7,674,324
========== ========== ========== ============ =============
Net Loss Per Share
Attributable to
Common Stockholders..... $ (0.17) $ (0.16) $ (0.07) $ (0.03) $ (0.22)
========== ========== ========== ============ =============
</TABLE>
- --------
(1) Pursuant to the rules of the Securities and Exchange Commission, all
options and warrants granted at prices less than the initial public
offering price during the twelve months preceding the offering date have
been included as common stock equivalents in the calculation of weighted
shares outstanding for all periods presented.
(2) In connection with the initial public offering Series A, C, D & E
Preferred Shares will automatically convert to common stock on a one for
one basis. The additive shares reflect such conversion had the conversion
occurred during the six months ended June 30, 1997.
<PAGE>
Exhibit 21.1
------------
Subsidiaries of the Registrant
Genescape, Inc.
<PAGE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CuraGen Corporation
on Form S-1 of our report dated September 12, 1997, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the headings "Experts" and "Selected Financial Data"
in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Hartford, Connecticut
October 15, 1997
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF PENNIE & EDMONDS LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-1 and related Prospectus of CuraGen
Corporation.
/s/ Pennie & Edmonds LLP
PENNIE & EDMONDS LLP
New York, New York
October 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURAGEN
CORPORATION DECEMBER 31, 1996 AND JUNE 30, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUN-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 3,298,642 21,271,408
<SECURITIES> 0 0
<RECEIVABLES> 766,089 1,318,643
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,100,713 22,670,054
<PP&E> 2,161,530 4,614,890
<DEPRECIATION> (690,034) (1,121,444)
<TOTAL-ASSETS> 5,653,391 26,401,455
<CURRENT-LIABILITIES> 1,626,675 2,525,833
<BONDS> 0 0
0 0
3,190,772 1,424,984
<COMMON> 50,196 84,779
<OTHER-SE> (1,839,432) 19,244,523
<TOTAL-LIABILITY-AND-EQUITY> 5,653,391 26,401,455
<SALES> 0 0
<TOTAL-REVENUES> 4,422,947 2,879,632
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,516,035 3,640,767
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 183,594 149,315
<INCOME-PRETAX> (396,159) (1,653,190)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (396,159) (1,653,190)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (396,159) (1,653,190)
<EPS-PRIMARY> (.07) (.22)
<EPS-DILUTED> (.07) (.22)
</TABLE>
