<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VARIAGENICS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8731 04-3182077
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
VARIAGENICS, INC.
60 HAMPSHIRE STREET
CAMBRIDGE, MA 02139
(617) 588-5300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
TAYLOR J. CROUCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VARIAGENICS, INC.
60 HAMPSHIRE STREET
CAMBRIDGE, MA 02139
(617) 588-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
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<S> <C>
JEFFREY M. WIESEN, ESQ. R.W. SMITH, JR., ESQ.
PETER T. BUTTERFIELD, ESQ. PIPER MARBURY RUDNICK & WOLFE LLP
MINTZ, LEVIN, COHN, FERRIS, 6225 SMITH AVENUE
GLOVSKY AND POPEO, P.C. BALTIMORE, MARYLAND 21209
ONE FINANCIAL CENTER (410) 580-3000
BOSTON, MASSACHUSETTS 02111
(617) 542-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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,
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,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share..................... $100,000,000.00 $26,400
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) promulgated under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH , 2000
Shares
[VARIAGENICS LOGO]
Common Stock
-----------
Variagenics, Inc. is selling shares of common stock. Prior to this
offering, there has been no public market for our common stock. The initial
public offering price of our common stock is expected to be between $
and $ per share. We have applied to have our common stock
approved for quotation on The Nasdaq Stock Market's National Market under the
symbol "VGNX."
The underwriters have an option to purchase up to a maximum of
additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Variagenics
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Chase H&Q
SG Cowen
The date of this prospectus is , 2000.
<PAGE>
DESCRIPTION OF INSIDE COVER PAGE FOR EDGAR FILING:
A text box containing the following text:
Why Pharmacogenomics?
Less than one percent of the human genome varies from individual to
individual. However, this amounts to over 3 million points of
variability, or SNPs, between each individual. A small fraction of these
SNPs may affect how individuals respond to drug therapy--both positively
and negatively.
VARIAGENICS is a leader in the new field of pharmacogenomics. Based
on our understanding of genetic variability, we plan to develop and
commercialize new diagnostic products and optimized drugs with the goal
of improving patient treatment.
To the right of this text box is a graphic containing an ethnically diverse
population.
Inside of Gatefold:
Graphic representation of our pharmacogenomic platform abilities
depicting the identification of candidate genes; discovery and cataloging
of SNPs in and around the candidate genes; prioritizing of the SNPs to be
subsequently integrated into clinical trial testing; development of
genotyping and haplotyping assays; analysis of clinical trial data;
development of diagnostic tests; and development of pharmaceutical
products based on Variagenic-TM- Targeting.
A text box containing the following text:
Our Story
- Our SNP discovery process targets genes likely to be relevant to
drug action in a diverse population of individuals.
- Our Variagenic-TM- Impact Program utilizes five complementary
discovery and screening tools to prioritize the most important SNPs
which may be associated with drug response.
- Our proprietary models help identify how these SNPs may change the
structure and effects of key proteins in the body [Arrow pointing
to SNP site: A SNP leads to a variable site very close to where
drugs will attempt to bind with this important protein.]
- Our NuCleave-TM- DNA analysis platform enables genotyping and
haplotyping testing to validate the importance of the targeted SNPs
in clinical trials with a high degree of accuracy.
- We will develop new diagnostic products and optimized drugs which
take genetic variability into account.
<PAGE>
------------------------
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 21
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
DILUTION.............................. 23
SELECTED FINANCIAL DATA............... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
BUSINESS.............................. 30
MANAGEMENT............................ 43
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT
STOCKHOLDERS........................ 54
PRINCIPAL STOCKHOLDERS................ 55
DESCRIPTION OF CAPITAL STOCK.......... 58
SHARES ELIGIBLE FOR FUTURE SALE....... 60
UNDERWRITING.......................... 62
NOTICE TO CANADIAN RESIDENTS.......... 64
LEGAL MATTERS......................... 65
EXPERTS............................... 65
WHERE YOU CAN FIND MORE INFORMATION... 65
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
This prospectus contains references to our trademarks
Variagenics-Registered Trademark-, Variagenic-TM-, SAGA-TM-, NuCleave-TM-,
ProSNP-TM- and Genes4life-TM-. All other trademarks or trade names referred to
in this prospectus are the property of their respective owners.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER
BEFORE BUYING SHARES IN THE OFFERING. THEREFORE, YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
OVERVIEW
We are a leader in the field of pharmacogenomics. Pharmacogenomics is the
study of the correlation between an individual's genetic variability and his or
her specific response to a drug. The most common form of this genetic
variability is a single nucleotide polymorphism, or SNP. We use our
pharmacogenomics technology, expertise and proprietary data to optimize drugs in
development and develop new drug targets, and we also intend to use our
technology to bring high-value diagnostic products to market. We are a
full-spectrum pharmacogenomics company with the capability to support key steps
of the drug discovery and development process, extending from drug target
identification through clinical trials to commercialization. We intend to
establish multiple sources of revenue, which will include collaboration
revenues, license fees, milestone payments and royalties on products
commercialized using our technology.
CHALLENGES
We expect the methods pharmaceutical companies use to develop new drugs and
to improve existing drugs to undergo substantial change to account for genetic
variation among individuals. The pharmacogenomics field is based on the concept
that the effect a drug has on an individual can be a function of that
individual's unique genetic make-up. Pharmacogenomics may allow pharmaceutical
companies to substantially reduce development failures for drug targets, as well
as to better understand the appropriate target population for each given drug.
Pharmacogenomics is therefore expected to increase efficiency, reduce the cost
of drug development and improve patient treatment. We believe that a new
generation of high-value diagnostic products will be developed in connection
with drugs optimized through pharmacogenomics. We expect that these diagnostic
products will commonly be used to guide treatments for individuals based on
their likely responses to these drugs.
In order to commercialize pharmacogenomics, we must address three principal
challenges:
- sorting, interpreting and prioritizing the enormous amount of genomics
data in a cost-effective fashion and in a method practical for use in
clinical testing;
- implementing platform technologies and genotyping assays in a manner
practical for routine testing suitable for clinical research; and
- combining the development of pharmacogenomically-enhanced drugs with the
development of corresponding diagnostic tests.
VARIAGENICS' SOLUTIONS
We believe that we are positioned to enable pharmaceutical, biotechnology
and diagnostic companies to meet these challenges because:
- We believe that our proprietary SNP database is the most comprehensive
collection of genetic variability data specific to pharmacogenomics and
relevant to major drug targets in development, including targets for
oncology, cardiovascular, central nervous system and inflammatory
disorders.
- Our Variagenic-TM- Impact Program family of technologies includes five
complementary and proprietary discovery tools to identify the most
critical genetic information relevant to drug activity.
4
<PAGE>
- We intend to validate the value of our targeted genetic information
utilizing our proprietary NuCleave-TM- DNA analysis platforms that we are
developing and commercializing with our clinical collaborators. Our
NuCleave-TM- DNA analysis platform enables a technology called mass
spectrometry, a highly-accurate tool used to measure molecular weight, to
be used for SNP detection.
- We will develop new diagnostic products and optimized drugs internally,
including those developed through our Variagenic-TM- Targeting Program,
and with our collaborators to improve patient treatment.
OUR STRATEGY
We are positioning ourselves to be the leader in bringing new pharmaceutical
and diagnostic products to market based upon pharmacogenomics by:
- rapidly commercializing our full range of pharmacogenomics capabilities;
- establishing multiple revenue streams;
- capitalizing upon our expertise to bring optimized pharmaceutical and
diagnostic products to market;
- maintaining and improving our technology base; and
- leveraging management's industry expertise to develop collaborations in
our target business segments.
OUR HISTORY
We incorporated in Delaware on December 7, 1992. Our principal office is
located at 60 Hampshire Street, Cambridge, MA 02139 and our telephone number is
(617) 588-5300. Our Web site is located at HTTP://WWW.VARIAGENICS.COM. We do not
intend for the information contained on our Web site to be considered a part of
this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. For general corporate purposes, including
research and development and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... VGNX
</TABLE>
The number of shares to be outstanding after this offering is based on the
number of shares outstanding on March 6, 2000 and excludes:
- 1,940,377 shares that may be issued upon exercise of options outstanding
as of March 6, 2000 granted under our 1997 Employee, Director and
Consultant Stock Option Plan at a weighted average exercise price of $.84
per share; and
- 1,856,646 shares that may be issued upon exercise of warrants outstanding
as of March 6, 2000 at a weighted average exercise price of $3.49 per
share.
------------------------
Unless otherwise indicated, information in this prospectus assumes the
following:
- the conversion of all of our outstanding shares of mandatorily redeemable
convertible preferred stock upon the closing of this offering, including
3,921,568 shares of Series F mandatorily redeemable convertible preferred
stock sold in March 2000, into 12,552,576 shares of common stock;
- a -for- stock split of the common stock approved by our
stockholders on , 2000;
- the filing of our amended and restated certificate of incorporation and
restated bylaws concurrently with the completion of this offering; and
- no exercise of the underwriters' over-allotment option.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.............................................. $ -- $ -- $ -- $ -- $ 399
Costs and expenses:
Research and development........................... 909 1,298 2,234 5,071 8,602
General and administrative......................... 654 781 2,059 3,176 6,945
In-process research and development................ -- -- 674 -- --
------- ------- ------- ------- --------
Loss from operations............................. (1,563) (2,079) (4,967) (8,247) (15,148)
Other income (expense):
Interest income.................................... 9 10 258 200 167
Interest expense................................... (79) (32) (80) (98) (1,497)
Loss on investment in affiliate.................... -- -- -- -- (250)
------- ------- ------- ------- --------
Net loss............................................. $(1,633) $(2,101) $(4,789) $(8,145) $(16,728)
======= ======= ======= ======= ========
Accretion to redemption value........................ -- -- -- (153) (1,076)
Net loss attributable to common stockholders......... (1,633) (2,101) (4,789) (8,299) (17,804)
Net loss attributable to common stockholders per
share (basic and diluted).......................... $ (9.17) $ (9.77) $(15.54) $(19.55) $ (34.93)
Weighted average common shares outstanding (basic and
diluted)........................................... 178 215 308 425 510
Unaudited pro forma net loss per share (basic and
diluted)........................................... $ (3.02)
Shares used in computing unaudited pro forma basic
and diluted net loss per share..................... 5,544
</TABLE>
In the unaudited pro forma net loss per share (basic and diluted) we have
adjusted the shares used in computing unaudited pro forma weighted average
shares outstanding (basic and diluted) to give effect to the automatic
conversion of our redeemable convertible preferred stock outstanding at
December 31, 1999 using the if converted method on their respective dates of
issuance.
In the Pro Forma column below, we have adjusted the actual balance sheet
data to give effect to the automatic conversion of each outstanding share of our
redeemable convertible preferred stock, including 3,921,568 shares of Series F
redeemable convertible preferred stock sold in March 2000 for net proceeds of
$19.9 million, into 12,552,576 shares of common stock. In the Pro Forma As
Adjusted column below, we have further adjusted the actual balance sheet data to
give effect to receipt of the net proceeds from the sale in this offering of
shares of common stock at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 4,328 $ 4,328
Working capital............................................. 2,799 2,799
Total assets................................................ 9,403 9,403
Long-term obligations, less current portion................. 977 977
Redeemable convertible preferred stock...................... 28,732 --
Total stockholders' equity (deficit)........................ (22,029) 26,603
</TABLE>
Please see Note 2 to our financial statements for an explanation of the
method used to calculate net loss attributable to common stockholders, basic and
diluted net loss per share attributable to common stockholders and the number of
shares used in the computation of per share amounts.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCURS, WE MAY NOT BE ABLE TO CONDUCT OUR BUSINESS AS
CURRENTLY PLANNED AND OUR FINANCIAL CONDITION AND OPERATING RESULTS COULD BE
SERIOUSLY HARMED. IN THAT CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
RISKS RELATED TO OUR BUSINESS
BECAUSE WE ARE IN THE EARLY STAGE OF COMMERCIALIZING OUR PRODUCTS AND SERVICES
AND HAVE A RELATIVELY SHORT OPERATING HISTORY, THERE IS A LIMITED AMOUNT OF
INFORMATION ABOUT US UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS FOR
FUTURE SUCCESS.
We are in the early stage of commercializing our products and services. We
have just begun to generate revenues from this commercialization, and have only
a relatively limited operating history upon which you can evaluate our business
and prospects for future success. Since our inception, we have devoted our
efforts primarily to financial planning, research and development of
pharmacogenomics technology, recruiting management and technical staff,
acquiring operating assets and raising capital. You must consider the risks and
uncertainties frequently encountered by companies in new and rapidly evolving
markets, such as the market for products and services derived from
pharmacogenomics. Some of these risks and uncertainties relate to our ability
to:
- anticipate and adapt to changes in the rapidly evolving pharmacogenomics
field;
- retain current customers and collaborators and attract new customers and
collaborators;
- implement and successfully execute our business strategy and sales and
marketing initiatives;
- attract, retain and motivate qualified personnel;
- respond effectively to competitive and technological developments through
the timely introduction of our NuCleave-TM- analysis platform,
Variagenic-TM- Impact Program and our other technologies, products and
services; and
- effectively manage our anticipated growth.
If we are unsuccessful in addressing these risks and uncertainties, our
prospects for future success will be uncertain.
WE HAD AN ACCUMULATED DEFICIT OF $34.9 MILLION AS OF DECEMBER 31, 1999, EXPECT
TO CONTINUE TO INCUR SUBSTANTIAL OPERATING LOSSES AND NEGATIVE CASH FLOW FOR
SEVERAL YEARS AND MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We have had substantial operating losses since our inception and our
operating losses are expected to continue at least through the end of 2001. We
may never be profitable. We experienced net losses of $16.7 million in 1999,
$8.1 million in 1998 and $4.8 million in 1997. As of December 31, 1999, we had
an accumulated deficit of $34.9 million. We expect significant increases in
expenses in connection with our internal research and development and
commercialization programs, including the development and planned commercial
introduction of our NuCleave-TM- analysis platform, Variagenic-TM- Impact
Program and our other technologies, products and services. Our ability to
achieve significant revenue or profitability will depend upon successful
completion of our product development activities and obtaining collaborations
and customers for our products and services. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
8
<PAGE>
IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS AND SERVICES AND EXPAND THE
RANGE OF APPLICATIONS FOR OUR CURRENT PRODUCTS AND SERVICES, WE MAY NOT GENERATE
SUFFICIENT REVENUE TO ACHIEVE OR MAINTAIN PROFITABILITY.
Our technologies are still in the early stages of development and we have
just begun to incorporate our technologies into commercialized products and
services. Our products and services, including NuCleave-TM- and our
Variagenic-TM- Impact Program, have not yet been commercially proven in the
marketplace and we may not be successful in completing development of our
products and services or achieving acceptance in the marketplace. Our ability to
successfully develop our technologies and commercialize our products and
services is subject to a variety of factors, including our ability to:
- obtain substantial additional capital to support the expenses of
developing our technologies and commercializing our products and services;
- develop markets for our products and services;
- successfully transition from a company with a research focus to a company
capable of supporting commercial activities; and
- attract and retain qualified management, sales, technical and scientific
staff.
We have only limited experience in sales and marketing, and have only just
begun to develop a sales force capable of selling and marketing our products and
services. We intend to market our technologies and applications through
collaborations with pharmaceutical, biotechnology and diagnostic companies. We
may not be able to establish or maintain collaborative or distribution
arrangements to market our products and services, which would harm our ability
to generate revenue.
OUR BUSINESS MODEL IS BASED ON PHARMACOGENOMICS, WHICH IS COMMERCIALLY UNPROVEN,
AND IF THIS FIELD DOES NOT DEVELOP AS WE BELIEVE, OUR RESULTS OF OPERATIONS MAY
BE MATERIALLY ADVERSELY AFFECTED.
The field of pharmacogenomics is relatively new and it has not been proven
to be commercially viable. We lack extensive experience in utilizing
pharmacogenomics in drug development programs or in marketing our
pharmacogenomics capabilities to pharmaceutical, biotechnology and diagnostics
companies. Our business model is based on the assumption that pharmacogenomics
may help scientists better understand complex disease processes and aid in drug
development. Scientists generally have a limited understanding of the role of
genes in diseases, and few products based on pharmacogenomics have been
developed. If our assumption about the role of genes in the disease process is
wrong, our business model may not result in products or services, and the
genetic data included in our SNP database and other products and services may
not be useful to our collaborators. If pharmacogenomics proves unsuccessful or
does not grow in importance as expected, our results of operations may be
materially adversely affected.
OUR TECHNOLOGIES AND INITIAL COMMERCIAL PRODUCTS AND SERVICES HAVE NOT ACHIEVED
MARKET ACCEPTANCE AND MAY NOT BE COMMERCIALLY VIABLE OR SUCCESSFUL, WHICH WOULD
ADVERSELY AFFECT OUR BUSINESS.
To date, we have developed a limited number of products and services based
on our technologies. We cannot assure you that we or our customers or our
collaborators will be able to use these technologies successfully in
pharmaceutical or diagnostic product development. Our technology and development
focus with respect to our genotyping technologies are primarily directed toward
complex diseases associated with one or more genes. Even if we are successful in
identifying SNPs and associating these SNPs with specific drug responses or
diseases, we cannot be certain that these discoveries will lead to the
development of therapeutic or diagnostic products. If we and our customers and
collaborators fail to commercialize products and services based on our
technologies, our business would be harmed.
The instrumentation, software and know-how that comprise our technologies
involve novel uses that have not previously been used in commercial
applications. As these technologies are used, it is
9
<PAGE>
possible that previously unrecognized defects or limitations will emerge. We may
be unable to validate or achieve the improvements in the components of our
technologies necessary for their successful commercialization. Our technologies
will also need to compete against well-established techniques to discover novel
drugs, including combinatorial chemistry and high-throughput screening. We may
be unable to compete successfully against these existing techniques and
instruments.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH, WHICH COULD ADVERSELY
AFFECT OUR BUSINESS.
We have grown rapidly in recent years. We expect to continue to experience
significant growth in the number of our employees and the scope of our
operations. In addition, several members of our senior management team have only
recently joined us. Our growth has placed, and is expected to continue to place,
a significant strain on our management and operating systems. Our ability to
effectively manage any future growth will depend upon our ability to strengthen
our management team and our ability to attract and retain skilled employees. Our
success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational, management information and
financial control systems and to expand, train and manage our work force. In
addition, we must continue to take steps to provide resources to support our
collaborative parties and customers as their numbers increase. Our inability to
manage our growth effectively could adversely affect our business.
FLUCTUATIONS IN OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY NEGATIVELY
IMPACT OUR STOCK PRICE.
Our results of operations have fluctuated significantly in the past and we
expect our revenue and results of operations to fluctuate significantly in the
future due to a variety of factors, several of which may be beyond our control.
If these fluctuations occur, our stock price may decline. The factors which may
cause these fluctuations include:
- our ability to develop, market and introduce products and services on a
timely basis;
- demand for our products and services;
- our ability to attract and retain customers and collaborators;
- the timing of start-up expenses for new products, services and
enhancements;
- costs incurred in developing and testing our products and product
enhancements;
- the number, timing and significance of new products and services
introduced by our competitors;
- changes in the mix of our products and services offered;
- changes in our operating expenses;
- regulatory actions; and
- changes in third-party reimbursement policies.
A substantial portion of our operating expenses is related to personnel
costs, research and development, marketing programs and overhead, which cannot
be adjusted quickly and is therefore relatively fixed in the short term. Our
operating expense levels are based, in significant part, on our expectations of
future revenue. If actual revenue falls below our expectations, our business may
suffer and our stock price may decline.
WE MAY NEED TO RAISE ADDITIONAL FUNDING WHICH MAY NOT BE AVAILABLE ON TERMS
ACCEPTABLE TO US, IF AT ALL.
We anticipate that our existing capital resources may not be sufficient to
fund our future operating plans and, therefore, we may need to raise significant
additional capital. We expect our capital and operating expenses to increase
significantly over the next several years as we expand our infrastructure and
increase our research and development activities. We believe the proceeds from
this offering, together with cash on hand, will be sufficient to fund our
operating costs for at least the next
10
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18 months. However, our business or operations may change in a manner that would
consume available resources more rapidly than anticipated. The amount of
additional capital which we will need to raise will depend on many factors,
including:
- our progress with research and development;
- the number and breadth of our research programs;
- purchase of additional capital equipment;
- expansion of our facilities;
- competing technological and market development;
- our level of success in developing, commercializing and selling our
products, services and associated technologies;
- our ability to establish and maintain successful collaborations;
- costs we incur in filing, prosecuting, enforcing and defending our patent
claims and other intellectual property rights; and
- our acquisition of complementary products, businesses or technologies.
If we raise additional funds through the sale of equity or convertible debt
or equity securities, your percentage ownership in us will be reduced. In
addition, these transactions may dilute the value of our outstanding stock. We
may issue securities that have rights, preferences and privileges senior to our
common stock. If we raise additional funds through collaborations or licensing
arrangements, we may relinquish rights to certain of our technologies or
products, or grant licenses to third parties on terms that are unfavorable to
us. We may be unable to raise additional funds on terms acceptable to us. If
future financing is not available to us or is not available on terms acceptable
to us, we may have to reduce substantially or eliminate expenditures for the
further commercialization of our products and services, sell some or all of our
technology or assets, or merge with another entity. We may not be able to fund
our future needs which would have a material adverse effect on our business.
WE INTEND TO RELY ON OUR COMMERCIAL AND ACADEMIC COLLABORATORS AND LICENSING
AGREEMENTS TO IMPLEMENT OUR BUSINESS STRATEGY AND COMMERCIALIZE OUR PRODUCTS AND
SERVICES. IF WE ARE UNABLE TO ENTER INTO THESE ARRANGEMENTS, WE COULD LOSE
SIGNIFICANT REVENUE.
Our strategy for developing and commercializing products based on our
technologies depends upon our ability to form collaborations and licensing
arrangements. As a result, we may be dependent on our collaborators and
licensees for regulatory approval, and the manufacturing and marketing of the
therapeutic and diagnostic products we develop. If we are not able to enter into
these arrangements or implement our strategy to develop and commercialize
therapeutic and diagnostic products based upon our technologies, we could lose
significant revenue.
We or our collaborators or licensees may terminate our agreements early. In
addition, our collaborators or licensees may negotiate provisions with us that
allow them to terminate our agreements prior to the expiration of the negotiated
term under certain circumstances. If any third party collaborator or licensee
were to terminate its agreement with us or otherwise fail to conduct its
obligations under our collaboration or to complete them in a timely manner, we
could lose significant revenue.
In addition, we intend to establish new relationships with researchers,
consultants and scientific advisors in the pharmacogenomics field. Under a
typical arrangement, we can expect only limited amounts of their time to be
dedicated to our activities. All of these individuals are or will be engaged by
employers other than us and have commitments to other entities that may limit
their availability to us. We cannot be certain that any of our existing
relationships will be successful, and we may not be able to negotiate acceptable
collaborations in the future with additional researchers, consultants, or
scientific advisors at academic and other institutions.
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Our current and potential collaborators could develop competing products,
preclude us from entering into relationships with their competitors, fail to
obtain timely regulatory approvals, terminate their agreements with us
prematurely or fail to devote sufficient resources to the development and
commercialization of products. Potential collaborators with whom we may wish to
establish a relationship could develop products or technologies similar to our
own, reducing our pool of possible collaborative parties and increasing
competition. Any of these developments could harm our product development
efforts, which would seriously harm our business.
WE EXPECT TO DEPEND IN THE FORESEEABLE FUTURE ON A SMALL NUMBER OF CUSTOMERS AND
COLLABORATORS FOR A SUBSTANTIAL PORTION OF OUR REVENUE. THE LOSS OF ANY ONE OF
THESE CUSTOMERS OR COLLABORATORS COULD RESULT IN A SUBSTANTIAL DECLINE IN
REVENUE.
Our customers and collaborators have been, and will most likely be,
concentrated in a limited number of pharmaceutical, biotechnology and
diagnostics companies. As a result, our financial performance may depend on
large contracts from a limited number of customers and collaborators. Also, if
consolidation trends in the healthcare industry continue, the number of our
potential customers and collaborators could decrease, which could have an
adverse impact on our marketing efforts and revenues.
MANY OF OUR COMPETITORS IN THE PHARMACOGENOMICS INDUSTRY HAVE SUBSTANTIALLY
GREATER RESOURCES AND CAPABILITIES THAN US AND MAY BE ABLE TO DEVELOP AND
COMMERCIALIZE PRODUCTS BEFORE WE DO.
We are subject to significant competition from pharmaceutical, biotechnology
and diagnostic companies, academic and research institutions and government or
other publicly-funded agencies that are pursuing products and services that are
substantially similar to our proposed products and services, or which otherwise
address the needs of our customers and potential customers. Many of the
organizations competing with us have significantly greater experience in
financial, research and development, manufacturing, marketing, sales
distribution and technical regulatory matters than we do. In addition, many
current and potential competitors have greater name recognition and more
extensive collaborative relationships. In the pharmacogenomics field, we compete
with several companies offering alternative technology concepts. In addition,
numerous pharmaceutical companies are developing genomic research programs,
either alone or in partnership with our competitors.
We believe our future success will depend, in large part, on our ability to
maintain a competitive position in the pharmacogenomics field. Pharmacogenomic
technologies have undergone and are expected to continue to undergo rapid and
significant change. Rapid technological development by us or others may result
in products or technologies becoming obsolete before we recover the expenses
incurred in connection with their development. Products we offer could be made
obsolete by less expensive or more effective drug discovery and development
technologies, including technologies that may be unrelated to genomics. We may
not be able to make the enhancements to our technology necessary to compete
successfully with newly emerging technologies.
OUR CUSTOMERS MAY NOT BE SUCCESSFUL IN DEVELOPING OR COMMERCIALIZING
PHARMACEUTICAL OR DIAGNOSTIC PRODUCTS USING OUR TECHNOLOGIES.
Development of pharmaceutical or diagnostic products based on our
technologies will be subject to risks of failure inherent in their development
or commercial viability. These risks include the possibility that any of these
products will:
- be found to be ineffective;
- be found to be toxic;
- fail to receive necessary regulatory approvals;
- be difficult or impossible to manufacture on a large scale;
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- be uneconomical to market;
- fail to be developed prior to the successful marketing of similar products
by competitors; or
- be impossible to market because they infringe on the proprietary rights of
third parties or compete with products marketed by third parties that have
achieved widespread commercial acceptance.
If our customers discover pharmaceutical or diagnostic products using our
technology and pharmacogenomic assets, we will rely on them in many cases for
product development, regulatory approval, manufacturing and marketing of those
products. We cannot control the amount and timing of resources our customers may
devote to our programs or potential products. As a result, we cannot be certain
that our customers will choose to develop and commercialize these products. In
addition, if a customer is involved in a business combination, such as a merger
or acquisition, or changes its business focus, its performance under its
agreement with us may suffer and, as a result, we may not generate any further
revenues from the payment provisions of our agreement with that customer.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY METHODS AND TECHNOLOGIES, WE MAY NOT
BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.
IF OUR PATENT APPLICATIONS DO NOT RESULT IN ISSUED PATENTS, OUR COMPETITORS
MAY OBTAIN RIGHTS TO COMMERCIALIZE OUR DISCOVERIES, WHICH WOULD ADVERSELY AFFECT
OUR REVENUES.
We intend to apply for patent protection for many aspects of our business,
including:
- our SNP discovery and characterization process;
- our NuCleave-TM- DNA analysis platform and related technologies; and
- our Variagenic-TM- Targeting program for identifying novel drug targets.
The patent positions of pharmaceutical, biotechnology and diagnostic
companies, including us, are frequently uncertain and involve complex legal and
factual questions. Our patent applications may not result in sufficient
protection, if any, for our technologies, products or SNP discoveries for any of
a number of reasons, including any one or more of the following:
- some or all of our pending patent applications may not result in issued
patents;
- we may develop additional proprietary technologies that are not patentable
or are not covered by claims of any patents we have obtained or will
obtain;
- any patents issued to us may not provide us with any competitive
advantages or a basis for commercially viable products; and
- any patents issued to us may be challenged, circumvented or invalidated by
third parties.
Our competitors may seek patent protection for alternative methods for
genotyping samples and for polymorphism identification. Should patents issue
from those applications, to the extent that the methodologies claimed in those
patents are identical or similar to our own, we or our collaborators may be
prevented from commercializing the use of the NuCleave-TM- technology for those
purposes. Furthermore, it is possible that others may have developed or will
develop and obtain patents on methodologies that may be perceived by consumers
to be superior to the NuCleave-TM- approach to genotyping or polymorphism
identification, which could adversely affect the value of any patents we might
obtain with regard to the use of the NuCleave-TM- technology.
THE SCOPE OF OUR ISSUED PATENTS MAY NOT PROVIDE US WITH ADEQUATE PROTECTION
OF OUR INTELLECTUAL PROPERTY FROM OUR COMPETITORS, WHICH WOULD HARM OUR BUSINESS
AND FINANCIAL CONDITION.
Even if we are able to obtain patents for our products, these patents may
not provide us with substantial protection or may not be commercially beneficial
to us. In addition, patent filing and maintenance fees are very expensive and if
we fail to pay these fees, we may not be able to protect our discoveries which
would adversely affect our business. The issuance of a patent is not conclusive
as to
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its validity or its enforceability. Furthermore, a patent does not provide the
patent holder with any right to practice the patented technology. Thus, third
parties may have patents of their own which could prevent us from practicing our
patented technologies. This inability to practice our own patented technologies
may adversely affect our business. Patents may also be challenged in
re-examination proceedings or may have to undergo reissue. The US Patent and
Trademark Office may decide these patents are invalid in these proceedings. If
key patents owned by or licensed to us were invalidated or if any of our pending
patent applications were not issued, our competition could increase and harm our
business and financial condition.
IF WE ARE UNABLE TO GAIN ACCESS TO, OR OBTAIN A LICENSE TO USE, IDENTIFIED
SNPS THAT ARE IMPORTANT TO THE RESEARCH AND DEVELOPMENT OF OUR PRODUCTS AND
SERVICES, OUR BUSINESS AND FINANCIAL CONDITION WOULD BE ADVERSELY AFFECTED.
If important SNPs are patented by third parties we will need to obtain
rights to them in order to develop and use them. Our licenses may prove to be
ineffective, which would adversely affect our rights to technology owned by
third parties. We also may fail to comply with due diligence or other
requirements in our licenses and lose our rights to practice licensed
technology. Third parties may be unwilling to license rights on commercially
acceptable terms, if at all. If we were required to pay licensing fees to
develop and use SNPs, our costs could increase. In addition, our failure to
obtain rights to important patented SNPs could have an adverse effect on our
business.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH
WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OF OUR
INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.
In order to protect or enforce our patent rights, we may initiate patent
litigation against third parties. These lawsuits could be expensive, take
significant time and could divert management's attention from other business
concerns. They would put our patents at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing. We may also provoke
these third parties to assert claims against us. Patent law relating to the
scope of claims in the technology fields in which we operate is still evolving
and, consequently, patent positions in our industry are generally uncertain. We
cannot assure you that we will prevail in such lawsuits or that the damages or
other remedies awarded, if any, will be commercially valuable. During the course
of these suits, there may be public announcements of the results of hearings,
motions and other interim proceedings or developments in the litigation. If
securities analysts or investors perceive any of these results to be negative,
it could cause the market price of our stock to decline. Indeed, general
proclamations or statements by key public figures may also have a negative
impact on the perceived value of our intellectual property.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING
ON OR MISAPPROPRIATING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We may be sued for infringing on the intellectual property rights of others.
Intellectual property litigation is costly, and, even if we prevail, the costs
of litigation could adversely affect our business and results of operations. In
addition, litigation is time consuming and could divert management attention and
resources away from our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we could be required to stop the
infringing activity or obtain a license to the intellectual property in
question. Any required license may not be available on terms acceptable to us,
if at all. In addition, some licenses may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. If we fail to obtain
a required license or are unable to design around any third party patent, we may
be unable to sell some of our products, which could have a material adverse
affect on our business, and results of operations.
THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE
ADEQUATE TO PROTECT OUR PRODUCTS AND SERVICES, WHICH COULD ENABLE THIRD PARTIES
TO USE OUR TECHNOLOGIES AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
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In addition to patents, we rely on a combination of trade secrets, copyright
and trademark laws, nondisclosure agreements and other contractual provisions
and technical measures to protect our intellectual property rights. While we
require most employees, academic collaborators, consultants and other third
parties to enter into confidentiality and/or non-disclosure agreements where
appropriate, any of the following could still occur:
- the agreements may be breached;
- we may have inadequate remedies for any breach;
- proprietary information could be disclosed to our competitors;
- others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets
or disclose such technologies; or
- we may not be able to meaningfully protect our trade secrets.
We may not be able to maintain the confidentiality of our technologies and
other confidential information in connection with each academic collaboration or
advisory arrangement, and any unauthorized dissemination of our confidential
information could harm our business and results of operations. Further, any
collaborator, consultant or advisor may enter into an employment agreement or
consulting arrangement with any of our competitors. The measures that we take
may not provide protection for our trade secrets or other proprietary
information. If we are unable to protect our intellectual property, our ability
to execute our business plan would be harmed.
FUTURE ACQUISITIONS OR INVESTMENTS COULD DISRUPT OUR ONGOING BUSINESS, DISTRACT
OUR MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES, ADVERSELY AFFECT OUR
BUSINESS AND DILUTE YOUR PERCENTAGE OWNERSHIP INTEREST OF OUR COMPANY.
A portion of any future growth may be accomplished by acquiring
complementary businesses and technologies, although we have no commitments or
agreements with respect to any acquisitions at present. Factors that will affect
the success of any acquisition include our ability to integrate acquired
personnel, operations, products and technologies into our organization
effectively, to motivate key personnel and to retain customers of acquired
businesses. We may not be able to identify suitable acquisition opportunities,
obtain necessary financing on acceptable terms to finance such acquisitions or
successfully integrate acquired personnel and operations. In addition, as a
public company, the cost of acquiring companies may increase relative to the
cost of acquiring similar companies when we were a private company. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and materially and adversely affect our
business. Any future acquisitions would involve certain other risks, including
the assumption of additional liabilities and potentially dilutive issuances of
equity securities. If we issue equity securities in connection with any
acquisitions, your percentage ownership of our company would be reduced.
WE USE HAZARDOUS MATERIALS, CHEMICALS AND PATIENT SAMPLES IN OUR BUSINESS, AND
ANY DISPUTES RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development, production and service activities involve the
controlled use of hazardous materials, chemicals and patient samples. We are
subject to federal, state and local laws and regulations governing the use,
storage, handling and disposal of these materials and certain waste products,
conveyance, processing, and storage of and data on patient samples. We cannot
eliminate the risk of accidental contamination or discharge or any resultant
injury from these materials. If we fail to comply with applicable laws or
regulations or in the event of an accident, we could be required to pay
penalties or be held liable for any damages that result and this liability could
exceed our financial resources. Further, future changes to environmental health
and safety laws could cause us to incur additional expense or restrict our
operations.
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In addition, certain of our collaborators are working with these types of
hazardous materials, including viruses and hazardous chemicals, in connection
with our collaborations. In the event of a lawsuit or investigation, we could be
held responsible for any injury caused to persons or property by exposure to, or
release of, these patient samples that may contain viruses and hazardous
materials. This liability could exceed our resources.
WE MAY INVEST SIGNIFICANT TIME ON SALES OPPORTUNITIES WITH NO ASSURANCE OF
SUCCESS.
Our ability to obtain customers for our products and services will depend in
significant part upon the perception that our products and services can help
accelerate or improve drug discovery and development efforts on human health.
Our average sales cycle is lengthy because:
- we must educate our customers about our products and services;
- we market our products and services to a variety of constituencies within
potential collaborators and customers, including research and development
personnel and key management; and
- the negotiations for each collaboration will typically involve multiple
agreements containing terms that may be unique to each customer or
collaborator.
We may expend substantial funds and management effort with no assurance that
a sale or a collaboration will result.
SOME OF OUR RESEARCH PRODUCTS REQUIRE SUPPLIES AND REAGENTS FROM WHICH WE RELY
ON A SINGLE SUPPLIER AND THE DELAY OR INTERRUPTION OF THIS SUPPLY COULD
ADVERSELY AFFECT THE COMPLETION OF THESE PRODUCTS.
Certain reagents used in our research programs are currently available only
from a single supplier. These reagents may not continue to be available in
commercial quantities at acceptable costs. If we are required to seek
alternative sources of supply, it could be time consuming and expensive. In
addition, we are dependent on our reagent supplier to provide components of
appropriate quality and reliability and to meet applicable regulatory
requirements. In the event that our supply of reagents is delayed or interrupted
for any reason, our ability to develop and supply our products could be
impaired.
IF WE FAIL TO RETAIN ANY KEY PERSONNEL OR HIRE, TRAIN AND RETAIN QUALIFIED
EMPLOYEES, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, WHICH WOULD HURT OUR
ABILITY TO MANUFACTURE OUR PRODUCTS AND PROVIDE OUR SERVICES.
Our future success will depend on the continued services and on the
performance of our senior management. The loss of the services of any of these
individuals could seriously impair our ability to operate our business, compete
in our industry and improve our products and services. We must also hire, train,
motivate and retain key personnel and manage employees with skills related to
pharmacogenomics and rapidly changing technologies in order to serve our
customers. Individuals who have expertise and can perform the research or
develop our technologies are scarce. We might not be able to hire enough
experienced individuals or to train, motivate, retain and manage the employees
we do hire. This could hinder our ability to complete existing projects or
perform our obligations under certain agreements. In addition, because the
competition for qualified employees in the biotechnology industry is intense,
hiring, training, motivating, retaining and managing employees with the
strategic and technical skills we need is both time-consuming and expensive.
While our key employees are subject to non-competition agreements, these
agreements may be difficult to enforce. If we fail to attract, train and retain
key personnel, our ability to compete effectively would be materially and
adversely affected.
WE MAY BE SUED FOR PRODUCT LIABILITY, WHICH, IF A SUIT WERE SUCCESSFUL, COULD
CAUSE US TO FACE SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.
We may be held liable if any product we develop, or any product which is
made using our technologies, causes injury or is found unsuitable during product
testing, manufacturing, marketing or sale. If our genotyping assays or other
products and services do not function properly, or if the results
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obtained by our customers are not conducive for the selection of appropriate
therapies, we may be sued. These risks are inherent in the development of
pharmacogenomics products and services. We currently do not have product
liability insurance. If we choose to obtain product liability insurance but
cannot obtain sufficient insurance coverage at an acceptable cost or otherwise
protect against potential product liability claims, the commercialization of
products that we or our strategic partners develop may be prevented or
inhibited. If we are sued for any injury caused by our products, our liability
could exceed our total assets.
RISKS RELATED TO THE PHARMACEUTICAL, BIOTECHNOLOGY AND DIAGNOSTICS INDUSTRIES
OUR REVENUES ARE DERIVED PRIMARILY FROM AND ARE SUBJECT TO RISKS FACED BY THE
PHARMACEUTICAL, BIOTECHNOLOGY AND DIAGNOSTICS INDUSTRIES.
We expect that our revenues in the foreseeable future will be derived
primarily from our products and services provided to the pharmaceutical,
biotechnology and diagnostics industries. Accordingly, our success will depend
directly upon their demand for our products. Our operating results may fluctuate
substantially due to reductions and delays in research and development
expenditures by companies in these industries. These reductions and delays may
result from factors beyond our control, such as:
- changes in economic conditions;
- changes in the regulatory environment affecting healthcare and healthcare
providers;
- pricing pressures and reimbursement policies;
- market-driven pressures on companies to consolidate and reduce costs; and
- other factors affecting research and development spending.
OUR COLLABORATORS ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATORY REQUIREMENTS,
WHICH COULD INCREASE OUR OPERATING COSTS OR ADVERSELY AFFECT THEIR ABILITY TO
OBTAIN GOVERNMENT APPROVAL OF PRODUCTS BASED ON GENES THAT WE IDENTIFY IN A
TIMELY MANNER, IF AT ALL.
The pharmaceutical, biotechnology and diagnostics industries are subject to
stringent regulation by the FDA and comparable agencies in other countries. The
regulation of new products is extensive, and the required process of preclinical
laboratory testing and human studies is lengthy and expensive. It typically
takes many years and substantial resources to satisfy regulatory requirements
depending on the types, complexity and novelty of the product. Our collaborators
may not be able to obtain FDA approvals for their products in a timely manner,
or at all. They may encounter significant delays or excessive costs in efforts
to secure necessary approvals or licenses. Even if they obtain FDA regulatory
approvals, the FDA extensively regulates manufacturing, labeling, distributing,
marketing, promotion and advertising after product approval. Our collaborators
who use our technology in their clinical laboratories may also be subject to the
registration and certification requirements of the Clinical Laboratory
Improvement Act, which mandates specific standards in areas such as proficiency
testing, patient test management, quality control, quality assurance and
inspections. Our collaborators and future collaborators may fail to comply with
the Clinical Laboratory Improvement Act, which would negatively impact our
ability to sell our technology, products and services to them. Moreover, several
areas in which our collaborators may develop products involve relatively new
technology that has not been the subject of extensive testing in humans. The
regulatory requirements governing these products and related clinical procedures
remain uncertain. In addition, these products may be subject to substantial
review by foreign regulatory authorities that could prevent or delay approval in
other countries.
WE MAY BECOME SUBJECT TO INCREASED GOVERNMENT REGULATION.
Our services and products are not currently subject to regulation by the
FDA, but the products of many of the pharmaceutical, biotechnology and
diagnostics companies to which we market our products
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and services are regulated by the FDA. The interest of the FDA or other
governmental agencies in our services and products may increase as the number of
pharmaceutical and other products developed using our technologies increases. In
addition, the FDA is placing increased scrutiny on products and services in the
genomics field. Regulatory requirements ultimately imposed on our products and
services could limit our ability to test, manufacture and, ultimately,
commercialize our products and thereby could adversely affect our financial
condition and results of operations.
RESTRICTIONS ON REIMBURSEMENTS AND HEALTHCARE REFORM MAY LIMIT OUR
COLLABORATORS' FINANCIAL RETURNS ON PRODUCTS BASED ON GENES THAT WE IDENTIFY AS
PROMISING CANDIDATES FOR DEVELOPMENT AS DRUGS OR DRUG TARGETS, THEREBY REDUCING
OUR POTENTIAL FUTURE COLLABORATIONS.
Our collaborators' ability to commercialize drugs and diagnostic products
may depend in part on the extent to which coverage and adequate payments for
these products will be available from government of payors, such as Medicare and
Medicaid, private health insurers, including managed care organizations and
other third-party payors. These payors are increasingly challenging the price of
medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved pharmaceutical and diagnostics products,
and we cannot assure you that adequate payment will be available for any
product.
In recent years, officials have made numerous proposals to change the
healthcare system in the US. These proposals included measures that would limit
or eliminate payments for some medical procedures and treatments or subject the
pricing of pharmaceuticals and other medical products to government control.
Government and other third-party payors increasingly attempt to contain
healthcare costs by limiting both coverage and the level of payments of newly
approved healthcare products. In some cases, they may also refuse to provide any
coverage of uses of approved products for disease indications other than those
for which the FDA has granted marketing approval. Governments may adopt future
legislative proposals and federal, state or private payors for healthcare goods
and services may take action to limit their payments for goods and services. Any
of these events could limit our ability to form collaborations or commercialize
our products successfully.
ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION MAY AFFECT
DEMAND FOR OUR PRODUCTS.
Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on, or regulation of the use of, genetic testing
or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could materially and
adversely affect our business and financial condition.
RISKS ASSOCIATED WITH THIS OFFERING
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS THAT YOU AS
A STOCKHOLDER MAY CONSIDER FAVORABLE.
Following this offering, certain provisions of our certificate of
incorporation and bylaws, as well as Section 203 of the Delaware General
Corporation Law, may discourage, delay or prevent a change in control of our
company that you as a stockholder may consider favorable. These provisions
include:
- authorizing the issuance of up to 5,000,000 shares of "blank check"
preferred stock that could be issued by our Board of Directors to increase
the number of outstanding shares and thwart a takeover attempt;
- a classified Board of Directors with staggered, three-year terms, which
may lengthen the time required to gain control of our Board of Directors;
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- prohibiting cumulative voting in the election of directors, which will
allow a majority of stockholders to control the election of all directors;
- requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
- limitations on who may call special meetings of stockholders;
- prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of stockholders; and
- establishing advance notice requirements for nominations of candidates for
election to the Board of Directors or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock option plan may discourage, delay or prevent a change in control of our
company.
WE EXPECT THE MARKET PRICE OF OUR COMMON STOCK TO BE VOLATILE AND THE MARKET
PRICE COULD FALL BELOW THE INITIAL PUBLIC OFFERING PRICE. AS A RESULT, YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENTS.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that may
not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will trade
upon completion of this offering. An active public market for our common stock
may not develop or be sustained after this offering, and the market price could
fall below the initial public offering price. As a result, you could lose all or
part of your investments. In addition, the market prices of biotechnology and
genomics-related companies have been highly volatile and have reacted
significantly to publicity regarding policy, regulatory, safety, and business
issues regarding the industry. We expect such market price volatility to
continue.
Shareholders have brought securities class action litigation against
biotechnology and pharmaceutical companies following periods of volatility in
the market price of their securities. We may be the target of similar litigation
in the future. Securities litigation could result in substantial costs and
divert management's attention and resources, which could have a material adverse
effect on our business and the market for our common stock.
OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS WILL HAVE
SUBSTANTIAL CONTROL OVER OUR AFFAIRS.
Our directors, executive officers and principal stockholders will
beneficially own, in the aggregate, approximately % of our common stock
following this offering. In particular, stockholders will own, in the
aggregate, approximately % of our outstanding common stock. These
stockholders acting together will have the ability to exert substantial
influence over all matters requiring approval by our stockholders. These matters
include the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets. In addition, they may dictate
the management of our business and affairs. This concentration of ownership
could have the effect of delaying, deferring or preventing a change in control,
or impeding a merger or consolidation, takeover or other business combination of
which you might otherwise approve.
WE DO NOT HAVE AN EXACT PLAN FOR THE USE OF THE NET PROCEEDS OF THIS OFFERING
AND WILL THEREFORE HAVE BROAD DISCRETION AS TO THE USE OF THESE PROCEEDS, WHICH
WE MAY NOT USE EFFECTIVELY.
We have no exact plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from general corporate purposes, including research and development and possible
future acquisitions. Accordingly, our management will have broad discretion in
applying the net proceeds of this offering and may use the proceeds in ways with
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which you and our other stockholders may disagree. We may not be able to invest
these funds effectively.
YOU WILL SUFFER SUBSTANTIAL DILUTION OF $ PER SHARE IN THE NET TANGIBLE BOOK
VALUE OF THE COMMON STOCK YOU PURCHASE.
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. Based on an assumed
initial public offering price of $ per share, if you purchase shares of
common stock in this offering, you will suffer immediate and substantial
dilution of $ per share in the net tangible book value of the common stock.
To the extent outstanding options are exercised, you will suffer further
dilution.
A LARGE NUMBER OF SHARES MAY BE SOLD IN THE MARKET FOLLOWING THIS OFFERING,
WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
lock-up agreements that our stockholders have entered into with the underwriters
and with us. Those lock-up agreements restrict our stockholders from selling,
pledging our otherwise disposing of their share for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston Corporation. However, Credit Suisse First Boston Corporation may,
in its sole discretion, release all or any portion of the common stock from the
restrictions of the lock-up agreements. The following table indicates
approximately when the shares of our common stock that are not being
sold in the offering but which were outstanding as of , 2000 will be
eligible for sale into the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF
RESTRICTED SHARES FOR SALE
IN PUBLIC MARKET
--------------------------
<S> <C>
On the date of this prospectus..............................
180 days after the date of this prospectus..................
At various times after the date of this prospectus..........
</TABLE>
20
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Prospectus Summary", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as in this prospectus generally. We generally use words such as "believe,"
"will," "intend," "expect," "anticipate," "plan," and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the risks described above and elsewhere in this prospectus.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results or to changes in our
expectations.
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock we are
offering, at an assumed initial public offering price of $ per share, are
estimated to be $ million after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. We expect to use the
net proceeds for general corporate purposes, including research and development
and potential acquisitions.
The amount and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations and sales and marketing activities. We may also
use a portion of the proceeds for research and development and for the
acquisition of, or investment in, companies, technologies or assets that
complement our business. However, we have no present understandings, commitments
or agreements to enter into any potential acquisitions or make any investments.
Further, we have not determined the amounts we plan to spend on any of the areas
listed above or the timing of these expenditures. As a result, our management
will have broad discretion to allocate the net proceeds from this offering.
Pending application of the net proceeds as described above, we intend to invest
the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently
anticipate retaining all of our future earnings, if any, to support operations
and to finance the growth and development of our business and do not anticipate
paying any cash dividends for the foreseeable future. The terms of future credit
agreements may prevent us from paying any dividend or making any distributions
or payment with respect to our capital stock.
21
<PAGE>
CAPITALIZATION
The following table presents the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization reflecting the conversion of all outstanding
shares of redeemable convertible preferred stock, including
3,921,568 shares of Series F redeemable convertible preferred stock sold
in March 2000 for net proceeds of $19.9 million, into 12,552,576 shares
common stock upon the closing of this offering; and
- our pro forma as adjusted capitalization reflecting the pro forma
adjustments mentioned above and the sale of shares of common
stock offered by us at an assumed initial public offering price of
$ per share, less underwriting discounts and commissions and
the estimated offering expenses payable by us.
This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Obligations under capital leases and line of credit......... $ 1,602 $ 1,602
Redeemable convertible preferred stock $.01 par value;
9,732,208 shares authorized; 8,631,008 shares issued and
outstanding, actual; no shares issued and outstanding, pro
forma and pro forma as adjusted........................... 28,732 --
Stockholders' deficit
Common stock, $.01 par value; 12,042,300 shares
authorized; 630,605 shares issued and outstanding,
actual; 13,183,181 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted................................................ 6 132
Additional paid-in capital................................ 19,185 67,691
Deficit accumulated during the development stage.......... (34,894) (34,894)
Deferred compensation..................................... (6,325) (6,325)
------- ------- -------
Total capitalization.................................. $ 8,306 $28,206
======= ======= =======
</TABLE>
This table excludes the following shares:
- 1,322,144 shares of common stock that may be issued upon exercise of
options outstanding as of December 31, 1999 under our 1997 Employee,
Director and Consultant Stock Option Plan at a weighted average exercise
price of $.63 per share; and
- 1,883,703 shares of common stock reserved for issuance upon the exercise
of warrants outstanding as of December 31, 1999 at a weighted average
exercise price of $3.57.
22
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of
December 31, 1999, reflecting the conversion of all outstanding shares of
redeemable convertible preferred stock, including 3,921,568 shares of Series F
redeemable convertible preferred stock sold in March 2000 for net proceeds of
$19.9 million, into 12,552,576 shares of common stock upon the closing of this
offering, was $26.5 million, or $2.00 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets, including
net proceeds from the sale of Series F redeemable convertible preferred stock of
$19.9 million, less total liabilities divided by the number of pro forma shares
of common stock outstanding as of December 31, 1999 and including
3,921,568 shares of Series F redeemable convertible preferred stock sold in
March 2000. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. Assuming our sale of shares of common stock
offered by this prospectus at an assumed initial public offering price of $
per share, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our net tangible book value as of
December 31, 1999 would have been approximately $ , or $ per share. This
represents an immediate decrease in net tangible book value of $ per share to
new investors purchasing shares of common stock in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Pro forma net tangible book value per share as of December
31, 1999................................................ $ 2.00
Increase to new investors
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value at December 31, 1999 would have been
approximately $ per share, representing an immediate increase in net tangible
book value of $ per share to existing stockholders and an immediate dilution
in net tangible book value of $ per share to new investors.
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares of common stock
in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ % $ % $
New investors................................
--------- ----- ------- -----
Total...................................... 100.0% $ 100.0%
========= ===== ======= =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants at December 31, 1999. The exercise of all options and
warrants outstanding as of December 31, 1999 having an exercise price less than
the offering price would increase the dilutive effect to new investors to $
per share.
If the underwriters exercise their over-allotment option in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our common
stock outstanding; and,
- the number of shares held by new investors will increase to shares,
or approximately % of the total number of our common stock outstanding
after this offering.
23
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements of operations data for the years ended December 31, 1997,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 have
been derived from our audited financial statements included elsewhere in this
prospectus which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The statements of operations data for the years ended December 31,
1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997
have been derived from our financial statements not included in this prospectus.
Our historical results are not necessarily indicative of results to be expected
for any future period. The data present below should be read with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.............................................. $ -- $ -- $ -- $ -- $ 399
Costs and expenses:
Research and development........................... 909 1,298 2,234 5,071 8,602
General and administrative......................... 654 781 2,059 3,176 6,945
In-process research and development................ -- -- 674 -- --
------- ------- ------- ------- --------
Loss from operations............................. (1,563) (2,079) (4,967) (8,247) (15,148)
Other income (expense):
Interest income.................................... 9 10 258 200 167
Interest expense................................... (79) (32) (80) (98) (1,497)
Loss on investment in affiliate.................... -- -- -- -- (250)
------- ------- ------- ------- --------
Net loss............................................. $(1,633) $(2,101) $(4,789) $(8,145) $(16,728)
======= ======= ======= ======= ========
Accretion to redemption value........................ -- -- -- (153) (1,076)
Net loss attributable to common stockholders......... $(1,633) $(2,101) $(4,789) $(8,299) $(17,804)
------- ------- ------- ------- --------
Net loss attributable to common stockholders per
share (basic and diluted).......................... $ (9.17) $ (9.77) $(15.54) $(19.55) $ (34.93)
Weighted average common shares outstanding (basic and
diluted)........................................... 178 215 308 425 510
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $ 365 $ 34 $ 6,994 $ 734 $ 4,328
Working capital................................... 377 (804) 6,591 (3,771) 2,799
Total assets...................................... 856 445 8,177 5,249 9,403
Long-term obligations, less current portion....... 150 84 -- 868 977
Redeemable convertible preferred stock............ -- -- 16,804 16,804 28,732
Total stockholders' equity (deficit).............. 492 (609) (9,285) (17,403) (22,029)
</TABLE>
Please see Note 2 to our financial statements for an explanation of the
method used to calculate net loss attributable to common stockholders, basic and
diluted net loss per share attributable to common stockholders and the number of
shares used in the computation of per share amounts.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ WITH "SELECTED
FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS APPLYING TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK
FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE. SEE "RISK FACTORS" AND "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS."
OVERVIEW
We are a leader in the discovery and commercial development of drugs and
diagnostics based on understanding the genetic variability among individuals. As
a full spectrum pharmacogenomics company, we discover genetic variations
characterized by SNPs and other genetic differences and use this information to
optimize drugs in development and develop new drug targets. We also intend to
use our technology to bring high-value diagnostic products to market. We have
developed our NuCleave-TM- proprietary genotyping method using mass spectrometry
for use in clinical research, and we develop assays which may be used as
diagnostics. From inception in December 1992 through 1996, our research
activities were primarily directed toward developing a pharmacogenomic approach
to cancer therapy. In 1996 that focus was broadened to include SNP discovery and
development of pharmacogenomic technologies. Since our inception in 1992, our
operating activities have been primarily devoted to research and development,
recruiting personnel, raising capital, acquiring assets and business
development. In the second half of 1999, we recognized revenue from our first
commercial collaboration.
We have incurred losses since our inception and, as of December 31, 1999, we
had an accumulated stockholders' deficit of $34.9 million. We anticipate
incurring additional operating losses through at least the end of 2001, as we
expand the commercialization of our products and services to the clinical
research market and we fully implement our business strategy. This expansion is
expected to result in increases in research and development, marketing and
sales, and general and administrative expenses. Payments under contracts,
collaborations and licensing arrangements will be subject to significant
fluctuation in both timing and amount and, therefore, our results of operations
for any period may not be comparable to the results of operations for any other
period.
SOURCES OF REVENUE AND REVENUE RECOGNITION
Our revenue to date has been generated from collaborations and research
grants from a governmental agency. We recognize revenue from collaborations and
grants in the period in which our specific performance obligations under the
terms of the contracts are satisfied and related costs are incurred. Payments
received in advance under agreements are recorded as deferred revenue until
earned. As of December 31, 1999, we had approximately $42,000 of deferred
revenue.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues totaled $0.4 million for the year ended December 31,
1999, with no revenues recorded in 1998. We generated no revenues from our
inception in December 1992 through December 31, 1998. Revenues for the year
ended December 31, 1999 included $0.2 million from collaborations and
$0.2 million from grants from a governmental agency.
25
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries and related personnel costs, consumable laboratory
supplies, facilities and equipment expenses, license fees and fees paid to
scientific advisors, consultants and sponsored research providers. We expense
our research and development costs as they are incurred. Research and
development expenses increased to $8.6 million for the year ended December 31,
1999 from $5.1 million for the year ended December 31, 1998. The increase was
due primarily to increased salary and related personnel costs as we expanded our
research and technology development activities and to stock-based compensation
expense of approximately $1.9 million relating primarily to option grants. We
expect research and development spending to increase significantly over the next
several years as we expand our research and technology development efforts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related expenses for executive, business
development, finance and other administrative personnel, facility operations and
equipment costs, legal expenses for general legal activities and preparation of
intellectual property filings, recruiting and marketing. General and
administrative expenses increased to $6.9 million for the year ended
December 31, 1999 from $3.2 million for the comparable period of 1998. General
and administrative expenses for 1999 includes a charge of $1.8 million recorded
in connection with Nova Molecular, Inc. In consideration for the cancellation
of: 1) a funding commitment, 2) a license agreement and 3) a conversion
agreement that contained anti-dilution provisions, we issued 320,000 shares of
our Series D redeemable convertible preferred stock, valued at $1.0 million, to
the holders of Nova Molecular's Series A preferred stock, and paid $0.8 million
to Nova Molecular. General and administrative expenses in 1999 also include
stock-based compensation expense of $1.1 million for stock and stock option
grants. The increase in general and administrative expense from 1998 to 1999 was
primarily due to these charges as well as increased salary and related costs due
to an increase in general and administrative personnel and increased recruiting
costs.
We recognized $3.0 million in 1999 in equity-related charges resulting from
grants of options and stock to employees and options and restricted stock to
non-employees. These charges are included in research and development or general
and administrative expenses depending upon the nature of the work performed by
the individuals receiving the grants. We incurred expenses of $0.6 million in
1999 related to the issuance of stock options to employees. These employee
options generally vest over four years, which will result in additional
compensation expense of $6.3 million for periods ending subsequent to
December 31, 1999. We also incurred expenses of $1.6 million in 1999 related to
restricted stock and options granted to non-employees. Non-employee equity
grants are subject to remeasurement over the vesting period and the expense to
be recognized in future periods cannot be estimated and will depend on a number
of variables, including our stock price.
In the first quarter of 2000, we granted options to purchase 935,818 shares
of common stock at a weighted average exercise price of $1.63. We will record
compensation expense in the first quarter and over the future vesting period
relating to the issuance of these options with exercise prices below the fair
value of the underlying common stock. Additionally, in March 2000, we completed
a private placement financing with investors and raised $19.9 million net
proceeds by issuing 3,921,568 shares of Series F redeemable convertible
preferred stock at $5.10 per share. We will record a preferred dividend in the
first quarter of 2000 related to the beneficial conversion features of this
instrument.
INTEREST INCOME. Interest income, which is earned on cash equivalents and
short-term investments, decreased to approximately $167,000 for the year ended
December 31, 1999 from approximately $200,000 for the comparable period in 1998.
The decrease was due to a lower average balance of cash equivalents and
short-term investments in 1999 than in 1998 resulting from cash used in 1999 for
operating activities and for investments in leasehold improvements in connection
with our move to a larger facility in December 1998.
26
<PAGE>
INTEREST EXPENSE. Interest expense increased to $1.5 million for the year
ended December 31, 1999 from $0.1 million for the comparable period in 1998. The
increase was primarily due to non-cash interest expense of $1.0 million recorded
in connection with warrants issued with convertible notes payable and to
non-cash interest expense of $0.3 million on convertible notes payable that
converted into Series E-2 redeemable convertible preferred stock on July 30,
1999.
NET LOSS. Due to the increases in expenses from 1998 to 1999 described
above, our net loss was $16.7 million for the year ended December 31, 1999
compared with a net loss of $8.1 million for the comparable period in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $5.1 million for the year ended December 31, 1998 from
$2.2 million for the year ended December 31, 1997. The increase was due
primarily to increased payroll and related costs, increased costs of consumable
laboratory supplies and increased facility and equipment costs, as we expanded
our research programs in SNP discovery, bioinformatics and technology
development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.2 million for the year ended December 31, 1998 from
$2.1 million for the comparable period of 1997. The increase was primarily
attributable to increased general legal expenses, increased salary, travel and
marketing costs due to an increase in business development activities and
increased facility and office operations costs.
IN-PROCESS RESEARCH AND DEVELOPMENT. We recorded a charge of $0.7 million
for in-process research and development was recorded in the year ended
December 31, 1997 resulting from our purchase of certain assets of Avitech
Diagnostics, Inc. in September 1997. The in-process research and development
related to enzyme-based processes used in discovering genetic variations. In
1999, we revised our process for discovering genetic variations and no longer
use an enzyme-based approach. We recorded no comparable charge in 1998.
INTEREST INCOME. Interest income decreased to approximately $0.2 million
for the year ended December 31, 1998 from approximately $0.3 million for the
comparable period in 1997. The decrease was due to a lower average balance of
cash equivalents and short-term investments in 1998 than in 1997 resulting from
cash used for operating activities and for investments in leasehold improvements
and equipment.
INTEREST EXPENSE. Interest expense increased to approximately $98,000 for
the year ended December 31, 1998 from approximately $80,000 for the comparable
period in 1997 primarily due to an increase in equipment under lease.
NET LOSS. Due to the increases in research and development, general and
administrative expenses from 1997 to 1998 and the in-process research and
development charge described above, our net loss was $8.1 million for the year
ended December 31, 1998 compared with a net loss of $4.8 million for the
comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through private
sales of preferred stock and equipment financing arrangements. As of March 10,
2000, we have received net proceeds of $55.0 million from issuances of
redeemable convertible preferred stock, including related convertible notes
payable that converted into redeemable convertible preferred stock. We have
financed equipment purchases through leases and loans totaling $2.2 million. As
of December 31, 1999, we had an
27
<PAGE>
equipment loan of $0.2 million and $1.4 million in capitalized lease
obligations. We lease our corporate facility under an operating lease which
expires in 2008.
Cash and cash equivalents increased by $1.1 million to $1.8 million at
December 31, 1999. Cash used for operating activities increased from 1998 to
1999 and from 1997 to 1998, primarily due to the increases in net loss. We used
$10.4 million for operations in 1999. This consisted of the net loss for the
year of $16.7 million offset in part by several non-cash charges, including
$3.0 million for compensation charges from stock awards and option grants,
$1.0 million relating to the issuance of Series D redeemable convertible
preferred stock to Nova Molecular stockholders, $0.3 million relating to our
share in the losses of Nova Molecular, $0.7 million of depreciation and
amortization and $1.1 million of non-cash interest expense. We used
$7.0 million for operating activities for the year ended December 31, 1998 and
$3.3 million for operating activities for the year ended December 31, 1997.
We used $3.1 million for investing activities in 1999, $2.5 million for the
purchase of short-term investments, $0.3 million for our equity investment in
Nova Molecular and $0.6 million for capital expenditures that were offset by
$0.3 million of reimbursement of leasehold improvements costs. In 1998, we
received $7.0 million from the maturity of short-term investments that was
offset by $2.1 million invested in leasehold improvements and equipment. In 1997
we used $8.0 million for investing activities, which included $7.0 million used
to purchase short-term investments, $0.6 million used for the acquisition of
assets of Avitech and $0.4 million for capital expenditures.
We received $14.6 million from our 1999 financing activities, which included
$10.6 million in net proceeds from our sale of Series E and E-2 redeemable
convertible preferred stock and related proceeds of $4.7 million from bridge
notes payable which were converted into Series E and E-2 redeemable convertible
preferred stock. We also drew down $0.4 million on a bank line of credit. These
financing proceeds were offset in part by repayments of the bank line of credit
and equipment loan totaling $0.8 million and repayments of capitalized lease
obligations totaling $0.3 million. In 1998, we received $3.3 million from
convertible notes payable, and $0.6 million from a line of credit, offset by a
$1.0 million payment as collateral for a letter of credit securing a facility
lease obligation. We generated $11.3 million from financing activities in 1997,
including $10.3 million in net proceeds from the sale of Series B redeemable
convertible preferred stock and $1.1 million from convertible notes payable.
As of December 31, 1999, we had $4.3 million of cash, cash equivalents and
short-term investments as compared with $0.7 million cash and cash equivalents
at December 31, 1998. We believe that our cash reserves, including the net
proceeds of $19.9 million from the sale of our Series F redeemable convertible
preferred stock in March 2000, expected short-term revenue, and the net proceeds
of this offering will be sufficient to fund our operations through at least the
next 18 months. During or after this period, if cash generated by operations is
insufficient to satisfy our liquidity requirements, we may need to issue
additional equity or debt securities or obtain additional credit arrangements.
Additional financing may not be available on terms acceptable to us or at all.
The sale of additional equity or convertible debt securities may result in
additional dilution to our stockholders.
We cannot assure you that our business or operations will not change in a
manner that would consume available resources more rapidly than anticipated. We
also cannot assure you that we will not require substantial additional funding
before we can achieve profitable operations. Our capital requirements depend on
numerous factors, including the following:
- our ability to enter into additional collaborative agreements;
- competing technological and market developments;
- changes in our existing collaborative relationships;
28
<PAGE>
- the cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;
- the purchase of additional capital equipment;
- the expansion of our facilities;
- the progress of our existing and future milestone and royalty producing
activities; and
- the availability of additional funding, if necessary, and if at all, on
favorable terms.
IMPACT OF INFLATION
We do not believe inflation has had a material impact on our business or
operating results during the periods presented.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash equivalents
and investments, all of which have maturities of less than one year. We maintain
a non-trading investment portfolio of investment grade, liquid debt securities
that limits the amount of credit exposure to any one issue, issuer or type of
instrument. The fair value of these securities approximates their cost.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as amended, is effective for fiscal years
beginning on or after June 15, 2000 and is not anticipated to have an impact on
our financial position or results of operations.
29
<PAGE>
BUSINESS
OVERVIEW
We are a leader in the field of pharmacogenomics. Pharmacogenomics is the
study of the correlation between an individual's genetic variability and his or
her specific response to a drug. The most common form of this genetic
variability is a single nucleotide polymorphism, or SNP. We use our
pharmacogenomics technology, expertise and proprietary data to optimize drugs in
development and develop new drug targets, and we also intend to use our
technology to bring high-value diagnostic products to market. We are a
full-spectrum pharmacogenomics company with the capability to support key steps
of the drug discovery and development process, extending from drug target
identification through clinical trials to commercialization. We intend to
establish multiple sources of revenue, which will include collaboration
revenues, license fees, milestone payments and royalties on products
commercialized using our technology.
BACKGROUND
The effect that a drug has on an individual is often a function of that
individual's unique genetic makeup. Genetic variation may also explain why some
individuals contract certain diseases and others do not, and may also determine
why some individuals respond differently to the same drug. Typically, drugs are
developed to interact with a single version of a given protein or receptor in
the human body. Accordingly, a drug may only be effective in individuals that
carry the specific protein or receptor for which the drug was designed.
Individuals who have a genetically-caused variation in these proteins or
receptors, or the proteins involved in the metabolism of the drug, may not
respond to the drug or may experience adverse side effects.
The methods used by the pharmaceutical industry to develop new drugs and to
improve existing drugs are expected to undergo a fundamental transformation to
take genetic variation into account. In fact, genetic variation can play a
significant role in all stages of drug discovery and development. Genetic
variation information can also be used to improve drugs already on the market by
providing information to select the best drug for a particular patient.
GENOMICS
The foundation for the collection of cells that make up the human body is
the genetic material known as deoxyribonucleic acid, or DNA. It is the DNA
contained in all cells that is responsible for determining the inherited
characteristics of living organisms. Each DNA molecule contains two
complementary strands comprised of chains of four different chemical bases
called nucleotides. The order in which nucleotides pair together is called the
DNA sequence. The exact DNA sequence is unique to each individual and forms each
individual's genetic make-up. DNA is organized into functional regions known as
genes. The entire collection of these genes reside on the 23 pairs of
chromosomes that compose the human genome. Genomics, broadly defined, is the
study of the genome and its importance in human physiology and disease.
The field of genomics is proceeding through the following three interactive
phases:
- the identification, or sequencing, of each base pair of DNA;
- the definition of the functional role of genes within the human genome;
and
- most recently, pharmacogenomics, the application of knowledge of how
genetic variation among individuals, may be used to improve existing drug
development programs and to discover new drug targets.
The Human Genome Project, an international government and foundation-funded
effort to sequence human DNA, is on target to identify the definitive sequence
of every gene in the human genome by 2003. More recently, a private industry
effort has been launched to sequence the human genome with the hope of
completing the sequence as early as 2001.
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The first phase of the genomics effort has resulted in a dramatic increase
in the volume of DNA sequence data, creating a critical mismatch between the
availability of vast amounts of sequence information and the ability to
understand and use that information. As a result, the genomics effort is now
becoming focused on understanding the functional relevance of individual genes
and genetic variation and applying this knowledge to drug discovery and
development. Significant progress on the last two phases is necessary for
genomics to change the practice of medicine from identifying disease by gross
symptomatic complaints to identifying potential or underlying disease at the
genetic level. The use of genomics could enable physicians to treat disease
prior to the development of clinical symptoms and, in particular, to tailor
treatments to the unique genetic make-up of an individual. For this to become a
reality, however, the enormous amount of genomics data currently being generated
must be sorted and interpreted in a cost-effective fashion and in a method
practical for use in clinical testing.
GENETIC VARIABILITY, SNPS, GENOTYPES AND HAPLOTYPES
A difference in one or more nucleotide base of a DNA sequence, referred to
as a genetic variation, can modify the way a gene functions. The most common
type of genetic variation is called a single nucleotide polymorphism, or SNP. It
is estimated that hundreds of thousands of SNPs contribute to the differences
between individuals and among groups of individuals. However, only a small
subset of those SNPs is likely to be related to disease susceptibility or to how
an individual responds to a drug. The challenge is to prioritize which subset of
SNPs can be effectively utilized within the costly clinical trial process.
After a SNP is discovered, a genetic test, or assay, must be developed to
allow for rapid and repetitive testing of the occurrence of that SNP in a
targeted population. The basic process to identify the presence of a SNP is
called genotyping. A patient's genotype contains the summary of all of the SNPs
identified for that patient for a particular evaluation. Generally, a genotyping
analysis will identify the presence of a small subset of the total SNPs in a
patient.
A more profound test in many cases is to identify the group of SNPs, or
haplotype, that collectively exerts an effect on drug action. Haplotypes should
have far greater predictive value than individual SNPs, and thus, we believe
researchers will be increasingly turning to haplotypes as a better indicator of
the potential effects of drugs. We believe that haplotyping assays will reduce
the total number of possible explanations for SNP variations down to a number
that is practical to test in the size of clinical trials commonly conducted in a
drug development program.
PHARMACOGENOMICS
It has long been known that people respond differently to the same drug. The
field of pharmacogenomics studies these variations in drug response and their
relation to genetic differences. We believe that the emerging ability to
correlate drug response with SNPs should enable doctors to prescribe appropriate
drugs to patients with the goal of maximizing drug response and minimizing
negative side effects. Pharmacogenomics can be applied at each stage of drug
development from identification of a drug target through clinical trials to
commercialization.
DRUG TARGET IDENTIFICATION
The process of discovering and developing a new drug is long and complex,
taking an average of 12 to 15 years from initial discovery to FDA approval.
According to a 1999 study published by the Pharmaceutical Research and
Manufacturers of America, for every 5,000 to 10,000 chemically synthesized
molecules screened, only one becomes an approved drug. This statistic suggests
that a pharmacogenomic screening capability, introduced early in the process,
would save drug development sponsors significant time and money. Pharmaceutical
companies could use targeted pharmacogenomic screening to eliminate
non-promising compounds earlier. Furthermore, compounds that make it through the
screening process should have a higher overall chance of success.
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CLINICAL TRIALS
Making the clinical trial process more efficient is critical to a
pharmaceutical company's ability to manage its costs. According to the Boston
Consulting Group, the pre-tax cost of the pharmaceutical research and
development process for drugs introduced in the early 1990s could be over
$500 million. The challenge is for drug developers to use meaningful
pharmacogenomics data to predict which patients are likely to benefit from a
drug or to identify those patients who will not experience negative side
effects. Pharmacogenomics information could be used to reduce the length of the
clinical trial by selecting patients who are likely to develop disease earlier
and/or respond to therapy faster. In addition, pharmacogenomics could be used to
reduce the number of patients in many clinical trials. According to the
Pharmaceutical Research and Manufacturers of America, today, the average new
drug application for a novel prescription drug is based on almost 70 clinical
trials involving more than 4,000 patients. Pre-selecting patients for a clinical
trial who are likely to be responders could significantly reduce the required
sample size.
COMMERCIALIZATION
Pharmacogenomics data about an individual's potential response to a drug
creates opportunities to enhance the commercial value of pharmaceuticals. Given
the high cost of drug development, the ability to properly market a new drug to
its ideal target population is key to maximizing the drug's potential value. If
the appropriate set of pharmacogenomics markers can be identified and the
appropriate diagnostic tests were developed for a given drug, patients could be
steered more quickly to appropriate therapies. This information may allow the
pharmaceutical industry to engage in highly-focused product positioning and
consumer penetration campaigns. In addition, broad usage of a drug in patient
segments where the drug is not effective could jeopardize overall usage of the
drug, even to the point of recall.
DNA ANALYSIS PLATFORMS
A need is emerging within the pharmacogenomics market for platform
technology and assays suitable for the challenges of clinical research to enable
routine testing of genotypes and haplotypes. Key aspects of the ideal DNA
analysis platform in clinical research include:
- ultra-high accuracy to reduce the risk of mistakes that can jeopardize an
entire drug development program;
- extreme "customizability" because the platform must accommodate a
constantly-changing mix of custom SNP tests in relatively small patient
populations; and
- appropriate economic efficiencies.
Also, it is critical that these platforms effectively handle both genotyping
and haplotyping analyses. We believe that the genotyping and other DNA analysis
platforms currently available in the market do not adequately address the
commercial requirements of the clinical trial setting.
VARIAGENICS' SOLUTIONS
We are a leading full-spectrum pharmacogenomics company. Our solutions for
applying pharmacogenomics to the discovery and development of new drugs and
diagnostics extend from drug target identification through clinical testing to
commercialization.
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WE HAVE USED AN EXTENDED CANDIDATE GENE APPROACH TO DEVELOP A
HIGHLY-CHARACTERIZED PROPRIETARY SNP DATABASE.
We believe that our proprietary SNP database is the most comprehensive
collection of genetic variability data specific to pharmacogenomics and relevant
to major drug targets in development, including targets for oncology and for
cardiovascular, central nervous system and inflammatory disorders. We have
targeted our SNP discovery to extended candidate gene sets considered most
likely to affect drug activity. Moreover, our SNP detection is performed on DNA
samples derived from an ethnically and geographically diverse panel of over 100
anonymous individuals. This provides a greater than 99% probability of detecting
SNPs with a frequency in the population of 10% or greater. Our database of over
18,000 SNPs is highly characterized. It includes information on the percentage
occurrence of selected SNPs in a target population and information on our SNPs'
potential significance to drug response. Our database also contains critical
information regarding important haplotype groupings.
We will also perform custom SNP discovery for our collaborators, working
jointly to select an extended set of candidate genes. Alternatively, DNA from
patients in a clinical trial with a specific disease or drug response can be
screened for SNPs.
WE USE OUR TECHNOLOGIES TO SELECT AN OPTIMAL SET OF SNPS FOR CLINICAL
TESTING.
Our Variagenic-TM- Impact Program's proprietary technologies filter and
focus the tremendous volume of SNP and other genetic information into a usable
amount of data suitable for clinical research validation. The hundreds of
thousands of individual SNP data points now entering the public and private
domain have little commercial utility without a process for reducing this
information to a manageable set of genetic markers. Our Variagenic-TM- Impact
Program technology incorporates proprietary bioinformatics software for
analyzing the common haplotypes in key genes. In addition, we utilize
experimental methods to identify haplotypes that are associated with drug
action. We believe that the future effectiveness of pharmacogenomics will
largely depend on the ability to experimentally detect haplotypes, and that we
are well positioned to be a leader in this new emerging technology.
WE WILL COMMERCIALIZE OUR NUCLEAVE-TM- DNA TESTING AND ANALYSIS PLATFORMS.
After we have reduced the number of potentially relevant genetic markers to
a subset appropriate for clinical testing, it is necessary to incorporate these
markers into assays or test kits. These assays will enable highly accurate and
reproducible testing to be performed on DNA samples from patients known to have
responded in a certain way to drug treatment.
The assays will be performed using our proprietary NuCleave-TM- DNA analysis
platform which is based on the integration of novel genotyping and haplotyping
methods, proprietary purification procedures, robotics, bioinformatics and mass
spectrometry. This combination results in a high-throughput automated SNP
detection platform that combines the high accuracy and high throughput of mass
spectrometry with the low set up and test costs required in the clinical
research marketplace. We anticipate launching the NuCleave-TM- platform
commercially in late 2000.
WE WILL DEVELOP NEW DIAGNOSTIC PRODUCTS AND OPTIMIZED DRUGS, INTERNALLY AND
WITH OUR COLLABORATORS.
Ultimately, our pharmacogenomics approach should enable the development of
improved, targeted therapeutic and diagnostic products. We anticipate that our
Variagenic-TM- Impact Program will substantially impact the drug development
programs of our pharmaceutical collaborators.
We intend to fund the development of multiple diagnostics programs, as well
as establish research collaborations, to co-develop additional diagnostics
products. We have commenced clinical studies on a diagnostic test to determine
appropriate therapeutic applications for colon cancer. This is being studied
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in a clinical trial at Massachusetts General Hospital. We are also engaged in
clinical studies on a cardiovascular risk assessment diagnostics product.
AN EXAMPLE: PHARMACOGENOMICS IN COLON CANCER
The treatment of colon cancer is very challenging and pharmacogenomics
may provide promising solutions. Current therapies for colon cancer are
effective in less than 50% of patients and choosing a drug treatment with
modest or no efficacy may lead to further costly medical complications.
Moreover, physicians do not always have clear guidelines as to when to start
treating colon cancer, and how long and/or aggressively to treat this
disease. If we assume that drug effectiveness is at least partially
associated with the genetic background of colon cancer patients, our
pharmacogenomics approach may offer the following solutions:
- genetic tests to identify which patient groups respond to available
drugs;
- tests to identify whether some patients are genetically predisposed to
tolerating a more aggressive dosage of a given drug, with a
corresponding faster treatment of the colon cancer; and
- tests to identify whether some patients have a genetic predisposition
to have recurring colon cancer and/or cancer spreading to other organs
which might be mitigated by remaining on maintenance doses of
appropriate therapy.
By using a combination of these above tests developed through
pharmacogenomics, we believe patients may realize the following benefits:
- patients who respond favorably to one of the available drugs will
receive the necessary medication;
- patients who would have received an inappropriate medication will avoid
the possible side effects of an inadequate treatment and may avoid the
risks of continuing to be untreated while on the ineffective
medication; and
- patients who have not responded to treatment with available drugs
should benefit by having their physicians focusing on alternative ways
to manage the disease.
We have developed a unique approach to cancer therapy called Variagenic-TM-
Targeting, which is based on our understanding of the deterioration of
chromosomes in cancer cells, or loss of heterozygosity. We have validated over
20 targets for new potential drugs and will continue to identify new targets in
this area.
BUSINESS STRATEGY
We have developed a focused business plan to commercialize our genomics
assets and position Variagenics as the leader in pharmacogenomics. Our strategy
encompasses the commercialization of therapeutics and diagnostics based on our
proprietary pharmacogenomic technologies, databases and expertise, while
positioning Variagenics to be the leader in bringing new pharmaceutical products
and diagnostics to the market. The key elements of our strategy are:
RAPIDLY COMMERCIALIZE OUR FULL RANGE OF PHARMACOGENOMICS CAPABILITIES
We provide a comprehensive product offering covering key stages of
pharmaceutical product development from discovery through development to
commercialization. Our highly characterized proprietary database of SNPs,
proprietary clinical research focused genotyping platform and therapeutically
focused development expertise offers pharmaceutical and diagnostic companies a
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complete solution that allows for more cost-effective and optimized drug and
diagnostic test development.
ESTABLISH MULTIPLE REVENUE STREAMS
We have targeted several complementary strategic business segments to
provide us with a diverse set of revenue streams. We will work with our
collaborators to provide pharmacogenomic solutions from drug development through
commercialization. Revenues are currently generated from collaboration funding
and milestone achievement, and are expected to be followed by royalties on
drugs, diagnostic products and technology platforms as they are launched. We
also plan to earn royalties from sales relating to our NuCleave-TM- platforms
when they are launched, including royalties on instrument and reagent sales.
CAPITALIZE UPON OUR EXPERTISE TO BRING OPTIMIZED PHARMACEUTICAL AND
DIAGNOSTIC PRODUCTS TO MARKET
We expect to add significant value to our pharmaceutical collaborators'
drugs while also using our expertise to target future drug candidates. A
corresponding part of our strategy is to develop and commercialize the
diagnostic tests that will be linked to future drugs that have been optimized
using pharmacogenomics for both treatment prognosis and selection of the most
appropriate drug regimen. This will be accomplished by combining our proprietary
database, our DNA analysis platforms and other technologies with collaborations
in the instrumentation, reagents, reference laboratories and diagnostics
manufacturing fields.
MAINTAIN AND IMPROVE OUR PROPRIETARY TECHNOLOGY BASE
We expect to continue to be a leader in developing a technology base that is
focused on the commercial applications of pharmacogenomics. We have established
a proprietary SNP database clustered among genes important to common drug
mechanisms and pathways related to drug efficacy, side effects and metabolism.
We will continue to pursue innovation in the technology areas that we feel are
critical, including our establishment of the following:
- proprietary database and utilization rights to newly discovered SNPs and
genes;
- proprietary positions for variance detection technologies, including
genotyping and haplotyping; and
- proprietary rights to genetic pathway targets involved in drug response in
major disease categories.
LEVERAGE MANAGEMENT'S INDUSTRY EXPERTISE IN OUR TARGET BUSINESS SEGMENTS
We have established a management team that has expertise across the
genomics, pharmaceutical, diagnostic, instrumentation and clinical research
industries. We plan to leverage this diversity of industry expertise to target
pharmacogenomics opportunities in these industries. We expect to continue to
strengthen this team with key hires from these target business segments to
ensure that we maintain a practical solutions-oriented approach by understanding
the market dynamics within these segments.
COMMERCIAL COLLABORATIONS
We have established, or intend to establish, commercial collaborations with
leading companies in each of our targeted market sectors, including
pharmaceuticals/biotechnology, diagnostics/laboratory services,
instrumentation/platform and clinical research organizations. In the clinical
research organization sector, both Covance, Inc. and Quintiles Transnational
Corporation selected us as their collaborator for complementary segments of the
market.
Covance, a world-wide market leader in providing laboratory services for
clinical trials, selected us as their provider of genotyping assays. We have
targeted Covance to be a key user of our NuCleave-TM-
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DNA analysis platform. Our August 1999 alliance agreement with Covance provides
funding to us for assay development and royalties payable to us for laboratory
tests performed at Covance. Under this agreement, Covance is the only contract
research organization which can directly license our technologies for providing
pharmacogenomic lab services in clinical trials. We achieved our first milestone
under the Covance agreement in February 2000, when we delivered to Covance 17
assays relevant for standard pharmacogenomic testing. Our agreement with Covance
is for a five-year term, subject to adjustment, after two years. After two
years, if we have not achieved predetermined sales levels, Covance may
discontinue funding. In this event we may terminate the agreement. Covance may
terminate the agreement if (i) we fail to achieve assay production targets, or
(ii) we have a change in control, including if Taylor J. Crouch ceases to serve
as our Chief Executive Officer. Either party may terminate the agreement upon
material breach, misconduct or insolvency of the other party. After the
five-year term expires, the agreement may be automatically reviewed for
additional one-year terms.
Our arrangement with Quintiles is a preferred provider co-marketing
arrangement under which Quintiles' worldwide business development group will
incorporate our SNP discovery and clinical design services into the Quintiles
selling cycle. Our December 1998 agreement with Quintiles is for a two-year term
and may be renewed by mutual agreement. We will receive revenues from this
marketing agreement based on the types of pharmacogenomic services we perform
under the contract. The agreement may be terminated by either party upon a
material breach of the agreement.
In the pharmaceutical sector, we anticipate a significant demand for our
Variagenic-TM- Impact Program capabilities and we are in late-stage discussions
with a number of pharmaceutical companies regarding custom SNP discovery and
assay development collaborations. We have begun work on our first two funded
Variagenic-TM- Impact Program collaborations.
In the diagnostics/laboratory sector, we market the ApoE genotype through a
July 1999 co-marketing agreement with Nova Molecular, Inc., a clinical
laboratory services company in which we have an equity interest. The ApoE
genotype is associated with Alzheimer's and certain cardiovascular diseases.
ApoE is the most widely cited pharmacogenomic marker in the industry. Under this
agreement, we will earn royalties on ApoE genotyping tests sold by us and
performed by Nova Molecular. Our agreement with Nova Molecular is for a
three-year term and may be automatically renewed for additional terms of one
year each, unless either party gives notice to the other of its intent not to
renew at least 90 days prior to the expiration of each term.
In the instrumentation/platform sector, we are in discussions with leading
providers of mass spectrometers and related instrumentation to develop our
NuCleave-TM- DNA analysis platform. The first key endorsement of our
NuCleave-TM- platform will be the placement of this system in Covance's largest
testing laboratory in Indianapolis, Indiana, which we anticipate by the end of
2000.
SPONSORED RESEARCH
We believe that maintaining and expanding our close collaborations with
academia will be important to our success. We have numerous academic
collaborations centered on several in-licensed genes with demonstrated
pharmacogenomic effects. These genes include MTHFR (cardiovascular and cancer
applications), TPMT (cancer, transplant and arthritis applications), DPD
(cancer), ICAM-1 (Crohn's disease and inflammation), and MGMT (chemosensitizing
agents). We have also established sponsored research arrangements with leading
academic institutions, as well as consulting agreements with scholars, to keep
pace with the rapid development within the pharmacogenomics field.
David Housman, Ph.D., Novartis Professor of Biology at the Massachusetts
Institute of Technology and our founder, is chairman of our Board of Directors.
In addition, we are also funding research at the University of Reading, England,
in their Departments of Medical and Pharmaceutical Statistics and Applied
Statistics. This sponsored research program is aimed at developing novel methods
for genetic analysis in clinical trials. We are also supporting clinical
collaborations at Massachusetts General Hospital, Reading University and McGill
University, as well as at several other institutions. These
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clinical collaborations include clinical trials of our first diagnostic products
in colon cancer and in the cardiovascular area.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
We have developed and plan to continue to develop proprietary technologies
to execute the technical steps required to implement the key phases of
pharmacogenomic drug development through commercialization. We are also
developing other advanced drug development technologies to meet the needs of the
principal stakeholders in the pharmacogenomics field which includes
pharmaceutical, diagnostic/laboratory, instrumentation and contract clinical
research companies.
The following areas represent our comprehensive pharmacogenomic platform
abilities:
1) identification of genes likely to be relevant to interpatient
variation in response to a drug, or candidate genes;
2) discovery and cataloging of SNPs in and around the candidate genes;
3) prioritization of the SNPs to be subsequently integrated into
clinical trial testing;
4) development of assays used to analyze the SNPs in clinical samples,
which may include both genotyping and haplotyping assays;
5) analysis of clinical trial data resulting in recommendations for
pharmacogenomic drug development;
6) development of diagnostic tests to support pharmacogenomic products;
and
7) development of pharmaceutical products based on our Variagenic-TM-
Targeting approach.
1) IDENTIFICATION OF CANDIDATE GENES RELEVANT TO DRUG ACTION.
The selection of appropriate candidate genes is a key step in identifying
the association between genetic variation and drug response. In order to
maximize the likelihood of selecting the genes most relevant to drug response,
we evaluate a broad spectrum of candidate genes using two methods. The first
method draws on the extensive knowledge that has accumulated in biomedical
literature regarding molecular pharmacology. The second method makes no
assumptions about the biochemical processes relating to the action of drugs, but
instead draws on experimental observations of genes whose level of activity, or
expression, is disturbed by drug treatment.
METHOD 1: SELECTION OF GENES BASED ON KNOWLEDGE OF DRUG ACTION. The targets
for virtually all drugs currently in development have been identified in
biomedical literature. For many drugs there is also information regarding the
genes that are involved in modulating or mediating the natural activity of the
target gene and that may be responsible for affecting the activity of a drug
aimed at a target. This is called the extended candidate gene set or pathway
analysis approach. Selection of the extended candidate gene set can be
undertaken jointly with our collaborators, who may have proprietary information
relating to the selection of candidate genes, and with additional input from our
scientific advisors who are experts in the relevant areas of biology,
pharmacology and medicine.
METHOD 2: IDENTIFICATION OF CANDIDATE GENES USING GENE EXPRESSION
PROFILING. We also employ gene expression profiling, a technique that
identifies the levels of proteins produced by a gene. Generally, this is done in
drug-treated cells to identify additional candidate genes that might not be
apparent from the known pharmacology of drug action. Drug-induced changes in
gene expression are detected by both commercially available arrays, as well as
custom arrays prepared by our own scientists. Any genes showing altered
expression on exposure to the test drug could conceivably be involved in
mediating drug action, and would be considered as potential candidate genes.
This technique can also be used to evaluate the functional effects of SNPs in
candidate genes.
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2) DISCOVERY AND CATALOGING OF SNPS IN CANDIDATE GENES.
We maintain a dedicated core laboratory responsible for discovering SNPs in
candidate genes using automated DNA sequencing. Our laboratory applies high
throughput methods by utilizing robotic platforms to perform all steps of the
sequencing process and utilizes custom bioinformatics software to track and
analyze the results. To ensure the accuracy and consistency of the vast amounts
of data generated, we have developed a bar code-based tracking system for test
preparation that eliminates the need for human data entry. In addition, all
process steps are governed by standard operating procedures, and quality control
tests are used to derive metrics for the process. SNP detection is routinely
performed on DNA samples derived from an ethnically and geographically diverse
panel of anonymous individuals. Typically, we examine 32 to 64 DNA samples drawn
from an available panel of over 100 different individuals representing all major
human populations. This provides a greater than 99% probability of detecting
SNPs with a frequency in the population of 10% or greater. Alternatively, DNA
from patients with a specific disease or drug response can be screened for SNPs.
In all cases, the samples screened can be customized to match the specific needs
of collaborators.
3) PRIORITIZATION OF SNPS FOR CLINICAL TESTING.
It is a challenge to select an optimal set of SNPs for clinical testing
initially and to design a data analysis strategy compatible with the SNPs
selected. Our Variagenic-TM- Impact Program prioritizes SNPs in several ways,
including:
- computational prediction of the effects of SNPs;
- analysis of the genetic relationships between SNPs, including their
relative frequencies of occurrence, the degree to which particular SNPs
are inherited together and aspects of the evolutionary relationships
between SNPs; and
- experimental analyses of the functional effects of SNPs, such as
expression profiling.
ANALYTICAL METHOD 1: COMPUTATIONAL PREDICTION OF THE EFFECTS OF
SNPS. Computational methods for predicting the effects of SNPs have the
advantage of being fast and inexpensive, and can be performed automatically. Our
proprietary software suite predicts the effects of SNPs on protein activity and
levels. Our software automatically generates a three-dimensional model of the
region of the protein containing the genetically-expressed variance and uses a
set of criteria to measure the probability that the variance will affect protein
function. This approach can greatly reduce the number of SNPs which are
prioritized for further study.
ANALYTICAL METHOD 2: GENETIC ANALYSIS OF SNPS. Our process for measuring
groups of SNPs or haplotypes in candidate genes allows us both to analyze the
variants now existing across human populations, and to establish which genetic
variants co-exist on the same chromosome. These analyses increase the power of
SNP data to detect genetic effects on drug response. We believe that the future
effectiveness of pharamcogenomics will largely depend on the ability to
experimentally detect haplotypes, and that we are a well-positioned leader in
this newly emerging component of the market.
We use methods based on determining all the common haplotypes in key
candidate genes, and then create a tree-like ordering of haplotypes based on
their inferred evolutionary relatedness. We have developed and currently use
custom bioinformatics software to complete most of these analyses.
ANALYTICAL METHOD 3: EXPERIMENTAL ANALYSIS OF FUNCTIONAL EFFECTS OF
SNPS. The expression profiling capability described above is also useful for
selection of SNPs to analyze in clinical trials. One approach we are using is to
study gene expression levels in cell lines of known genotype. The correlation
between specific genotypes or haplotypes and levels of the corresponding
proteins can be measured and used to select SNPs of known functional effect.
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4) ESTABLISHMENT OF ASSAYS TO ANALYZE SNPS IN CLINICAL SAMPLES.
Once a set of SNPs has been selected for analysis in a clinical trial it is
necessary to establish and validate assays for analysis of patient samples. The
relevant assays may include either genotyping or haplotyping assays, or both. We
have developed proprietary methods for both genotyping and haplotyping. We have
also established assays for analysis of genetic changes in cancer tissue, called
loss of heterozygosity, that may be useful in accounting for inter-patient
differences in response to anti-cancer drugs.
The NuCleave-TM- DNA analysis platform is based on the integration of novel
genotyping and haplotyping assays, proprietary purification procedures,
robotics, bioinformatics and mass spectrometers resulting in a high-throughput
automated SNP detection platform that we believe meets the accuracy and
throughput requirements of the clinical research marketplace. NuCleave-TM-
allows cleavage of DNA at specified points to create fragments suitable for
analytical measurement. We believe there are many potential applications of our
NuCleave-TM- technology. Our first application we intend to commercialize
utilizes mononucleotide cleavage for genotyping and haplotyping to detect which
variant of any known SNP is present in a particular individual. This application
is being optimized for use with mass spectrometry.
The NuCleave-TM- DNA analysis platform for genotyping and haplotyping
utilizes an automated four-step procedure. The first step is to produce multiple
copies of the DNA containing the SNP site, using polymerase chain reaction, or
PCR, a laboratory tool which amplifies a gene fragment in the presence of
modified nucleotides. In the second step, a proprietary cleaving chemical is
added to the same reaction tube and the amplified DNA is cleaved into variable
lengths depending upon the location of modified nucleotides in the PCR product.
The third step in the assay is a proprietary, single-step purification to
eliminate the salts that interfere with mass spectrometer readings. The
purification step has been adapted to a format that is automated on robotic
platforms. The fourth step is analysis by mass spectrometry. A robot deposits
the purified samples on a micro preparation plate that facilitates automated
sample loading into the mass spectrometer, and also enhances the sensitivity of
the mass spectrometry analysis. Our proprietary bioinformatics software then
reports and records the genotypes or haplotypes. All steps of the NuCleave-TM-
technology from set up, cleavage, purification and sample deposition are
automated.
In addition to our NuCleave-TM- assay technologies, we have also developed
assays for analyzing the chromosomal deterioration of cancer cells, or loss of
heterozygosity. These assays are developed by studying paired cancerous and
normal tissues at many different SNP locations throughout the genome. We have
developed a sensitive, quantitative method for assaying loss of heterozygosity
in tumor cells. We have established a fully-equipped molecular pathology
laboratory for performing our work on loss of heterozygosity assays. We have
also developed a database detailing loss of heterozygosity for all major cancer
types, including data from published reports as well as internally generated
data.
5) ANALYSIS OF CLINICAL TRIAL DATA AND RECOMMENDATIONS FOR PHARMACOGENOMIC
DRUG DEVELOPMENT.
Once the optimal SNP markers have been identified and assays have been
created, the clinical trial process can begin. In this process, it is critical
to design cost-effective, practical programs which can lead to a statistically
significant correlation between the markers and the drug effect being targeted.
Those markers that are confirmed to be valuable in a clinical trial can then be
developed into diagnostic tests for commercialization. We have devoted
considerable time and resources in establishing an optimum clinical trials
process, including securing key relationships with leading therapeutic experts
and Covance and Quintiles, the two largest global clinical research companies.
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6) DEVELOPMENT OF DIAGNOSTIC TESTS.
We are developing a process for developing our pharmacogenomic markers into
diagnostic tests suitable for regulatory approval and commercialization. Each
assay developed for clinical research testing to evaluate the correlation of
drug effect and genetic variance will also be evaluated in parallel for its
potential use as a diagnostic product. We will utilize the clinical trial
processes that we develop with our clinical research organization collaborators
to ensure a streamlined and synergistic approach for co-developing each
potential diagnostic product alongside with the corresponding drugs on which we
work.
7) DEVELOPMENT OF PHARMACEUTICAL PRODUCTS BASED ON OUR VARIAGENIC-TM-
TARGETING APPROACH.
We have also developed a proprietary pharmacogenomic approach to cancer
therapy based upon our understanding of the deterioration of chromosomes in
cancer cells, or loss of heterozygosity. We have validated more than 20 targets
for discovery of novel anti-proliferative drugs to date and we believe that up
to 600 additional targets may be suitable for this approach. We have received a
US patent describing the application of loss of heterozygosity to cancer therapy
and are conducting pre-clinical studies utilizing our Variagenic-TM- Targeting
approach.
INTELLECTUAL PROPERTY
We have structured our intellectual property portfolio in order to attempt
to develop and maintain a proprietary position in the identification and
application of genomic information to the development of current and future
drugs and diagnostic tests. We cannot be certain we will succeed in our
attempts. As of March 8, 2000, we owned six issued US patents, had exclusive
licenses to three US patents and 30 US pending patent applications. In addition,
we have two issued foreign patents and have filed 32 foreign patent
applications. Our patent portfolio has three areas of technology pertinent to
the field of pharmacogenomics--pharmacogenetics, variance detection, and
Variagenic-TM- Targeting.
We have described candidate genes with likely involvement in drug response
for the following disease categories: cancer, neurological, psychiatric,
inflammatory immune, metabolic, endocrine, cardiovascular and renal disease, as
well as the effect of genotype on pharmacodynamic and pharmacokinetic parameters
of response to any drug. In addition to the patent applications describing the
utility of proprietary SNPs, we own rights to gene specific patents for the
following two genes: MTHFR (cardiovascular and cancer applications), and TPMT
(cancer, transplant and arthritis applications).
In the area of polymorphism detection technologies, our patent applications
describe a DNA analysis platform based on mass spectrometry. Our patent
applications in this field describe the use of NuCleave-TM-, a unique
mononucleotide chemical cleavage method, as well as additional chemistries and
strategies for the rapid resolution and identification of SNPs using mass
spectrometry.
In the allele-specific targeting technology sector, our patents and patent
applications describe Variagenic-TM- Targeting, a technology involving loss of
heterozygosity, profiling and, in particular, allelic differences. An issued
patent broadly describes allelic differences as a result of loss of
heterozygosity occurring in cancer. The allele-specific differences observed in
cancer can be applied further to other disease indications.
Our strategy is to apply for patent protection on SNPs of known genes and
their uses and additional uses for previously identified SNPs discovered by
third parties. We have sought and intend to continue to seek patent protection
for additional uses for SNPs that may have initially been patented by third
parties. In these cases, we might need a license from the holders of the patent
with respect to the gene in order to make, use or sell products for this use.
We also rely upon trade secrets, know-how and licensing opportunities to
protect our intellectual property. Complex legal and factual determinations and
evolving laws make patent protection uncertain. As a result, we cannot be sure
that patents will issue from any of our patent applications or
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from applications licensed to us or that any issued patents will have sufficient
breadth or terms to offer meaningful protection. In addition, our issued patents
or patents licensed to us may be successfully challenged, invalidated,
circumvented or rendered unenforceable so that our patent rights would not
create an effective competitive barrier. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same extent as do US and
Canadian laws. We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Most
of our employees and consultants also sign agreements requiring that they assign
to us their interests in discoveries, inventions, patents and copyrights arising
from their work for us, maintain the confidentiality of our intellectual
property, and refrain from unfair competition with us during their employment
and for a period of time after their employment with us, which includes
solicitation or our employees and customers. We cannot be sure that these
agreements will not be breached or invalidated or even held valid by a court. In
addition, we cannot assure you that third parties will not independently
discover or invent competing technologies or reverse engineer our trade secrets,
or other technologies. If our intellectual property is not protected from
disclosure to, or use by third parties, our competitive market position will be
adversely affected.
Generally, US patents have a term of 17 years from the date of issue for
patents issued from applications filed with the US Patent Office prior to
June 8, 1995 and 20 years from the application filing date or earlier claimed
priority date in the case of patents issued from applications filed on or after
June 8, 1995. Under some circumstances, patent term extensions may be obtained,
or disclaimers of some part of the patent term may be required. Patents in most
other countries have a term of 20 years from the date of filing the patent
application.
Although we are not a party to any material legal proceedings, in the
future, third parties may file claims asserting that our technologies or
products infringe on their intellectual property. We cannot predict whether
third parties will assert such claims against us or against the licensors of
technologies licensed to us, or whether those claims will harm our business. If
we are forced to defend against such claims, whether they are with or without
any merit, whether they are resolved in favor of or against us or our licensors,
we may face costly litigation and diversion of management's attention and
resources. As a result of disputes, we may have to develop costly non-infringing
technologies, or enter into licensing agreements. These agreements, if
necessary, may be unavailable on terms acceptable to us, or at all, which could
seriously harm our business and financial condition.
COMPETITION
Our full-spectrum pharmacogenomics business model may expose us to
competition in many of the sectors in which we operate. We expect the intensity
of competition to increase. We are subject to significant competition from
pharmaceutical, biotechnology and diagnostic companies, academic and research
institutions and government or other publicly-funded agencies that are pursuing
products and services that are substantially similar to our proposed products
and services, or which otherwise address the needs of our customers and
potential customers. Some of our competitors have greater financial,
operational, sales and marketing resources, and more experience in research and
development than we have. These competitors may have developed, or could develop
in the future, technologies that compete with our products or which could render
our products obsolete. We anticipate that our principal competitors will
ultimately come from four areas. Forward integrated genomics companies, such as
Human Genome Sciences, Inc. and Millennium Pharmaceuticals, Inc., may develop
parallel business models in order to bring their discovery products into the
development and commercialization stages. Companies and entities focused on SNP
discovery such as CuraGen Corporation, Genset Pharmaceuticals, Inc., Celera
Genomics Group, Incyte Pharmaceuticals, Inc., and The SNP Consortium Ltd. may
focus their discovery efforts on providing further characterization of relevant
SNPs to drug action and thus begin to compete with our pharmacogenomics model.
At least one company, Genaissance Pharmaceuticals, Inc., has already moved in
this direction. Tool companies such as Affymetrix, Inc., Orchid
Biosciences, Inc. and Sequenom, Inc. may supply tools to meet the rapidly
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increasing workload of research experiments. Service companies such as PPGX, a
subsidiary of Axys Pharmaceuticals, Inc., may compete by providing clinical
trials genotyping capabilities. We cannot assure you that we will be able to
make the enhancements to our technologies necessary to compete successfully with
newly emerging techniques.
GOVERNMENT REGULATION
At the current time, the FDA does not regulate us or our products. However,
many of our customers and collaborators will be subject to regulation depending
on the type of products or services they provide. The FDA and comparable
regulatory agencies in foreign countries impose substantial requirements on the
clinical development, manufacture and marketing of biopharmaceuticals and in
vitro diagnostic products. These agencies regulate research and development
activities and the testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record keeping, advertising and promotion of these products
and services. Different centers within the FDA are responsible for regulating
these products, depending on whether the product is considered a pharmaceutical,
biologic or medical device.
The process required by the FDA before a pharmaceutical or biologic product
may be marketed in the US generally requires substantial time, effort and
financial resources. Satisfaction of FDA requirements or similar requirements of
foreign regulatory agencies typically takes several years and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. Even if a product receives regulatory approval, later
discovery of previously unknown problems with a product may result in
restrictions on the product or even complete withdrawal of the product from the
market.
Because our testing services are currently used only for research purposes,
we are not registered under the Clinical Laboratory Improvement Act, or CLIA.
However, Covance, which uses our technology in clinical trials, is
CLIA-certified. CLIA is intended to ensure the quality and reliability of
clinical laboratories in the US by mandating specific standards in the areas of
personnel qualification, administration, participation in proficiency testing,
patient test management, quality control, quality assurance and inspections. We
cannot assure you that the CLIA regulations and future administrative
interpretations of CLIA will not have a materially adverse impact on our ability
to sell our technology to Covance or any future collaborators that want to use
our technology to provide reference laboratory services.
We are also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on our business and results of operations.
EMPLOYEES
As of March 27, 2000, we employed 40 persons, of whom 15 hold Ph.D. or M.D.
degrees and 10 hold other advanced degrees. Approximately 27 employees are
engaged in research and development, and 13 employees are engaged in business
development, intellectual property, finance and other administrative functions.
None of our employees are subject to a collective bargaining arrangement and we
consider our relations with our employees to be good.
FACILITIES
We lease a 39,014 square foot facility in Cambridge, Massachusetts for our
headquarters and as the base for our marketing, research and development
activities. The lease expires in 2008 and is renewable for another five years.
We believe that suitable additional space will be available to us, when needed,
on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and key employees and their respective
ages and position(s) as of March 6, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
<S> <C> <C>
Taylor J. Crouch*(1)................. 40 President, Chief Executive Officer and Director
Bruce Maloff, Ph.D*.................. 46 Executive Vice President, Commercial Operations
Colin W. Dykes, Ph.D.*............... 46 Vice President, Research and Genomics
Anne L. Bailey*...................... 54 Vice President, Diagnostic and Process Development
Richard P. Shea*..................... 48 Chief Financial Officer and Treasurer
Vincent P. Stanton, Jr., M.D.*....... 44 Vice President, Discovery Research
David Housman, Ph.D.................. 53 Chairman and Principal Scientific Advisor
R. Mark Adams, Ph.D.................. 33 Senior Director, Bioinformatics
Andrew Ferrie........................ 39 Senior Director, Variance Discovery
Philippe O. Chambon, M.D., 41
Ph.D(1)(2)......................... Director
Mark P. Carthy(3).................... 39 Director
Jean-Francois Formela, 43
M.D(1)(2)(3)....................... Director
Martin Vogelbaum(1)(2)(3)............ 36 Director
David A. Shotland.................... 37 Director
</TABLE>
- ------------------------
* Executive Officer
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
TAYLOR J. CROUCH has served as our President, Chief Executive Officer and a
member of our Board of Directors since April 1999. From 1991 to April 1999,
Mr. Crouch was Senior Vice President, Worldwide Marketing and Strategic
Development for PAREXEL International Corporation, leading PAREXEL's global
sales, marketing and strategy functions, where he worked with client companies
to establish broad-based strategic partnering relationships in all major
pharmaceutical marketplaces. Prior to joining PAREXEL, Mr. Crouch spent ten
years in the pharmaceutical and device industries in new product development
marketing at Schering-Plough International, Pfizer International and Johnson &
Johnson's Critikon division. Within the pharmaceutical industry, he has worked
on the development and launch of many leading products in the cardiovascular,
anti-infectives, dermatology and allergy fields. Mr. Crouch received his B.S. in
chemical engineering, cum laude, from Princeton University and his M.B.A. in
international finance and marketing from the University of Chicago.
BRUCE MALOFF, PH.D. has served as our Executive Vice President, Commercial
Operations since February 2000. From 1998 until joining us, Dr. Maloff served as
Vice President, Business Development for Quintiles CNS Therapeutics, a strategic
business unit of Quintiles Transnational. From 1988 to 1998, Dr. Maloff held a
series of senior management positions in the clinical research industry,
including Vice President of Business Development at ClinTrials Research. Prior
to joining ClinTrials, Dr. Maloff was a research pharmacologist at Dupont
Pharmaceuticals. Dr. Maloff received his Ph.D. in cellular physiology from the
State University of New York, Albany, and his B.S. with honors from Syracuse
University.
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COLIN W. DYKES, PH.D. has served as our Vice President, Research and
Genomics since July 1998. From 1997 until joining us, Dr. Dykes was director of
the United Kingdom Genetics Division of Glaxo Wellcome, where he also served as
a member of its Genetics Directorate, with responsibility for formulating
policies on patents, diagnostics, genetics applications in clinical trials, and
public policy. Dr. Dykes joined Glaxo in 1982, and in 1993 he established
Glaxo's genetics and genomics programs as the United Kingdom head of Glaxo's
Human Genetics Initiative. Dr. Dykes is trained in protein chemistry and
received his Ph.D. in Biochemistry from University College, Cardiff.
ANNE L. BAILEY has served as our Vice President, Diagnostic and Process
Development since April 1998. From 1990 until joining us, Ms. Bailey served as
Vice President of Operations of Avitech Diagnostics, Inc. Prior to joining
Avitech, from 1984 to 1990, Ms. Bailey served as Director, New Product
Development and Vice President, Manufacturing and Regulatory Affairs at Photest
Diagnostics, Inc. She has over 25 years of management experience in the medical
diagnostics reference laboratory and research products industries. Ms. Bailey
received her B.S. in Biology/Chemistry from Stanford University and an M.S. in
Biochemistry from Johns Hopkins University.
RICHARD P. SHEA joined us as our Vice President, Finance and Administration
in February 1999, and has served as our Chief Financial Officer and Treasurer
since March 2000. From April 1997 until joining us, Mr. Shea served as Vice
President, Finance of Genetics Institute. In that capacity he helped manage the
launch of BeneFIX and Neumega and assisted with the integration of Genetics
Institute into American Home Products Corporation. Mr. Shea joined Genetics
Institute in October 1992 as Controller, and was formerly Senior Manager at
PricewaterhouseCoopers LLP in Boston and Copenhagen, primarily serving clients
in the high technology and manufacturing sectors. Mr. Shea is a certified public
accountant and received his M.B.A. from Boston University and an A.B. from
Princeton University.
VINCENT P. STANTON, JR., M.D. joined us in 1993, served as Vice President,
Research from 1995 until 1998 and has served as our Vice President, Discovery
Research since 1998. Prior to joining us, Dr. Stanton was a Research Scientist
at the Massachusetts Institute of Technology, where his research focused on
human and cancer genetics and the development of techniques for polymorphism
detection and genome mapping. Previously, Dr. Stanton completed a residency in
anatomical pathology at Brigham and Women's Hospital in Boston and a post
doctoral fellowship at the Dana-Farber Cancer Institute where his research
concerned oncogenes. Dr. Stanton received his M.D. from the University of
Pennsylvania School of Medicine.
DAVID HOUSMAN, PH.D. was a scientific founder of Variagenics and has served
as Chairman and Principal Scientific Advisor since 1993. Dr. Housman has been
Professor of Biology at the Center for Cancer Research of the Massachusetts
Institute of Technology since 1974. Dr. Housman's laboratory at M.I.T. has
pioneered many of the techniques and concepts which culminated in the human
genome project. His laboratory isolated the multidrug resistance gene, now the
focus of cancer drug development efforts at several pharmaceutical companies;
the gene causing Wilm's tumor, a pediatric kidney cancer; and the gene which
causes myotonic dystrophy, the major adult form of muscular dystrophy. He is a
member of the National Academy of Sciences and was a co-founder of Integrated
Genetics, Genzyme Genetics and the former Somatix Therapy Corp. Dr. Housman
serves on Scientific or Medical Advisory Boards for the National Center for
Human Genome Research, the Hereditary Disease Foundation, the National
Neurofibromatosis Foundation and the Tourette's Syndrome Association.
Dr. Housman teaches undergraduate and graduate students at M.I.T. and medical
students in the M.I.T.--Harvard Medical School program, and is a frequent
consultant to the pharmaceutical and biotechnology industries. Dr. Housman
received his Ph.D. from Brandeis University.
R. MARK ADAMS, PH.D. has served as our Senior Director, Bioinformatics since
January 1998. From April 1996 until joining us, Dr. Adams was Director of
Bioinformatics at AlphaGene, Inc., where he designed and implemented a system
for the automated processing and analysis of full-length cDNA
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sequence information. His academic work is principally in the area of
computational analysis of multiple-domain proteins and the prediction of protein
domain structure and function. He is an author of several bioinformatics
programs including DashPat and MultiDom. Dr. Adams received his Ph.D. in Cell
Biology from Baylor College of Medicine.
ANDREW FERRIE has served as our Senior Director, Variance Discovery since
April 1998. From 1993 until joining us, Mr. Ferrie served as Gene Discovery
Manager and Group Leader at Human Genome Sciences. At Human Genome Sciences, he
was responsible for establishing and managing the gene sequencing facility, as
well as developing robotic platforms for high-throughput sample preparation and
sequencing. Prior to joining Human Genome Sciences, he was employed by Digene
Corporation from 1989 to 1993, and Cetus Corporation from 1984 to 1989, where he
was involved in the development of diagnostic products. Mr. Ferrie has a B.S. in
Microbiology from California Polytechnic State University, San Luis Obispo and a
M.S. in Biotechnology Management from the University of Maryland, College Park.
PHILLIPE O. CHAMBON, M.D., PH.D. has served as a member of our Board of
Directors since July 1999. Since January 1997, Dr. Chambon has been a General
Partner of the Sprout Group. He joined the Sprout Group in May 1995. From
May 1993 to April 1995, Dr. Chambon served as Manager in the Healthcare Practice
of The Boston Consulting Group, a leading management consulting firm. From
September 1987 to April 1993, he was an executive with Sandoz Pharmaceutical
(Novartis), where he had late-stage product development and pre-marketing
responsibilities. Dr. Chambon currently serves as a member of the board of
directors of CombiChem, Inc. and several privately-funded biotechnology
companies. Dr. Chambon holds an M.D. and a Ph.D. from the University of Paris
and an M.B.A. from Columbia University.
MARK P. CARTHY has served as a member of our Board of Directors since
October 1998. Since September 1998, Mr. Carthy has been the biotechnology
portfolio manager for Morningside Ventures which advises Kummell Investments
Limited on its venture capital portfolio. From April 1997 to October 1998,
Mr. Carthy was Chief Business Officer at Cubist Pharmaceuticals Inc., a
biotechnology company. From January 1992 to April 1997, Mr. Carthy held various
positions at Vertex Pharmaceuticals, Inc., most recently as Senior Director of
Business Development. Mr. Carthy currently serves as a member of the board of
directors of Dendreon Corporation and several privately-funded biotechnology
companies. Mr. Carthy received a B.E. in Chemical Engineering from the
University College Dublin, an M.Sc. in Chemical Engineering from the University
of Missouri and an M.B.A. from Harvard Business School.
JEAN-FRANCOIS FORMELA, M.D. has served as a member of our Board of Directors
since June 1997. Dr. Formela was a partner of Atlas Venture from 1993 to 1995,
and has been a general partner of Atlas since 1995. From 1989 to 1993,
Dr. Formela served at Schering-Plough, most recently as Senior Director, Medical
Marketing and Scientific Affairs, where he had biotechnology licensing and
marketing responsibilities. Dr. Formela serves on the board of directors of
BioChem Pharma, Inc., Exelixis, Inc. and several private companies. Dr. Formela
holds an M.D. from Paris University School of Medicine and an M.B.A. from
Columbia Business School.
MARTIN VOGELBAUM has served as a member of our Board of Directors since
June 1997. Mr. Vogelbaum is presently a General Partner of Oxford Bioscience
Partners, which he joined as an associate in 1993. Prior to joining Oxford, he
held senior executive positions at the public and investor relations firms of
Burns McClellan and Hill & Knowlton, where he implemented marketing and investor
initiatives for biotechnology and pharmaceutical companies. Previously, he was a
Research Associate in the Bone Marrow Transplant Unit at Memorial
Sloan-Kettering Cancer Center. Mr. Vogelbaum received his A.B. in biology and
history from Columbia University.
DAVID A. SHOTLAND has served as a member of our Board of Directors since
March 2000. Since November 1999, Mr. Shotland has been a Managing Director of
CIBC Capital Partners, a merchant
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banking division of CIBC World Markets Corp., an indirect subsidiary of Canadian
Imperial Bank of Commerce, the successor to Oppenheimer & Co., Inc. where he was
employed since 1993. Prior to joining CIBC Capital Partners, Mr. Shotland was a
Managing Director in investment banking at CIBC World Markets Corp., responsible
for private equity transactions. Mr. Shotland received his B.A. from Boston
University and a M.B.A. from Columbia Business School.
COMPOSITION OF THE BOARD OF DIRECTORS
Following this offering, our Board of Directors will be divided into three
staggered classes, each of whose members will serve for a three-year term as
follows:
- our Class I directors will be Messrs. Shotland and Carthy;
- our Class II directors will be Drs. Chambon and Formela and
Mr. Vogelbaum; and
- our Class III directors will be Mr. Crouch and Dr. Housman.
At each annual meeting of stockholders, a class of directors will be elected
for a three-year term to succeed the directors of the same class whose terms are
then expiring. The terms of the directors will expire upon the election and
qualification of successor directors at the Annual Meeting of Stockholders to be
held during calendar years 2000 for Class I directors, 2001 for Class II
directors and 2002 for Class III directors.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has standing audit, compensation and executive
committees. The audit committee consists of Dr. Formela, Mr. Vogelbaum and
Mr. Carthy and will meet at least two times a year. The audit committee oversees
the engagement of our independent public accountants, reviews the annual
financial statements and the scope of the annual audits and considers matters
relating to accounting policy and internal controls. The compensation committee
consists of Dr. Chambon, Dr. Formela and Mr. Vogelbaum. The compensation
committee reviews, approves and makes recommendations to our board of directors
concerning our compensation practices, policies and procedures for our executive
officers, including the Chief Executive Officer. The compensation committee's
duties include the administration of our 1997 Employee, Director and Consultant
Stock Option Plan. The executive committee consists of Mr. Crouch, Dr. Chambon,
Dr. Formela and Mr. Vogelbaum. The executive committee reviews and approves
strategic matters, including major investments, potential acquisition
transactions and business strategies, and reviews and approves the structure of,
and additions to, senior management.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Chambon, Dr. Formela and Mr. Vogelbaum, each of whom are a non-employee
director, constitute our compensation committee. None of our executive officers
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 our Board
of Directors or compensation committee.
SCIENTIFIC ADVISORS
Our scientific advisors have demonstrated expertise in various fields and
advise us concerning long-term scientific planning, research and development.
Our principal scientific advisors own shares and/or options to acquire shares of
our common stock, some of which shares are subject to vesting.
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These advisors also evaluate our research program, recommend personnel to us and
advise us on technology matters. In addition to Dr. Housman, the following
individuals serve as our principal scientific advisors:
FRED D. LEDLEY, M.D. served as our President and Chief Scientific Officer
from April 1999 to July 1999, as our President and Chief Executive Officer from
June 1997 until April 1999, as our President and Chief Operating Officer from
June 1996 to June 1997 and as a member of our Board of Directors from 1996 to
July 1999. Prior to joining us in 1996, he was Scientific Founder and Vice
President, Research and Development of GeneMedicine, Inc. At GeneMedicine,
Dr. Ledley had a leading role in developing GeneMedicine's business plan,
private and public financings, technical programs and corporate alliances. Prior
to joining GeneMedicine, Dr. Ledley was an Assistant Investigator of the Howard
Hughes Medical Institute and tenured Associate Professor at the Baylor College
of Medicine in the Departments of Cell Biology and Pediatrics. Dr. Ledley has
authored more than 150 publications on the molecular biology of inherited
disease and clinical applications of molecular genetics including product
design, clinical trials, bioethics, and government regulation. Dr. Ledley
received a B.S. in Physical Science from the University of Maryland, College
Park and an M.D. from Georgetown University. He is on the Board of Directors of
the Massachusetts Biotechnology Council.
GREG VERDINE, PH.D. is Professor of Chemistry and Chemical Biology at
Harvard University and Founding Faculty Member of Harvard's Institute of
Chemistry and Cell Biology. He joined the Harvard University Department of
Chemistry in 1988, was named Thomas D. Cabot Associate Professor in 1992, and
became Full Professor in 1994. Professor Verdine's research focuses on
mechanisms for DNA repair and regulated gene expression as well as the discovery
of small molecules that can directly affect these processes. He is the recipient
of the 1996 Lilly Award in Biological Chemistry from the American Chemical
Society. He received an ACS Arthur C. Cope Scholar Award and the Zeneca
Pharmaceuticals Group Excellence in Chemistry Award in 1994. He has also been
named a National Science Foundation Presidential Young Investigator, a Fellow of
the Alfred P. Sloan Foundation, a Dreyfus Teacher-Scholar, a Lilly Grantee in
Chemistry, a Dreyfus Distinguished New Faculty Awardee, a DuPont Young Faculty
Fellow, and a Searle Scholar. Dr. Verdine received a B.S. from St. Joseph's
University and a Ph.D. from Columbia University.
Each of our scientific advisors has entered into a consulting agreement with
us covering the terms of such person's position as a consultant to us. All of
our scientific advisors are employed by employers other than us and may have
other commitments to, or consulting or advisory contracts with, other entities
that may conflict or compete with their obligations to us. Generally, scientific
advisors are not expected to devote a substantial portion of their time to our
matters.
1997 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
Our 1997 Employee, Director and Consultant Stock Option Plan was approved by
our Board of Directors and stockholders in 1997. The plan authorizes for the
issuance of stock options to our employees, directors and consultants. On
March 27, 2000, our Board of Directors approved, subject to stockholder
approval, the increase in the aggregate number shares of common stock reserved
for issuance under the plan from 2,100,000 to 4,000,000 shares.
SHARE RESERVE. A total of 4,000,000 shares of our common stock have been
reserved for issuance under the plan. As of March 6, 2000, options to purchase
1,940,377 shares were outstanding under the Plan.
ADMINISTRATION. Our Board of Directors has the authority to adopt, amend
and repeal the administrative rules, guidelines and practices relating to the
plan and to interpret its provisions and may delegate authority under the plan
to the committees of the Board of Directors. The compensation
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committee of our Board of Directors administers the plan. The compensation
committee has the authority to determine the following:
- the persons to whom stock-based awards will be granted;
- the number of shares to be covered by each stock-based award; and
- the terms and conditions upon which a stock-based award may be granted.
Stock-based awards under the plan will be subject to such terms and
conditions as the compensation committee deems to be appropriate and in our best
interest. These terms may include conditions relating to our right to reacquire
the shares subject to a stock-based award, including the time and events upon
which such rights shall accrue and the purchase price of the shares.
ELIGIBILITY. Options granted under the plan may be either options intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Incentive stock
options may be granted to our employees. The compensation committee may also
grant options at an exercise price less than, equal to or greater than the fair
market value of the common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of the common stock
on the date of grant or less than 10% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of our company. The plan permits the Board of Directors to determine how
optionees may pay the exercise price of their options, including by cash, check
or in connection with a "cashless exercise" through a broker, by surrender of
shares of common stock, by delivery of a promissory note, or by any combination
of the permitted forms of payment.
GENERAL PROVISIONS. The aggregate fair market value, determined on the date
of grant, of shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under any of our existing or future potential
incentive stock plans may not exceed $100,000. Incentive stock options granted
under the plan may not be granted at a price less than the fair market value of
our common stock on the date of grant, or 110% of fair market value in the case
of employees holding 10% or more of our voting stock. Non-qualified stock
options granted under our plan may not be granted at an exercise price less than
the par value per share of our common stock on the date of the grant. Incentive
stock options granted under the plan expire not more than ten years from the
date of grant, or not more than five years from the date of grant in the case of
incentive stock options granted to an employee or officer holding 10% or more of
our voting stock. An option granted under the plan is not transferable by the
optionholder except by will or by the laws of descent and distribution or as
otherwise determined by the compensation committee and set forth in the
applicable option agreement.
EFFECT OF TERMINATION OF EMPLOYMENT. An incentive stock option granted
under the plan may be exercised after the termination of the optionholder's
employment with us, other than by reason of death, disability or termination for
"cause" as defined in the 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.
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<PAGE>
EFFECT OF ACQUISITION. If we are to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of our assets or
otherwise, the compensation committee or the board of directors of any entity
assuming our obligations 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 such 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 the 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 the transaction) over the exercise price thereof.
AMENDMENT. The plan may be amended by our stockholders, by our Board of
Directors or by our compensation committee, provided that any amendment which
the compensation committee determines is of a scope that requires stockholder
approval shall be subject to obtaining such stockholder approval.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred to attend meetings
of our Board of Directors and any committees of the Board of Directors. Pursuant
to the terms of our 1997 Employee, Director and Consultant Stock Option Plan,
our Board of Directors has the discretion to grant options to non-employee
directors.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to or earned for
the fiscal year ended December 31, 1999 by our chief executive officer and by
all of our executive officers whose salary and bonus exceed $100,000. We refer
to these persons as named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION SECURITIES
------------------- ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/STOCK AWARDS
- --------------------------- -------- -------- ------------ --------------------
<S> <C> <C> <C> <C>
Taylor J. Crouch(1)........................ $225,135 $37,500 -- 391,375(2)
President and Chief Executive Officer
Fred D. Ledley, M.D.(3).................... 156,731 -- $105,767(4) 17,495(5)
Scientific Advisor, Former President and
Chief Executive Officer
Colin W. Dykes, Ph.D....................... 200,000 40,000 -- 70,000
Vice President, Research and Genomics
Anne L. Bailey............................. 150,800 15,000 60,000(6) 52,000
Vice President, Diagnostic and Process
Development
Richard P. Shea(7)......................... 135,577 30,000 -- 80,000
Chief Financial Officer and Treasurer
Vincent P. Stanton, Jr., M.D............... 130,150 27,000 -- 60,546
Vice President, Discovery Research
</TABLE>
- ------------------------
(1) Mr. Crouch joined us in April 1999.
(2) Consists of 316,375 options to purchase our common stock and an award of
75,000 shares of restricted stock.
(3) Dr. Ledley served as our President and Chief Executive Officer through
April 1999. He currently serves as one of our Scientific Advisors.
(4) Constitutes severance payments made upon Dr. Ledley's departure from us.
(5) Consists of 12,000 shares of our common stock granted as a performance bonus
to Dr. Ledley and 5,495 shares of common stock granted upon Dr. Ledley's
departure from us.
(6) Constitutes a retention payment to Ms. Bailey paid by us on behalf of
Avitech Diagnostics, Inc., which we acquired in September 1997.
(7) Mr. Shea joined us in February 1999.
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information regarding options granted by us
to our named executive officers during the fiscal year ended December 31, 1999.
We have never granted any stock appreciation rights. The potential realizable
value is calculated based on the term of the option at its time of grant. It is
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option
50
<PAGE>
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved. The percentage
of total options granted to employees in the last fiscal year is based on
options to purchase an aggregate of 959,921 shares of common stock granted under
our option plans. There was no public market for our common stock as of
December 31, 1999. Accordingly, the fair market value on December 31, 1999 is
based on an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------------
GRANTED 1999 SHARE DATE 5% 10%
---------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Taylor J. Crouch.......... 316,375 33.0 $.64 2009
Fred D. Ledley, M.D....... -- -- -- --
Colin W. Dykes, Ph.D...... 70,000 7.3 $.64 2009
Anne L. Bailey............ 52,000 5.4 $.64 2009
Richard P. Shea........... 80,000 8.3 $.64 2009
Vincent P. Stanton, Jr.,
M.D..................... 60,546 6.3 $.64 2009
</TABLE>
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<PAGE>
AGGREGATE STOCK OPTION EXERCISES IN FISCAL YEAR 1999 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number of
unexercised options held by each of our named executive officers on
December 31, 1999 and the value realized by named executive officers. None of
our executive officers exercised stock options in the fiscal year ended
December 31, 1999. There was no public market for our common stock as of
December 31, 1999. Accordingly, the fair market value on December 31, 1999 is
based on an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Taylor J. Crouch............................... 74,095 242,280
Fred D. Ledley, M.D............................ -- --
Colin W. Dykes, Ph.D........................... 21,878 118,122
Anne L. Bailey................................. 3,252 48,748
Richard P. Shea................................ -- 80,000
Vincent P. Stanton, Jr., M.D................... 5,710 59,836
</TABLE>
- ------------------------
(1) Assumes a per share fair market value equal to the assumed initial public
offering price of $ .
401(K) PLAN
We sponsor a 401(k) plan covering all of our employees who meet certain
defined requirements. Under the terms of our 401(k) plan, participants may elect
to make contributions on a pre-tax and after-tax basis, subject to certain
limitations under the Internal Revenue Code. We do not match employee
contributions to the 401(k) plan.
EMPLOYMENT AGREEMENTS
On March 19, 1999, we entered into an employment agreement with Taylor J.
Crouch to serve as our President and Chief Business Officer at a base salary of
$250,000 a year with annual performance-based bonuses at the discretion of the
Board of Directors and the Compensation Committee. The target levels for those
bonuses are 30% of salary and 50,000 options. Mr. Crouch also received options
to purchase 316,375 shares of common stock at $0.64 per share and 75,000 shares
of restricted stock at $.01 per share. The aggregate number of options and
shares of restricted stock is 3.25% of the fully diluted shares of Variagenics
upon completion of the first round of financing after the date of the agreement.
The restricted stock vested in full six months from the date Mr. Crouch joined
us. The options will vest over four years with 61,981 vesting six months from
the date of hire and the remainder vesting over a period of three and a half
years in 42 equal monthly installments. All options vest in the event we are
acquired or if we are merged into a larger entity. If Mr. Crouch terminates the
agreement with Good Reason, as defined in the agreement, or if we terminate
Mr. Crouch without Cause, as defined in the agreement, we are required to pay
Mr. Crouch his full salary for a period of nine months from the date of such
termination.
On January 27, 2000, we entered into an employment agreement with Bruce
Maloff, Ph.D., to serve as our Executive Vice President, Commercial Operations
at a base salary of $210,000 a year with annual performance-based bonuses at the
discretion of the Board of Directors and the Compensation Committee. The target
for the bonuses is 25% of Dr. Maloff's base salary. Dr. Maloff received options
to purchase 100,000 shares of common stock at $1.25 per share. The options vest
over four years with
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<PAGE>
25% vesting after one year and the remainder vesting over a period of three
years in 36 equal monthly installments. In addition, we paid a signing bonus of
$15,000 to Dr. Maloff and we will reimburse Dr. Maloff for his reasonable moving
expenses. The employment agreement is at will. If we terminate the agreement
without Cause, as defined in the agreement, we will pay Dr. Maloff's full salary
for six months from the date we notify him that we intend to terminate his
agreement.
On July 3, 1998, we entered into an employment agreement with Colin W.
Dykes, Ph.D. to serve as our Vice President, Research and Genomics at a base
salary of $200,000 a year with annual performance-based bonuses at the
discretion of the Board of Directors and the Compensation Committee. Dr. Dykes
received options to purchase 70,000 shares of common stock at $.64 per share.
The options vest over five years with 20% vesting one year from the date of hire
and the remainder vesting over a period of four years in 48 equal monthly
installments. In addition, we paid Dr. Dykes a signing bonus of $25,000 and
reimbursed him for $25,000 of moving expenses. If Dr. Dykes terminates the
agreement with Good Reason, as defined in the agreement, or if we terminate
Dr. Dykes without Cause, as defined in the agreement, we are required to pay
Dr. Dykes his full salary for a period of six months from the date of such
termination.
On February 5, 1998, we entered into an employment agreement with Anne L.
Bailey to serve as our Vice President, Diagnostic and Process Development at a
base salary of $145,000 a year with an annual bonus of up to $14,500 for
achieving certain milestones. In addition, we will reimburse Ms. Bailey for her
reasonable relocation and moving expenses. Ms. Bailey also was awarded 32,000
shares of restricted stock for a purchase price of $.64 per share, subject to a
right of repurchase by us at a purchase price of $.64 per share, which
repurchase right lapses in 60 equal monthly installments from the date of
original purchase. If Ms. Bailey terminates the agreement with Good Reason, as
defined in the agreement, or if we terminate Ms. Bailey without Cause, as
defined in the agreement, we are required to pay Ms. Bailey her full salary for
a period of six months from the date of such termination.
On December 23, 1998, we entered into an employment agreement with Richard
P. Shea to serve as our Vice President, Finance and Administration at a base
salary of $150,000 a year with an annual bonus of up to $30,000 for achieving
certain milestones. Mr. Shea received options to purchase 40,000 shares of
common stock at $0.64 per share. The options vest over 4 years with 25% vesting
one year from the date of hire and the remainder vesting over a period of three
years in 36 equal monthly installments. Mr. Shea may be eligible to receive
additional bonuses or options based on his performance.
On May 17, 1993, our predecessor, K.O. Technology, Inc., entered into an
employment agreement with Vincent P. Stanton, Jr., M.D., to serve as Senior
Scientist at a base salary of $85,000. Dr. Stanton received restricted stock
equal to 4% of K.O. Technology, Inc.'s equity after its first round of financing
on a five year vesting schedule.
All of the employment agreements are at will, contain an anti-piracy clause,
an invention and non-disclosure clause, and a non-competition/non-solicitation
clause.
53
<PAGE>
TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT STOCKHOLDERS
Since January 1997, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which we were or are 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 our common stock 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.
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
dates shown below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
COMMON COMMON SERIES E -------------------------------------------------------
STOCK WARRANTS(3) WARRANTS(4) SERIES B(5) SERIES E-2(6) SERIES E(6) SERIES F(7)
-------- ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Taylor J. Crouch........ 75,000(1) -- -- -- -- -- --
Anne L. Bailey.......... 32,000(2) -- -- -- -- -- --
Mark P. Carthy.......... -- -- -- -- -- -- 19,608
5% OR MORE STOCKHOLDERS
The Sprout Group........ -- -- 738,462 -- -- 2,461,539 623,712
Atlas Venture........... -- 231,247 92,533 465,116 770,824 308,445 287,495
Oxford Bioscience
Partners.............. -- 177,781 94,712 310,076 592,606 315,707 287,494
CIBC.................... -- -- -- -- -- -- 1,764,706
Forward Ventures........ -- 174,513 -- 465,116 581,709 -- 204,036
Kummell Investments..... -- 24,101 37,031 482,128 80,336 123,437 --
</TABLE>
- ------------------------
(1) Acquired September 1999 for a purchase price of $.01 per share.
(2) Acquired March 1998 for a purchase price of $.64 per share, subject to a
right of repurchase by us at a purchase price of $.64 per share, which
repurchase right lapses in 60 equal monthly installments from the date of
original purchase.
(3) Issued in July 1999 in exchange for cancellation of debt we incurred in
bridge financings with these investors. Warrants are exercisable at a price
of $3.25 per share and expire in July 2004.
(4) Issued in July 1999 in connection with the purchase of Series E mandatorily
redeemable convertible preferred stock. Warrants are exercisable at a price
of $3.25 per share and expire in July 2004.
(5) Acquired June 1997 for a purchase price of $6.45 per share.
(6) Acquired July 1999 for a purchase price of $3.25 per share.
(7) Acquired March 2000 for a purchase price of $5.10 per share.
CONSULTING AGREEMENT AND STOCK OPTION AWARDS. We have a consulting
agreement with Dr. David Housman, a member of our Board of Directors and one of
our scientific advisors, under which he provides us with scientific consulting
services and is paid $6,000 per month. We awarded Dr. Housman options to
purchase 50,000 shares of common stock at a price of $0.64 per share in January
1998, and options to purchase 50,000 shares of common stock at a price of $1.25
per share in March 2000.
In March 2000, we awarded Mr. Martin Vogelbaum, a member of our Board of
Directors, options to purchase 25,000 shares of common stock at a price of $1.25
per share.
In connection with the preferred stock financings and issuance of common
stock, we granted registration rights. Upon exercise of these registration
rights, these stockholders can require us to file registration statements
covering the sale of shares held by them and may include the sale of their
shares in registration statements covering our sale of shares to the public.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding the
beneficial ownership of our common stock as of March 6, 2000 and as adjusted to
reflect the sale of the shares of our common stock in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each of our directors;
- each of our executive officers named in the summary compensation table;
and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options and warrants held by that person that are
currently exercisable or exercisable within 60 days of March 6, 2000 are
considered outstanding. These shares, however, are not considered outstanding
when computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 13,188,676 shares of common stock outstanding on
March 6, 2000 and shares of common stock outstanding after
completion of this offering. This table assumes no exercise of the underwriters'
over-allotment option.
55
<PAGE>
<TABLE>
<CAPTION>
SHARES ISSUABLE PERCENTAGE OF
PURSUANT TO OPTIONS COMMON STOCK
AND WARRANTS BENEFICIALLY OWNED
EXECISABLE WITHIN -------------------
SHARES BENEFICIALLY 60 DAYS OF PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED MARCH 6, 2000 OFFERING OFFERING
- --------------------------------------- ------------------- ------------------- -------- --------
<S> <C> <C> <C> <C>
STOCKHOLDERS OWNING APPROXIMATELY 5% OR MORE
The Sprout Group(2)........................... 3,085,251 738,462 27.5%
3000 Sand Hill Road, Building 3, Suite 170
Menlo Park, CA 94025
Atlas Venture(3).............................. 1,831,880 323,781 16.0%
222 Berkeley Street, Suite 1950,
Boston, MA 02116
Oxford Bioscience Partners(4)................. 1,505,884 272,494 13.2%
31 St. James Avenue, Suite 350
Boston, MA 02116
CIBC(5)....................................... 1,764,706 -- 13.4%
425 Lexington Avenue
New York, NY 10017
Forward Ventures(6)........................... 1,250,861 174,513 10.7%
9255 Towne Center Drive, Suite 300
San Diego, CA 92121
Kummell Investments(7)........................ 1,049,386 77,366 8.5%
Suite 835A, Europort
Gibraltar
DIRECTORS AND EXECUTIVE OFFICERS
Taylor J. Crouch.............................. 75,000 104,380 1.4%
Fred D. Ledley, M.D........................... 167,950 -- 1.3%
Colin W. Dykes, Ph.D.......................... -- 41,260 *
Anne L. Bailey................................ 33,372 13,361 *
Richard P. Shea............................... -- 28,439 *
Vincent P. Stanton, Jr., M.D.................. 35,546 15,254 *
David Housman, Ph.D........................... 153,844 25,018 1.2%
Phillipe O. Chambon, M.D., Ph.D.(8)........... 3,085,251 738,462 27.5%
Mark P. Carthy(7)............................. 19,608 -- *
Jean-Francois Formela(9)...................... 1,831,880 323,781 16.0%
Martin Vogelbaum(10).......................... 1,505,884 272,494 13.2%
David A. Shotland(5).......................... 1,764,606 -- 13.4%
All directors and executive officers as a
group
(10 persons)................................ 8,672,941 1,568,701 69.4%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of our common
stock.
(1) Unless otherwise indicated, the address of each shareholder is c/o
Variagenics, Inc., 60 Hampshire Street, Cambridge, Massachusetts 02139.
(2) Includes 2,682,000 shares and warrants to purchase 641,943 shares held by
Sprout Capital VIII, L.P., 160,920 shares and warrants to purchase 38,517
shares held by Sprout Venture Capital, L.P., 8,947 shares and warrants to
purchase 2,141 shares held by DLJ Capital Corp. and 233,384 shares and
warrants to purchase 55,861 shares held by DLJ ESC II, L.P. Philippe
Chambon, M.D., Ph.D., is a General Partner of the Sprout Group.
56
<PAGE>
(3) Includes 1,802,795 shares and warrants to purchase 316,890 shares held by
Atlas Venture Fund III, L.P. and 29,085 shares and warrants to purchase
6,890 shares held by Atlas Venture Entrepreneurs' Fund III L.P.
Jean-Francois Formela, M.D., is a General Partner of Atlas Venture.
(4) Includes 350,114 shares and warrants to purchase 105,033 shares held by
Oxford Bioscience Partners II, L.P., 381,927 shares and warrants to purchase
78,714 shares held by Oxford Bioscience Partners (Bermuda) II, L.P., 121,840
shares and warrants to purchase 27,249 shares held by Oxford Bioscience
Partners (Adjunct) II, L.P., and 204,988 shares and warrants to purchase
61,497 shares held by Oxford Bioscience Partners (GS-Adjunct) II, L.P.
Martin Vogelbaum is a Venture Partner of Oxford Bioscience Partners II.
(5) Includes 1,323,529 shares held by CIBC WMV Inc., an investment vehicle of
CIBC and 441,177 shares held by CIBC Employee Private Equity Partners, a
vehicle owned by partnerships established for the benefit of employees of
CIBC to which CIBC serves as an advisor. Mr. Shotland is a Managing Director
of CIBC Capital Partners, a merchant banking division of CIBC World Markets
Corp., and disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest in such shares. Mr. Shotland is an indirect
limited partner of CIBC Employee Private Equity Partners and disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest in the shares.
(6) Includes 465,116 shares held by Forward Ventures Vanguard Fund II, 141,999
shares and warrants to purchase 36,456 shares held by Forward Ventures III,
L.P. and 537,749 shares and warrants to purchase 138,057 shares held by
Forward Ventures III Institutional Partners, L.P.
(7) Mark P. Carthy is the biotechnology portfolio manager for Morningside
Ventures, which advises Kummell Investments Limited on its venture capital
portfolio. Mr. Carthy disclaims beneficial ownership of the shares and
warrants held by Kummell Investments, except to the extent of his pecuniary
interest in the shares and warrants.
(8) Includes 3,085,251 shares and 738,462 warrants held by the Sprout Group.
Dr. Chambon is a General Partner of the Sprout Group and disclaims
beneficial ownership of such shares and warrants, except to the extent of
his pecuniary interest in the shares and warrants.
(9) Includes 1,831,880 shares and 323,781 warrants held by Atlas Venture.
Dr. Formela is a General Partner of Atlas Venture and disclaims beneficial
ownership of such shares and warrants, except to the extent of his pecuniary
interest in the shares and warrants.
(10) Includes 1,505,884 shares and 272,494 warrants held by Oxford Bioscience
Partners II L.P. Mr. Vogelbaum is a Venture Partner of Oxford Bioscience
Partners II and disclaims beneficial ownership of such shares and warrants,
except to the extent of his pecuniary interest in the shares and warrants.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
shares of common stock, $.01 par value per share, and 5,000,000 shares of
preferred stock, $.01 par value per share.
After the closing of this offering, there will be:
- shares of common stock outstanding;
- options to purchase shares of common stock outstanding of which
will be exercisable upon the closing of the offering;
- warrants to purchase shares of common stock outstanding, all of
which will be exercisable upon the closing of this offering; and
- no shares of preferred stock outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, out of
legally available funds for the dividends subject to the rights of the holders
of our preferred stock and any preferences that may be applicable to any other
then outstanding preferred stock. Upon our liquidation, dissolution or winding
up, the holders of our common stock are entitled to receive ratably our net
assets available after the payment of all debts and other liabilities and
subject to the liquidation preferences of any outstanding preferred stock.
Holders of common stock have no preemptive, subscription, redemption or
conversion rights and are not subject to future calls or assessments by us. No
sinking fund provisions apply to our common stock. The outstanding shares of
common stock are, and the shares offered by us in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Some holders of common stock have the right to require us
to register their shares of common stock under the Securities Act in specified
circumstances. See "Shares Eligible for Future Sale."
PREFERRED STOCK
Upon the closing of this offering, all of our outstanding shares of
Series A mandatorily redeemable convertible preferred stock, Series B
mandatorily redeemable convertible preferred stock, Series C mandatorily
redeemable convertible preferred stock, Series D mandatorily redeemable
convertible preferred stock, Series E mandatorily redeemable convertible
preferred stock, Series E-2 mandatorily redeemable convertible preferred stock
and Series F mandatorily redeemable convertible preferred stock will be
converted into 12,552,576 shares of common stock.
Under the terms of our certificate of incorporation, our Board of Directors
will be authorized to issue up to 5,000,000 shares of preferred stock in one or
more series without stockholder approval. Our Board of Directors also has
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of each series of preferred stock.
The purpose of authorizing our Board of Directors to issue preferred stock
in one or more series and determine the number of shares in the series and its
rights and preferences is to eliminate delays associated with a stockholder vote
on specific issuances. Examples of rights and preferences that the Board of
Directors may fix are (1) dividend rights, (2) dividend rates, (3) conversion
rights, (4) voting
58
<PAGE>
rights, (5) terms of redemption, including sinking price or prices, and
(6) liquidation preferences. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire,
or could discourage a third party from acquiring, a majority of our outstanding
voting stock. The rights of holders of our common stock described above will be
subject to, and may be adversely affected by, the rights of any preferred stock
that we may designated and issue in the future.
WARRANTS
As of March 6, 2000, there were outstanding warrants to purchase 1,856,646
shares of common stock held by 21 investors. Such warrants have expiration dates
ranging from May 19, 2000 to July 30, 2004, and have a weighted average exercise
price of $3.49 per share. The number of shares for which the warrants are
exercisable is subject to adjustment for stock splits, combinations or dividends
and reclassifications, exchanges or substitutions.
REGISTRATION RIGHTS
The holders of approximately 13,838,490 shares of common stock are entitled
to registration rights with respect to the registration of those shares under
the Securities Act of 1933. If we propose to register our securities under the
Securities Act, either for our own account or for the account of other security
holders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of these shares may require us, at our
expense and on not more than two occasions at any time beginning approximately
six months from the date of the closing of this offering, to file a registration
statement covering their shares of common stock and we will be required to use
our best efforts to have the registration statement declared effective. Further,
the holders may require us to register their shares on Form S-3 at our expense
when this form becomes available. These rights shall terminate five years after
the effective date of this offering. Attached to these registration rights are
conditions and limitations including the right of the underwriters to limit the
number of shares included in the registration statement. These registration
rights in connection with this offering have been waived.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. 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 person becomes an interested
stockholder, unless the business combination is approved in a prescribed manner.
A business combination includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
Our by-laws divide the Board of Directors into three classes with staggered
three-year terms. See "Management." Under the by-laws, any vacancy on our Board
of Directors, including a vacancy resulting from an enlargement of our Board of
Directors, may only be filled by vote of a majority of the directors then in
office. The classification of the Board of Directors and the limitation on
filling of vacancies could make it more difficult for a third party to acquire,
or discourage a third party from acquiring, control of our company.
Our by-laws also provide that after this offering, stockholders can only
take action at an annual meeting or special meeting, and not by written action
in lieu of a meeting. Our by-laws further provide that only stockholders holding
a majority of outstanding shares, our Chairman of the Board, President or our
Board of Directors may call a special meeting of stockholders.
59
<PAGE>
Our stockholders must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. Stockholders must deliver written notice to us between 60 and
90 days prior to the meeting. If we give less than 70 days' notice or prior
public disclosure of the meeting date, stockholders must deliver written notice
to us within ten days following the date upon which the notice of the meeting
was mailed or such public disclosure was made, whichever occurs first. If the
matter relates to the election of directors, the notice must set forth specific
information regarding each nominee and the nominating stockholder. For any other
matter, the notice must set forth a brief description of the proposed matter and
certain information regarding the proponent stockholder. These provisions could
delay until the next stockholders' meeting proposed actions which are favored by
the holders of a majority of our outstanding voting securities. These provisions
could also discourage a third party from making a tender offer for our common
stock, because even if it acquired a majority of the outstanding voting
securities, the third party would be able to take action as a stockholder only
at a duly called stockholders' meeting, and not by written consent.
The Delaware General Corporation Law statute 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 by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our by-laws require the affirmative vote of
holders of at least 75% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted under
the Delaware General Corporation Law statute relating to the limitation of
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the certificate of incorporation contains provisions to indemnify
our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law statute. We believe these provisions will assist us in
attracting and retaining qualified individuals to serve as our directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After completion of this offering there will be shares of common
stock outstanding based upon the number of shares outstanding as of March 6,
2000. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, except that any shares purchased by our "affiliates," as that term
is defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining shares of common stock that will be
outstanding after this offering will be considered "restricted securities" under
Rule 144 of the Securities Act. Generally, restricted securities that have been
owned for a period of at least two years may be sold immediately after the
completion of this offering, and restricted securities that have been owned for
at least one year may be sold 90 days after the completion of this offering.
Certain of the restricted securities are subject to lock-up agreements with the
underwriters. Persons subject to lock-up agreements have agreed not to sell
shares
60
<PAGE>
of our common stock without the prior permission of Credit Suisse First Boston
Corporation for a period of 180 days after the completion of this offering.
Credit Suisse First Boston Corporation has indicated that it does not intend to
release anyone from the lock-up agreement. The table below sets forth
information regarding potential sales of restricted securities.
- shares may be sold immediately after completion of this offering; and
- additional shares may be sold upon the expiration of the lock-up
agreements.
OPTIONS
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register an aggregate of
shares of common stock, which may be issued under our 1997 Employee, Director
and Consultant Stock Option Plan and other stock options not issued under a
plan. Shares issued upon the exercise of stock options after the effective date
of the registration statements on Form S-8 will be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements noted above, if applicable. As a result of
the exercise of vested options 90 days after the completion of this offering,
additional shares may be sold. Upon the expiration of the lock-up
agreements, an additional shares may be sold as a result of the exercise
of options.
WARRANTS
Shares of common stock may also be issued pursuant to outstanding warrants.
As of March 6, 2000 there are outstanding warrants to purchase 1,856,646 shares
of our common stock, all of which are currently exercisable.
REGISTRATION RIGHTS
The holders of approximately 13,838,490 shares of common stock are entitled
to rights with respect to the registration of those shares under the Securities
Act of 1933. If we propose to register our securities under the Securities Act,
either for our own account or for the account of other security holders, the
holders of these shares will be entitled to notice of the registration and will
be entitled to include, at our expense, their shares of common stock. In
addition, the holders of these shares may require us, at our expense and on not
more than two occasions at any time beginning approximately six months from the
date of the closing of this offering, to file a registration statement covering
their shares of common stock and we will be required to use our best efforts to
have the registration statement declared effective. Further, the holders may
require us to register their shares on Form S-3 at our expense when this form
becomes available. These rights shall terminate five years after the effective
date of this offering. Attached to these registration rights are conditions and
limitations including the right of the underwriters to limit the number of
shares included in the registration statement. These registration rights in
connection with this offering have been waived.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock, and we cannot advise you as to the effect, if any, that sales in the
public market of shares of our common stock, or the availability of shares for
sale, will have on the market price of our common stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of our common stock
in the public market could adversely affect the market price of our common stock
and could impair our ability to raise capital.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Chase Securities
Inc. and SG Cowen Securities Corporation are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
Credit Suisse First Boston Corporation......................
Chase Securities Inc........................................
SG Cowen Securities Corporation.............................
----------
Total...................................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock from us at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of the common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................ $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any shares of our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly disclose the
intention to make any offer, sale, pledge, disposition or filing, without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus.
Our stockholders, officers and directors have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock,
62
<PAGE>
whether any of these types of transactions is to be settled by delivery of our
common stock or other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to enter into any
of these types of transaction, swap, hedge or other arrangement, without, in
each case, the prior written consent of Credit Suisse First Boston Corporation
for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for our employees, directors
and certain other persons associated with us who may wish to purchase common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent these persons purchase
these reserved shares. Any reserved shares not so purchased will be offered by
the underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, or to contribute to payments which the underwriters may
be required to make as a result of these liabilities.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "VGNX."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price will be:
- the information presented in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the shares of common stock originally sold by
such syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
63
<PAGE>
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under these securities laws, (2) where
required by law, that the purchaser is purchasing as principal and not as agent,
and (3) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from Variagenics. Only one report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
64
<PAGE>
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston,
Massachusetts. Members of that firm own 27,107 shares of our common stock.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland.
EXPERTS
The financial statements of Variagenics, Inc. as of December 31, 1998 and
1999 and for each of the three years in the period ended December 31, 1999 and
for the period from inception (December 7, 1992) through December 31, 1999,
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the Securities and Exchange Commission under the Securities
Act with respect to our common stock to be sold in this offering. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any contract, agreement or
other document of ours, such references are not necessarily complete and you
should refer to the exhibits attached to the registration statement for copies
of the actual contract, agreement or other document. You may review a copy of
the registration statement, including exhibits, at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 or at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call 1-800-SEC-0330 for further information about the operation of the
public reference rooms.
After we have filed this registration statement, we will file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
The registration statement and our other Securities and Exchange Commission
filings can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at HTTP://WWW.SEC.GOV, which contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for each of the Years Ended
December 31, 1997, 1998 and 1999 and for the period from
inception (December 7, 1992) through December 31, 1999.... F-4
Statements of Stockholders' Equity (Deficit) for the period
from inception (December 7, 1992) through December 31,
1999...................................................... F-5
Statements of Cash Flows for each of the Years Ended
December 31, 1997, 1998 and 1999 and for the period from
inception (December 7, 1992) through December 31, 1999.... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Variagenics, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Variagenics, Inc. (a
development stage enterprise) at December 31, 1998 and 1999 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 and for the period from inception (December 7, 1992)
through December 31, 1999 in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 28, 2000
F-2
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 733,979 $ 1,827,519
Short-term investments.................................... -- 2,500,000
Prepaid expenses and other current assets................. 474,718 194,195
------------ ------------
Total current assets.................................... 1,208,697 4,521,714
Restricted cash............................................. 1,000,000 1,000,000
Property and equipment, net................................. 2,835,306 3,753,586
Other assets................................................ 204,679 127,850
------------ ------------
$ 5,248,682 $ 9,403,150
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,120,506 $ 314,984
Accrued expenses and other liabilities.................... 303,632 740,332
Deferred revenue.......................................... -- 42,000
Current portion of capital lease obligations.............. 166,298 515,831
Convertible notes payable to stockholders................. 3,314,425 --
Line of credit, current portion........................... 75,000 109,091
------------ ------------
Total current liabilities............................... 4,979,861 1,722,238
Capital lease obligations................................... 342,938 877,463
Line of credit.............................................. 525,000 100,000
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock, $.01 par value;
2,503,787 and 9,732,208 shares authorized and 2,387,336
and 8,631,008 shares issued and outstanding at
December 31, 1998 and 1999, respectively, redemption value
of $29,093,689 at December 31, 1999 (Note 8).............. 16,803,883 28,732,281
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $0.01 par value; 77,579 and
0 shares authorized, issued and outstanding at
December 31, 1998 and 1999, respectively................ 775 --
Common stock, $.01 par value; 4,700,000 and 12,042,300
shares authorized, 519,389 and 630,605 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ 5,194 6,306
Additional paid-in capital................................ 757,488 19,184,561
Deficit accumulated during the development stage.......... (18,166,457) (34,894,344)
Deferred compensation..................................... -- (6,325,355)
------------ ------------
Total stockholders' deficit............................. (17,403,000) (22,028,832)
------------ ------------
Total liabilities, redeemable convertible preferred
stock and
stockholders' deficit................................. $ 5,248,682 $ 9,403,150
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 7,
YEAR ENDED DECEMBER 31, 1992) THROUGH
----------------------------------------- DECEMBER 31,
1997 1998 1999 1999
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue................................. $ -- $ -- $ 398,588 $ 398,588
Costs and expenses:
Research and development.............. 2,234,495 5,071,290 8,602,357 19,291,408
General and administrative............ 2,059,110 3,176,232 6,944,901 13,949,280
In-process research and development... 674,340 -- -- 674,340
------------ ----------- ------------ ------------
Loss from operations................ (4,967,945) (8,247,522) (15,148,670) (33,516,440)
Other income (expense):
Interest income....................... 258,216 200,118 167,523 678,029
Interest expense...................... (79,646) (98,024) (1,496,740) (1,805,933)
Loss on investment in affiliate....... -- -- (250,000) (250,000)
------------ ----------- ------------ ------------
Net loss............................ $ (4,789,375) $(8,145,428) $(16,727,887) $(34,894,344)
============ =========== ============ ============
Accretion to redemption value........... -- (153,193) (1,075,769) (1,228,962)
------------ ----------- ------------ ------------
Net loss attributable to common
stockholders.......................... $ (4,789,375) $(8,298,621) $(17,803,656) $(36,123,306)
============ =========== ============ ============
Net loss attributable to common
stockholders per share (basic and
diluted).............................. $ (15.54) $ (19.55) $ (34.93) $ (75.03)
Weighted average common shares
outstanding (basic and diluted)....... 308,233 424,589 509,682 481,451
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (DECEMBER 7, 1992) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
-------------------- -------------------- PAID-IN DEVELOPMENT DEFERRED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE COMPENSATION
-------- --------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock........... -- $ -- 200,000 $2,000 $ -- $ -- $ --
Net loss for the period from
inception (December 7, 1992)
through December 31, 1992........ -- -- -- -- -- (8,455) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1992....... -- -- 200,000 2,000 -- (8,455) --
Issuance of common stock........... -- -- 36,780 368 -- -- --
Issuance of Series A convertible
preferred stock, net of issuance
costs of $22,262................. 157,028 1,570 -- -- 1,427,107 -- --
Net loss for the year ended
December 31, 1993................ -- -- -- -- -- (339,176) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1993....... 157,028 1,570 236,780 2,368 1,427,107 (347,631) --
Issuance of common stock........... -- -- 33,323 333 -- -- --
Issuance of Series A convertible
preferred stock.................. 9,010 90 -- -- 83,162 -- --
Net loss for the year ended
December 31, 1994................ -- -- -- -- -- (1,149,299) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1994....... 166,038 1,660 270,103 2,701 1,510,269 (1,496,930) --
Issuance of Series A convertible
preferred stock, net of issuance
costs of $12,551................. 229,523 2,295 -- -- 2,105,967 -- --
Purchase of common stock........... -- -- (38,000) (380) -- -- --
Net loss for the year ended
December 31, 1995................ -- -- -- -- -- (1,633,433) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1995....... 395,561 3,955 232,103 2,321 3,616,236 (3,130,363) --
Issuance of Series A convertible
preferred stock.................. 108,226 1,082 -- -- 998,927 -- --
Net loss for the year ended
December 31, 1996................ -- -- -- -- -- (2,101,291) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1996....... 503,787 5,037 232,103 2,321 4,615,163 (5,231,654) --
Issuance of common stock........... -- -- 262,169 2,622 61,088 -- --
Purchase of common stock from
founder (Note 9)................. -- -- (30,323) (304) 323,750 -- --
Reclassification of Series A
preferred stock to redeemable
preferred stock.................. (503,787) (5,037) -- -- (4,615,163) -- --
Issuance of Series C convertible
preferred stock.................. 77,519 775 -- -- 499,225 -- --
Accretion of redeemable preferred
stock to redemption value........ -- -- -- -- (153,193) -- --
Net loss for the year ended
December 31, 1997................ -- -- -- -- -- (4,789,375) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1997....... 77,519 775 463,949 4,639 730,870 (10,021,029) --
Issuance of common stock........... -- -- 55,440 555 26,618 -- --
Net loss for the year ended
December 31, 1998................ -- -- -- -- -- (8,145,428) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1998....... 77,519 775 519,389 5,194 757,488 (18,166,457) --
Issuance of common stock........... -- -- 111,216 1,112 783,677 -- --
Adjustment to redeemable
convertible preferred as a result
of change in redemption value.... -- -- -- -- 9,045,041 -- --
Reclassification of Series C
preferred stock to redeemable
convertible preferred stock...... (77,519) (775) -- -- (251,162) -- --
Issuance of warrants............... -- -- -- -- 1,418,000 -- --
Accretion of redeemable convertible
preferred stock to redemption
value............................ -- -- -- -- (1,075,769) -- --
Deferred compensation resulting
from the grant of options........ -- -- -- -- 8,507,286 -- (8,507,286)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 2,181,931
Net loss for the year ended
December 31, 1999................ -- -- -- -- -- (16,727,887) --
-------- ------- ------- ------ ----------- ------------ -----------
Balance at December 31, 1999....... -- $ -- 630,605 $6,306 $19,184,561 $(34,894,344) $(6,325,355)
======== ======= ======= ====== =========== ============ ===========
<CAPTION>
TOTAL
------------
<S> <C>
Issuance of common stock........... $ 2,000
Net loss for the period from
inception (December 7, 1992)
through December 31, 1992........ (8,455)
------------
Balance at December 31, 1992....... (6,455)
Issuance of common stock........... 368
Issuance of Series A convertible
preferred stock, net of issuance
costs of $22,262................. 1,428,677
Net loss for the year ended
December 31, 1993................ (339,176)
------------
Balance at December 31, 1993....... 1,083,414
Issuance of common stock........... 333
Issuance of Series A convertible
preferred stock.................. 83,252
Net loss for the year ended
December 31, 1994................ (1,149,299)
------------
Balance at December 31, 1994....... 17,700
Issuance of Series A convertible
preferred stock, net of issuance
costs of $12,551................. 2,108,262
Purchase of common stock........... (380)
Net loss for the year ended
December 31, 1995................ (1,633,433)
------------
Balance at December 31, 1995....... 492,149
Issuance of Series A convertible
preferred stock.................. 1,000,009
Net loss for the year ended
December 31, 1996................ (2,101,291)
------------
Balance at December 31, 1996....... (609,133)
Issuance of common stock........... 63,710
Purchase of common stock from
founder (Note 9)................. 323,446
Reclassification of Series A
preferred stock to redeemable
preferred stock.................. (4,620,200)
Issuance of Series C convertible
preferred stock.................. 500,000
Accretion of redeemable preferred
stock to redemption value........ (153,193)
Net loss for the year ended
December 31, 1997................ (4,789,375)
------------
Balance at December 31, 1997....... (9,284,745)
Issuance of common stock........... 27,173
Net loss for the year ended
December 31, 1998................ (8,145,428)
------------
Balance at December 31, 1998....... (17,403,000)
Issuance of common stock........... 784,789
Adjustment to redeemable
convertible preferred as a result
of change in redemption value.... 9,045,041
Reclassification of Series C
preferred stock to redeemable
convertible preferred stock...... (251,937)
Issuance of warrants............... 1,418,000
Accretion of redeemable convertible
preferred stock to redemption
value............................ (1,075,769)
Deferred compensation resulting
from the grant of options........ --
Amortization of deferred
compensation..................... 2,181,931
Net loss for the year ended
December 31, 1999................ (16,727,887)
------------
Balance at December 31, 1999....... $(22,028,832)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 7,
YEAR ENDED DECEMBER 31, 1992) THROUGH
--------------------------------------------- DECEMBER 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ (4,789,375) $ (8,145,428) $ (16,727,887) $ (34,894,344)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization...................... 173,154 412,163 670,091 1,431,272
Write-off of acquired in-process research and
development...................................... 674,340 -- -- 674,340
Loss on sale of short-term investments............. -- -- -- 20,630
Loss on disposal of assets......................... -- -- 15,142 15,142
Accrued interest on convertible notes payable
converted to redeemable convertible preferred
stock............................................ 69,550 29,426 296,967 436,736
Non-cash compensation expense...................... 385,800 -- 2,966,552 3,334,352
Loss on investment in affiliate.................... -- -- 250,000 250,000
Non-cash charge for preferred stock issued to
cancel agreements with affiliate and affiliate's
investors........................................ -- -- 1,040,000 1,040,000
Warrants issued for interest expense............... -- -- 1,072,533 1,090,533
Changes in assets and liabilities:
Prepaid expenses and other current assets........ (124,485) (219,008) 324,523 (150,195)
Other assets..................................... 13,054 27,667 20,579 (4,100)
Accounts payable................................. 154,934 851,047 (805,522) 314,984
Accrued expenses................................. 98,183 (1,088) 436,700 723,629
Deferred revenue................................. -- -- 42,000 42,000
------------- ------------- ------------- -------------
Net cash used for operating activities........... (3,344,845) (7,045,221) (10,398,322) (25,675,021)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments................... (6,974,474) -- (2,500,000) (10,379,013)
Maturity of short-term investments................... -- 6,974,474 -- 7,858,383
Acquisition of property and equipment................ (377,001) (2,089,289) (620,361) (3,476,121)
Proceeds from sale/leaseback transaction............. -- 135,300 -- 406,148
Reimbursement from lessor............................ -- -- 273,098 273,098
Cash paid for acquisitions and equity investments.... (615,637) -- (250,000) (865,637)
------------- ------------- ------------- -------------
Net cash (used for) provided by investing
activities..................................... (7,967,112) 5,020,485 (3,097,263) (6,183,142)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations............... (65,544) (172,749) (315,942) (675,581)
Payment as collateral for letter of credit........... -- (1,000,000) -- (1,000,000)
Proceeds from line of credit......................... -- 600,000 400,000 1,000,000
Repayment of line of credit.......................... -- -- (790,909) (790,909)
Proceeds from issuance of notes payable to
stockholders....................................... 1,076,250 3,284,999 4,665,000 10,906,249
Proceeds from issuance of preferred stock, net of
issuance costs..................................... 10,284,689 -- 10,630,808 24,214,905
Proceeds from issuance of common stock............... 1,356 27,173 168 31,018
------------- ------------- ------------- -------------
Net cash provided by financing activities........ 11,296,751 2,739,423 14,589,125 33,685,682
------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents... (15,206) 714,687 1,093,540 1,827,519
Cash and cash equivalents at beginning of period....... 34,498 19,292 733,979 --
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period............. $ 19,292 $ 733,979 $ 1,827,519 $ 1,827,519
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
Variagenics, Inc. (the "Company") was incorporated in Delaware on
December 7, 1992. The Company was originally formed to develop a pharmacogenomic
approach to cancer therapy. The Company has broadened that focus to discover
genetic variations characterized by SNPs and other genetic differences. The
Company will use this information to optimize drugs in development, develop new
drug targets and bring diagnostic products to market. Since inception, the
Company has devoted its efforts primarily to financial planning, research and
development, recruiting management and technical staff, acquiring operating
assets and raising capital. Accordingly, the Company is considered to be in the
development stage and the accompanying financial statements represent those of a
development stage enterprise as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7.
The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company has generated minimal
revenues and has an accumulated deficit of $34,894,344 at December 31, 1999. The
future viability of the Company is dependent on its ability to obtain necessary
additional financing, to complete development and commercialize its products and
to commence generating cash from operations. Management believes the Company has
the ability to do so.
The Company is subject to risks common to companies in the industry
including, but not limited to, uncertainty of product development and
commercialization, lack of marketing and sales history, dependence on key
personnel, market acceptance of products, product liability, protection of
proprietary technology, ability to raise additional financing, and compliance
with FDA and other governmental regulations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
disclosures 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.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The Company
maintains all of its cash, cash equivalents and short-term investments with one
high quality financial institution. Investment securities with original
maturities of greater than three months but less than one year are considered to
be short-term investments. Short-term investments are classified as held to
maturity in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 1999, short-term investments are
carried at cost and consist of a certificate of deposit which matured in
January 2000.
F-7
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Leasehold improvements are amortized
using the straight-line method over the shorter of the life of the improvement
or the remaining term of the lease.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment by comparing the
cumulative undiscounted cash flows from the assets with their carrying amount.
Any writedowns are treated as permanent reductions in the carrying amount of the
assets. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. This analysis relies on a number of factors, including
operating results, business plans, budgets, economic projections and changes in
management's strategic direction or market emphasis.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company has adopted the provisions of SFAS No. 123,
"Accounting for Stock-based Compensation," for disclosure only (Note 9). All
stock-based awards to nonemployees are accounted for in accordance with SFAS
No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18 "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
REVENUE RECOGNITION
Revenue to date has been generated from collaborations and research grants
from a governmental agency. Revenue from collaborations and grants is recognized
in the period in which specific performance obligations under the terms of the
contracts are satisfied and related costs are incurred. Payments received in
advance of work being performed under agreements are recorded as deferred
revenue until earned in accordance with SEC Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements."
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted rates in effect for the year in which those temporary differences
are expected to be recovered or settled. A deferred tax asset is established for
the expected future benefit of net operating loss and credit carryforwards. A
F-8
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
valuation reserve against net deferred tax assets is required if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
COMPREHENSIVE INCOME (LOSS)
Comprehensive loss is equal to net loss for all years presented.
BUSINESS SEGMENTS
The Company operates as a single business segment as defined in SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
NET LOSS PER SHARE
Net loss per share is computed under SFAS No. 128 "Earnings Per Share."
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding, excluding unvested restricted stock. Diluted net
loss per share does not differ from basic net loss per share since potential
common shares are antidilutive for all periods presented and, therefore, are
excluded from the calculation of diluted net loss per share.
The following potentially dilutive common shares were excluded because their
effect was antidilutive:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Convertible notes payable................... -- 3,314,425 --
Redeemable convertible preferred stock...... 2,387,336 2,387,336 8,631,008
Convertible preferred stock................. 77,519 77,519 --
Stock options............................... 92,071 505,945 1,322,144
Warrants.................................... 165,585 204,609 1,883,703
Unvested restricted stock................... 109,837 87,138 25,487
</TABLE>
Subsequent to year-end, the Company issued 3,921,568 shares of Series F
redeemable convertible preferred stock and 925,818 common stock options
(Note 14).
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The following pro forma basic and diluted net loss per share and shares used
in computing pro forma basic and diluted net loss per share have been presented
reflecting the automatic conversion into
F-9
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares of common stock of the redeemable convertible preferred stock outstanding
at December 31, 1999 upon completion of the offering contemplated herein
(Note 14), using the if converted method from their respective dates of
issuance:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Pro forma basic and diluted net loss per share...... $ (3.02)
Shares used in computing pro forma basic and diluted
net loss per share................................ 5,543,768
</TABLE>
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities," which was amended by SFAS No. 137 and is effective for
fiscal years beginning after June 15, 2000. The statement establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Adoption of this standard is not expected to have a material impact on the
financial position or results of operations of the Company.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 7,
YEAR ENDED DECEMBER 31, 1992) THROUGH
------------------------------------ DECEMBER 31,
1997 1998 1999 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid for interest..................... $ 18,377 $ 68,024 $ 129,637 $ 296,547
Conversion of notes payable to stockholder
into redeemable preferred stock.......... $1,676,250 $ -- $8,276,392 $11,232,642
Acquisition of property and equipment under
capital lease agreements................. $ -- $462,727 $1,200,000 $ 1,662,727
Reclassification of preferred stock for
redemption features...................... $4,615,163 $ -- $8,793,879 $13,409,042
</TABLE>
4. ACQUISITION
AVITECH DIAGNOSTICS, INC.
On September 10, 1997, the Company purchased certain assets and assumed
certain liabilities of Avitech Diagnostics, Inc. ("Avitech") for total
consideration and transaction costs of $1,116,000. Avitech
F-10
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION (CONTINUED)
had been engaged in the business of developing and manufacturing clinical
diagnostics for genetically determined diseases and disorders. The acquisition
was funded by the issuance of 77,519 shares of Series C convertible preferred
stock valued at $500,000 (Note 8) and approximately $616,000 in cash.
The Avitech acquisition was accounted for under the purchase method of
accounting. In accordance with the provisions of APB No. 16, "Business
Combinations," the purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of acquisition.
Approximately $217,000 was allocated to the fair value of net tangible assets.
The Company also determined that $225,000 of the purchase price was attributable
to intangible assets consisting of the workforce-in-place which is included in
other assets and is being amortized over a five year period. Approximately
$674,000 of the purchase price was assigned to the value of Avitech's in-process
research and development. Because the technological feasibility of Avitech's
enzyme-based processes for detecting genetic variations required further
development, and the in-process research and development had no alternative use,
this amount was immediately charged to operations during the year ended
December 31, 1997. In 1999, the Company revised its process for discovering
genetic variations and no longer uses an enzyme-based approach.
5. INVESTMENT IN NOVA MOLECULAR, INC.
In January 1999, the Company entered into the following agreements with Nova
Molecular, Inc. ("NMI"), a company engaged in performing genetic research and
providing pharmacogenomic services: (i) a subscription agreement whereby the
Company acquired 37% of the outstanding shares of NMI in exchange for
approximately 250,000 in cash; (ii) a research and development funding
commitment by the Company, (iii) license agreements in which proprietary rights
were licensed to each other in exchange for future royalties; and (iv) a
conversion agreement in which the Company granted NMI shareholders the right,
under certain circumstances, to exchange shares of NMI preferred stock for the
Company's convertible preferred stock and common stock subject to antidilution
provisions.
Prior to the cancellation of these agreements in July 1999, the Company
recorded an investment in affiliate of $250,000 which was reduced to $0 by the
recognition under the equity method of accounting of the Company's shares of
NMI's losses, included in loss on investment in affiliate, and recorded research
and development expense of $135,000.
In July 1999, pursuant to a cancellation agreement between the Company and
NMI, the Company issued 320,000 shares of the Company's Series D redeemable
convertible preferred stock to the NMI Series A preferred stockholders and
agreed to pay $0.8 million to NMI in exchange for the following: (i) all of the
outstanding NMI Series A preferred shares were acquired by Variagenics and
redistributed to the remaining NMI preferred shareholders; and (ii) the research
and development funding commitment, the license agreement and the conversion
agreement were canceled.
The value attributed to the Series D redeemable convertible preferred stock
of $1.0 million and the cash payment of $0.8 million were recorded as general
and administrative expense in consideration of the cancellations of the funding
commitment, the license agreement, and the conversion agreement.
F-11
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------------
(YEARS) 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................................... 3-5 $ 559,980 $ 932,077
Furniture and fixtures..................................... 5 476,167 523,711
Machinery and equipment under capital leases............... 3-5 598,027 1,798,027
Leasehold improvements..................................... lease life 1,910,594 1,782,322
-------- ---------- ----------
3,544,768 5,036,137
Less--accumulated depreciation and amortization............ (709,462) (1,282,551)
---------- ----------
$2,835,306 $3,753,586
========== ==========
</TABLE>
Depreciation and amortization expense was $173,154, $367,163 and $613,841
for the years ended December 31, 1997, 1998 and 1999, respectively. Accumulated
amortization of property and equipment under capital leases totaled $104,670 and
$304,012 at December 31, 1998 and 1999, respectively.
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1998 and 1999 consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll related................................. $146,822 $482,383
Professional fees....................................... 27,267 95,410
Sponsored research and development...................... 71,254 89,951
Other................................................... 58,289 72,588
-------- --------
$303,632 $740,332
======== ========
</TABLE>
F-12
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily redeemable convertible preferred stock is carried at redemption
value for all series except for Series E and Series E-2. The Series E and E-2
redeemable convertible preferred stock are carried at original issuance plus
accretion. All series have a par value of $.01 per share and liquidation value
of $3.25 per share at December 31, 1999. Mandatorily redeemable convertible
preferred stock consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Mandatorily redeemable convertible preferred stock:
Series A, 503,787 shares authorized, issued and
outstanding at December 31, 1998 and 1999............... $ 4,654,992 $ 1,698,182
Series B, 2,000,000 and 1,883,549 shares authorized at
December 31, 1998 and 1999, respectively, 1,883,549
shares issued and outstanding at December 31, 1998 and
1999.................................................... 12,148,891 6,349,130
Series C, 77,519 shares authorized, issued and outstanding
at December 31, 1999, prior to 1999 nonredeemable....... -- 261,304
Series D, 320,000 shares authorized, at December 31, 1999;
320,000 issued and outstanding at December 31, 1999,
prior to 1999 nonredeemable............................. -- 1,078,667
Series E-2, 0 and 2,298,564 shares authorized, issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ -- 7,438,548
Series E, 0 and 4,648,789 shares authorized, 0 and
3,547,589 issued and outstanding at December 31, 1998
and 1999, respectively.................................. -- 11,906,450
----------- -----------
$16,803,883 $28,732,281
=========== ===========
</TABLE>
In 1997, the previously non-redeemable Series A convertible preferred stock
were redefined as redeemable. At December 31, 1998, the redemption values of the
Series A and Series B redeemable convertible preferred stock were $9.24 and
$6.45 per share, respectively. During 1999, the redemption preferences of all of
the redeemable convertible preferred stock were adjusted to $3.25 per share. The
Company recorded an adjustment to redeemable convertible preferred stock and to
equity to reflect this decrease in redemption value and redefinition.
In July 1999, the Company's Board of Directors and stockholders approved the
following: the number of authorized shares of Series B redeemable convertible
preferred stock was reduced from 2,000,000 to 1,883,549, the number of
authorized shares of Series D redeemable convertible preferred stock was
increased from 222,570 to 320,000, and 4,648,789 shares of Series E and
2,298,564 shares of Series E-2 redeemable convertible preferred stock were
authorized and designated.
In addition, the characteristics of the Series A, B, C and D redeemable
convertible preferred stock were redefined including the addition of redemption
privileges to the previously unredeemable Series C and D convertible preferred
stock. Effective July 30, 1999, the Series A, B, C, D, E and E-2
F-13
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
redeemable convertible preferred stock (collectively, the "preferred stock")
have the following characteristics:
CONVERSION RIGHTS
Each share of redeemable preferred stock is convertible at any time at the
option of the holder into one share of common stock, subject to certain
anti-dilution adjustments. All shares of outstanding preferred stock
automatically convert into common stock upon the closing of a public offering of
the Company's common stock involving gross proceeds to the Company of at least
$15 million and a per share price of not less than $10.00 or (ii) the
affirmative vote of not less than a majority of the then-outstanding preferred
stockholders voting as a single class.
REDEMPTION RIGHTS
At any time on or after July 30, 2004, at the request of a majority of the
holders of the then-outstanding shares of the redeemable preferred stock, the
Company shall redeem 100% of those shares at a price of $3.25 per share, plus an
additional $0.29 per share for each full year between July 30, 1999 and the
redemption date, plus any declared but unpaid dividends, subject to certain
antidilution adjustments.
DIVIDEND RIGHTS
Holders of the Series E and E-2 preferred stock are entitled to receive
noncumulative dividends when and if declared by the Company's Board of Directors
at an annual rate of $0.29 per share prior to any distribution to the Series A,
B, C, D or the common stockholders. Holders of the Series A and B preferred
stock are entitled to receive dividends when and if declared by the Company's
Board of Directors prior to any distribution to the Series C, D or the common
stockholders. Holders of the Series C and D preferred stock are entitled to
receive dividends when and if declared by the Board of Directors sharing ratably
with the holders of the common stock on an as converted basis. Any dividends
declared by the Board of Directors on the common stock must be shared ratably by
the preferred stockholders and common stockholders, with the preferred
stockholders receiving preference in distribution of such dividends.
VOTING RIGHTS
Each holder of the preferred stock is entitled to the number of votes equal
to the number of shares of the Company's common stock into which such holder's
shares are convertible at the record date for such vote, except for certain
preferential voting rights granted to the redeemable preferred stockholders
relative to the election of members of the Board of Directors and for certain
preferential voting rights granted to the Series E and E-2 preferred
stockholders, voting as a class, relative to the execution of certain equity and
corporate transactions.
LIQUIDATION PREFERENCES
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series E preferred stock shall be entitled to receive, in
preference to the holders of the Series A, B, C,
F-14
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
D, E-2 or common stock, an amount equal to $3.25, subject to certain
antidilution adjustments, plus any declared but unpaid dividends. Any assets
remaining following the preferential distribution to the holders of the
Series E preferred stock shall be available for distribution ratably among the
redeemable preferred stockholders and the common stockholders.
PREFERRED STOCK WARRANTS
In conjunction with issuance of notes payable and Series A preferred stock
in 1995, the Company had outstanding, fully vested warrants to purchase 116,342
shares of Series A preferred stock at a price of $9.24 per share. In connection
with the sale of Series B preferred stock in 1997, these warrants were converted
into warrants to purchase an equal amount of shares of Series B preferred stock
at a price of $6.45. The value ascribed to the warrants at the time of issuance
and amendment was deemed to be immaterial. In connection with the Series E and
E-2 preferred stock financing in 1999, these warrants were cancelled.
In connection with amending a line of credit in 1999, the Company issued a
warrant to purchase 36,923 shares of Series E preferred stock at an exercise
price of $3.25 (Note 11).
In connection with the issuance of Series E preferred stock in 1999, the
Company issued warrants for the purchase of 1,064,277 shares of Series E
preferred stock at an exercise price of $3.25 per share.
9. COMMON STOCK
AMENDMENT TO COMMON STOCK
In 1999 the number of authorized shares was increased from 4,700,000 to
12,042,300.
STOCK OPTIONS
Prior to 1997, the Company did not maintain a formal stock option plan. All
options issued by the Company from inception (December 7, 1992) through
December 31, 1996 were non-qualified stock options issued to employees and
advisors of the Company. In January 1997, the Company adopted the 1997 Employee,
Director and Consultant Stock Option Plan, which provides for the granting of
incentive and non-qualified stock options to employees, directors and
consultants of the Company. The number of options available for grant was
increased from 200,000 to 700,000 in 1998 and to 1,600,000 in 1999. Options
granted by the Company generally vest ratably over four- to five-year periods
and have a term of ten years.
In accordance with APB No. 25, no compensation cost has been recognized for
options granted to employees by the Company with exercise prices equal to or
greater than fair value of the underlying common stock at grant date. In 1999,
the Company recorded compensation expense of $567,576 relating to options
granted to employees with exercise prices less than the fair value of the
underlying common stock at grant date (fair value of common stock as
subsequently determined for financial reporting purposes). Had compensation cost
been determined based on the fair value at the date of grant consistent with the
method prescribed by SFAS No. 123, the Company's net loss and net loss
F-15
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
attributable to common stockholders per share for the years ended December 31,
1997, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
NET LOSS
ATTRIBUTABLE
TO COMMON
STOCKHOLDERS
PER SHARE --
NET LOSS BASIC AND DILUTED
------------ -----------------
<S> <C> <C>
As reported:
1997.......................................... $ (4,789,375) $(15.54)
1998.......................................... (8,145,428) (19.55)
1999.......................................... (16,727,887) (34.93)
Pro forma:
1997.......................................... $ (4,791,540) $(15.55)
1998.......................................... (8,156,292) (19.57)
1999.......................................... (16,751,560) (34.98)
</TABLE>
Because options vest over several years, additional option grants are
expected to be made in the future and the determination of fair value of option
grants made after the Company's initial public offering will include a
volatility factor, the pro forma effects of applying the fair value method are
not representative of future pro forma results.
For the purposes of pro forma disclosure, the fair value of each employee
option grant is estimated on the date of grant using the minimum valued method
with the following assumptions for grants in 1997, 1998 and 1999: no dividend
yield; risk-free interest rates of 6% for 1997 and 1999 grants and 5% for 1998
grants; and an expected life of five years for all options granted. The weighted
average fair value of options granted to employees during 1997, 1998 and 1999,
was $0.06, $0.14 and $6.52, respectively. For financial reporting purposes, all
options granted in 1999 were deemed to be granted at less than fair value.
The Company has granted options to non-employees which vest in future
periods. The Company applies EITF No. 96-18 to account for these non-employee
grants. Under EITF 96-18, the expense that will ultimately be recognized for
these options will be the fair value at the vesting dates of the underlying
options. As these options vest over periods up to five years, the Company will
be required to remeasure the fair value of these options at each reporting
period prior to vesting and then finally at the vesting date of the option. The
Company recorded Compensation expense of $1,596,355 in 1999 relating to these
options.
F-16
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
Option activity for the years ended December 31, 1997, 1998 and 1999 was as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 12,700 $0.03 92,071 $0.37 505,945 $0.60
Granted............................... 108,250 0.27 440,000 0.64 972,921 0.64
Exercised............................. (12,288) 0.01 (13,440) 0.30 (9,716) 0.45
Canceled.............................. (16,591) 0.03 (12,686) 0.64 (147,006) 0.55
---------- ----- -------- ----- --------- -----
Outstanding at end of year.............. 92,071 $0.37 505,945 $0.60 1,322,144 $0.63
========== ===== ======== ===== ========= =====
Options exercisable at year end......... 26,544 $0.11 66,332 $0.55 319,435 $0.58
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
SHARES CONTRACTUAL LIFE SHARES
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISABLE
- --------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.01.......... 26,783 6.03 21,118
$0.64.......... 1,295,361 7.92 298,317
--------- -------
1,322,144 319,435
========= =======
</TABLE>
COMMON STOCK WARRANTS
In connection with a leasing agreement entered into by the Company in 1994
and the issuance of notes payable to a stockholder in 1995, the Company has
outstanding warrants for the purchase of 49,243 shares of the Company's common
stock at an exercise price of $9.24 per share. These warrants are fully vested,
exercisable at the option of the holders, in whole or in part, and expire in
2000. The value ascribed to these warrants upon issuance was not significant.
In connection with the issuance of the line and letter of credit in 1998,
the Company issued warrants to purchase 39,024 shares of common stock at a price
of $10.25 (Note 11). Additionally, in connection with a lease line, the Company
is obligated to issue warrants to purchase 4,667 shares of common stock at a
price of $10.25 (Note 11).
In connection with convertible notes payable to stockholders, the Company
issued warrants for the purchase of 689,569 shares of common stock at an
exercise price of $3.25 per share. The value of the warrants of $1,330,000 was
attributed to additional interest expense to be amortized over the stated term
of the convertible notes payable. The Company amortized $1,028,533 of the value
to interest expense during 1999, in the period prior to conversion. At the date
of conversion the unamortized balance of $301,467 was reclassified to additional
paid-in capital.
F-17
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
STOCK RESTRICTION AGREEMENTS
The Company has executed stock restriction agreements with certain of its
common stockholders. Each agreement gives the Company the right to repurchase,
at prices from $0.01 to $0.64 per share, a certain number of shares held by each
individual if the respective stockholder ceases to be a director, employee or
consultant, as appropriate, of the Company. The purchase option rights lapse at
various dates through March 2003. At December 31, 1999, an aggregate of
25,487 shares of the Company's outstanding common stock were subject to these
repurchase options. In connection with restricted stock issued to non-employees,
the Company has recorded compensation expense of $93,051 in 1999.
STOCK ISSUANCE
Pursuant to the terms of his employment agreement, the Company sold 96,200
shares of its common stock to an officer at a price of $0.01 per share during
1997. Compensation expense recorded relating to this transaction totaled
$61,000.
In June 1997, the Company settled a lawsuit filed by a former officer. Under
the terms of the settlement agreement, the Company was required to make
severance payments totaling $26,000 during 1997. In addition, a significant
stockholder of the Company repurchased 30,323 shares of the Company's common
stock held by the former officer on behalf of the Company for $324,000 in cash.
Compensation expense recorded relating to this settlement totaled $350,000.
Pursuant to the terms of two employment agreements, the Company issued
87,000 shares of common stock during 1999. Compensation expense recorded
relating to these agreements was $680,160. Additionally, in conjunction with a
license agreement, the Company issued 7,000 shares of common stock. The Company
recorded expense of $11,410 related to this issuance.
F-18
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
At December 31, 1998 and 1999, the significant components of the Company's
deferred tax assets and liabilties consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Investment in affiliate......................... $ -- $ 846,650
Compensation expense............................ -- 679,821
Acquired intangible assets...................... 242,165 483,967
Net operating loss carryforwards................ 7,103,376 10,908,299
Research and development credit carryforwards... 620,656 918,332
Other........................................... 75,108 70,584
----------- ------------
Total gross deferred tax assets................... 8,041,305 13,907,653
Valuation allowance............................... (7,938,479) (13,788,500)
----------- ------------
Total deferred tax assets......................... 102,826 119,153
----------- ------------
Deferred tax liabilities:
Depreciation and amortization................... (63,687) (85,309)
Other........................................... (39,139) (33,844)
----------- ------------
(102,826) (119,153)
----------- ------------
Net deferred tax assets/liabilities............... $ -- $ --
=========== ============
</TABLE>
The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards cannot
be sufficiently assured at December 31, 1999.
At December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $26,000,000 available to reduce future taxable
income which expire at various dates between 2007 and 2019. The Company also has
federal and state research and development tax credit carryforwards of
approximately $600,000 and $500,000, respectively, available to reduce future
tax liabilities which expire at various dates between 2008 and 2019.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
and tax credit carryforwards which could be utilized annually to offset future
taxable income and taxes payable. The amount of the annual limitation is
determined based upon the Company's value prior to the ownership change.
Subsequent significant ownership changes could further affect the limitation in
future years.
F-19
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
LEASE LINES OF CREDIT
The Company has various equipment leases with repayment terms of 36 months.
In connection with one lease agreement entered into in 1997, the Company is
obligated to issue warrants to purchase 4,667 shares of common stock at a price
of $10.25 per share based on the amount of borrowings under the lease. The value
ascribed to these warrants was not significant.
LEASE FOR FACILITY
In June 1998, the Company entered into a ten-year noncancelable operating
lease, renewable for an additional five years, related to its facility. Rent
expense under this lease will be approximately $975,000 per year, plus
applicable taxes and operating costs. Pursuant to the terms of the lease, the
Company agreed to expend a total of at least $1.5 million over the lease term
related to facility improvements, subject to reimbursements from the landlord of
$273,098 which was received in 1999 and recorded as an offset to leasehold
improvements.
Commitments under the Company's leases obligations (net of noncancelable
sublease income) as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
2000................................................. $ 750,350 $ 638,803
2001................................................. 862,850 575,513
2002................................................. 975,350 380,791
2003................................................. 975,350 --
2004................................................. 975,350 --
Thereafter........................................... 3,332,445 --
---------- ----------
Total minimum lease payments......................... $7,871,695 $1,595,107
==========
Less amount representing interest.................... 201,813
----------
Present value of capital lease obligations........... $1,393,294
==========
</TABLE>
Total rent expenses (net of sublease income of $225,000 in 1999) under
operating leases in effect were $322,000, $1,317,334 and $1,320,970 for the
years ended December 31, 1997, 1998 and 1999, respectively.
LINE OF CREDIT, LETTER OF CREDIT AND RESTRICTED CASH
In July 1998, the Company obtained a $1.2 million line of credit, available
through March 1999, from a bank. Drawdowns may be in the form of equipment loans
or bridge loans and interest is variable. As of December 31, 1998, the Company
had drawn down approximately $600,000 of this line of which $300,000 was under
the equipment line and $300,000 was in the form of a bridge loan. This line of
credit was amended in June 1999 so that all future borrowings are in the form of
bridge loans and repayment of all bridge loans are extended to June 2000. The
payment terms of the $300,000 equipment loan outstanding at December 31, 1998
were not modified and are payable in 33 monthly installments commencing
March 1999. As of December 31, 1999 interest accrues on the outstanding
F-20
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
equipment loan at 9%. During 1999, the balance outstanding under the bridge
loans was repaid. In order to secure the facility lease, the Company also
obtained a $2 million letter of credit from this same bank which is
automatically renewable on an annual basis through June 2009. These obligations
are being secured by $1 million of restricted cash, subject to certain
reductions after the second year of the lease, and substantially all of the
Company's assets excluding intellectual property.
In connection with the original obligations entered into during 1998, the
Company issued a fully vested five-year warrant to the bank to purchase 39,024
shares of its common stock at a price of $10.25 per share. The value ascribed to
this warrant was not significant. In connection with the 1999 amendment, the
Company issued a fully vested, five-year warrant for the purchase of 36,923
shares of Series E redeemable convertible preferred stock at an exercise price
of $3.25. The value ascribed to this warrant of $88,000 is being recorded as
additional interest expense over the period of the extension.
NOTES PAYABLE
During 1998 and 1999, the Company received cash proceeds totaling $3,284,999
and $4,665,000, respectively, pursuant to the issuance of unsecured convertible
notes payable to stockholders primarily at an interest rate of 8.25%. All
principal and accrued interest of $326,403 under these notes were converted to
Series E and Series E-2 redeemable convertible preferred stock in 1999.
OTHER AGREEMENTS
The Company has entered into various license agreements and research and
development funding agreements to support its research and development
activities. Certain of these license agreements contain provisions for future
royalties to be paid on sales of products developed under these agreements. In
conjunction with entering into one license agreement in 1999, the Company issued
7,000 shares of common stock (Note 9) and fully vested options to purchase
13,000 shares of common stock for which the Company recorded expense of $18,000.
Additionally, the Company has co-marketing agreements with various parties under
which revenues may be earned by either party.
Funding commitments under research and development agreements are
approximately $438,644 over the next three to five years.
The Company entered into separation agreements with certain employees and
one officer. In connection with these agreements, the Company paid severance of
$193,665 in 1999 and had an accrued balance of $81,291 at December 31, 1999.
12. EMPLOYEE SAVINGS PLAN
In December 1995, the Company adopted an employee savings plan under
Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan
covers substantially all employees of the Company and allows them to defer a
portion of their annual compensation on a pre-tax basis. Company contributions
under the 401(k) Plan are made at the discretion of the Board of Directors in
amounts determined by the Board. No contributions were made to the 401(k) Plan
by the Company during the years ended December 31, 1997, 1998 and 1999.
F-21
<PAGE>
VARIAGENICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS
Upon the closing of the Series B redeemable convertible preferred stock sale
in 1997, the Company paid $250,000 in cash to an officer as compensation for
arranging the financing.
The Company maintains annually renewable consulting agreements under which
scientific advisory services are provided to the Company by several individual
stockholders. Cash expenses under these contracts totaled $64,000, $198,000 and
$210,000 in each of the years ended December 31, 1997, 1998 and 1999,
respectively. The Company also grants options to these scientific advisors
(Note 9).
14. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
CHANGE IN AUTHORIZED OPTIONS AND SHARES
In the first quarter of 2000 the Board of Directors increased the number of
options available for grant to 4,000,000 subject to stockholder approval and
issued 935,818 common stock options at a weighted average exercise price of
$1.63. The Company will record Compensation expense in the first quarter of 2000
and over the future vesting period relating to the issuance of these options
with exercise prices below the fair value of the underlying common stock.
SALE OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
In March 2000, the Company completed a private placement financing with
investors and raised net proceeds of approximately $19.9 million by issuing
3,921,568 shares of Series F redeemable convertible preferred stock at $5.10 per
share. The Company will record a dividend in the first quarter of 2000 related
to certain beneficial conversion features of this instrument. The Company plans
to use the proceeds of the private placement to fund its research program and
recruit management and technical staff. In conjunction with the issuance of
Series F redeemable convertible preferred stock, the automatic conversion
features of the preferred stock were adjusted so that all shares of outstanding
preferred stock automatically convert into common stock upon the closing of a
public offering of the Company's common stock involving gross proceeds to the
Company of at least $20 million and a per share price of not less than $10.20.
INITIAL PUBLIC OFFERING
On March 27, 2000 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
of shares of common stock. If the offering is consummated under the terms
presently anticipated, all shares of redeemable convertible preferred stock
outstanding as of the closing date of the offering will automatically convert
into shares of common stock on a one-for-one basis adjusted for any stock
splits.
F-22
<PAGE>
Variagenics Logo
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Company, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 26,400
NASD filing fee............................................. 10,500
Nasdaq National Market listing fee..........................
Blue Sky fees and expenses..................................
Transfer Agent and Registrar fees...........................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and mailing expenses...............................
Miscellaneous...............................................
--------
Total................................................... $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Registrant's Certificate of Incorporation provides that
a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the
II-1
<PAGE>
action for which indemnity is sought and the Registrant has the right to
participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants granted by the Registrant in the three
years preceding the filing of this Registration Statement. Further included is
the consideration, if any, received by the Registrant for such shares and
options and information relating to the section of the Securities Act of 1933,
as amended (the "Securities Act"), or rule of the Securities and Exchange
Commission under which exemption from registration was claimed.
A. CERTAIN STOCK OPTION GRANTS
The Registrant from time to time has granted stock options to employees,
consultants and directors in reliance upon exemption from registration pursuant
to either (1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701
promulgated under the Securities Act of 1933. The following table sets forth
certain information regarding such grants:
<TABLE>
<CAPTION>
AVERAGE
WEIGHTED
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
January 1, 1997 to December 31, 1997...................... 108,250 $0.27
January 1, 1998 to December 31, 1998...................... 440,000 $0.64
January 1, 1999 to December 31, 1999...................... 972,921 $0.64
</TABLE>
B. ISSUANCES OF CAPITAL STOCK AND WARRANTS
1. In March 1997, we issued 5,000 shares of our common stock to a public
relations firm in exchange for services rendered.
II-2
<PAGE>
2. In June 1997, we sold 1,883,549 shares of Series B redeemable convertible
preferred stock to 6 accredited investors at a price of $6.45 per share and
raised $12,148,878 in gross proceeds from the offering.
3. In June 1997, we issued warrants to purchase 5,952 shares of our common
stock at an exercise price of $9.24 per share to a leasing company in connection
with a lease financing.
4. In July 1997, we issued 96,200 shares of our common stock to Fred D.
Ledley, M.D., our former President and Chief Executive Officer, as compensation
for services.
5. In September 1997, we issued 77,519 shares of Series C convertible
preferred stock valued at $500,000 to Avitech Diagnostics, Inc. in connection
with our acquisition of certain Avitech net assets.
6. From time to time in 1997, we issued a total of 118,358 shares of our
common stock to certain of our employees and consultants in consideration for
services rendered to us.
7. In March 1998, we issued 32,000 shares of restricted stock to Anne L.
Bailey, our Vice President, Diagnostic and Process Development, at a price of
$0.64 per share.
8. In March 1998, we issued 7,500 shares of our common stock to our legal
counsel as compensation for services rendered.
9. In May 1998, we issued 10,000 shares of our common stock to a licensing
collaborator in exchange for services performed.
10. In July 1998, we issued warrants to purchase 39,024 shares of our common
stock at an exercise price of $10.25 per share to a lender in connection with a
financing.
11. In March 1999, we issued 7,000 shares of our common stock to a licensing
collaborator in exchange for services performed.
12. In May 1999, we issued warrants to purchase 4,667 shares of our common
stock at a price of $10.25 per share to a leasing company in connection with an
equipment lease transaction.
13. In June 1999, we issued warrants for the purchase of 36,923 shares of
Series E redeemable convertible preferred stock to a lender at an exercise price
of $3.25 per share in connection with a bridge financing.
14. In July 1999, we issued 320,000 shares of Series D redeemable
convertible preferred stock to MDS Capital at a price of $3.25 per share in
exchange for MDS Capital's shares of Series A preferred stock of Nova
Molecular, Inc.
15. In July 1999, we issued 12,000 shares of our common stock to Fred D.
Ledley, M.D., our former President and Chief Executive Officer, as compensation
for services.
16. In July 1999, we sold an aggregate of 3,547,589 shares of Series E
redeemable convertible preferred stock to 7 accredited investors and 2,298,564
shares of Series E-2 redeemable convertible preferred stock to 6 accredited
investors at a price of $3.25 per share. We also issued warrants for the
purchase of up to 1,064,277 shares of Series E preferred and 689,569 shares of
common stock at an exercise price of $3.25 per share. The purchasers of
Series E redeemable convertible preferred stock received warrants to purchase
Series E redeemable convertible preferred stock and those purchasing Series E-2
redeemable convertible preferred stock received warrants to purchase our common
stock. We raised approximately $19,000,000 in gross proceeds from the offering.
17. In September 1999, we issued 75,000 shares of restricted stock to Taylor
J. Crouch, our President and Chief Executive Officer, at a purchase price of
$0.01 per share and in consideration for services rendered to us.
II-3
<PAGE>
18. In January 2000, we issued 5,495 shares of our common stock to Fred D.
Ledley, M.D., our former President and Chief Executive Officer, in connection
with his departure from us.
19. In March 2000, we sold an aggregate of 3,921,568 shares of Series F
redeemable convertible preferred stock to 16 accredited investors at a price of
$5.10 per share. We raised approximately $20,000,000 in gross proceeds from the
offering.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Sections 3(b) and 4(2) of the Securities Act, or any
regulations promulgated thereunder, relating to sales by an issuer not involving
any public offering, or (ii) in the case of certain options to purchase shares
of common stock and shares of common stock issued upon the exercise of such
options, such offers and sales were made in reliance upon an exemption from
registration under Rule 701 of the Securities Act. No underwriters were involved
in the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
*1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended
*3.2 Restated Certificate of Incorporation of the Company, to be
effective immediately prior to the closing of this offering
3.3 Bylaws of the Company
*3.4 Restated Bylaws of the Company, to be effective immediately
after the closing of this offering
*4.1 Specimen certificate for shares of common stock
*5 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C.
10.1 1997 Employee, Director and Consultant Stock Option Plan, as
amended, including form of stock option agreement for
incentive and non-statutory stock options.
10.2 Lease Agreement between 205 Broadway Realty Trust and the
Company, dated May 15, 1998.
10.3 Amendment to Loan Documents, dated as of June 24, 1999, by
and between the Company and Imperial Bank.
10.4 Loan Agreement, dated as of July 10, 1998, by and between
the Company and Imperial Bank.
10.5 General Security Agreement, dated as of July 10, 1998, by
and between the Company and Imperial Bank.
10.6 Employment Agreement, dated March 18, 1999 by and between
the Company and Taylor J. Crouch.
10.7 Employment Agreement, dated January 27, 1998 by and between
the Company and Anne L. Bailey.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.8 Employment Agreement, dated July 1, 1998 by and between the
Company and Colin W. Dykes, Ph.D.
10.9 Employment Agreement, dated January 21, 2000, by and between
the Company and Bruce Maloff, Ph.D.
10.10 Employment Agreement, dated March 15, 1993 by and between
the Company and Vincent Stanton, Jr., M.D.
10.11 Employment Agreement, dated December 23, 1998 by and between
the Company and Richard P. Shea.
**10.12 Alliance Agreement, dated August 2, 1999 by and between the
Company and Covance, Inc.
**10.13 Marketing Alliance Agreement, dated as of December 1, 1998
by and between the Company and Quintiles Transnational Corp.
**10.14 Co-Marketing of Services Agreement, dated as of July 27,
1999 by and between the Company and NMI.
23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5).
24 Power of Attorney (included at page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment
** Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's application
requesting confidential treatment under Rule 406 of the Securities Act.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because the
required information is given in the Registrant's Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
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 provisions contained in the Certificate of
Incorporation of the Registrant and the laws of the State of Delaware, 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 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>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form 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.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cambridge, Massachusetts, on this
29th day of March, 2000.
<TABLE>
<S> <C> <C>
VARIAGENICS, INC.
By: /s/ TAYLOR J. CROUCH,
-----------------------------------------
Taylor J. Crouch,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of Variagenics, Inc., hereby
severally constitute and appoint Taylor J. Crouch and Richard P. Shea and each
of them singly (with full power to each of them to act alone), our 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), 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 substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ TAYLOR J. CROUCH Officer and Director
------------------------------------------- (principal executive March 29, 2000
Taylor J. Crouch officer)
Chief Financial Officer and
/s/ RICHARD P. SHEA Treasurer (principal
------------------------------------------- financial and accounting March 29, 2000
Richard P. Shea officer)
/s/ DAVID HOUSMAN, PH.D.
------------------------------------------- Director March 29, 2000
David Housman, Ph.D.
/s/ PHILIPPE O. CHAMBON, M.D., PH.D.
------------------------------------------- Director March 29, 2000
Philippe O. Chambon, M.D., Ph.D.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MARK P. CARTHY
------------------------------------------- Director March 29, 2000
Mark P. Carthy
/s/ JEAN-FRANCOIS FORMELA, M.D.
------------------------------------------- Director March 29, 2000
Jean-Francois Formela, M.D.
/s/ MARTIN VOGELBAUM
------------------------------------------- Director March 29, 2000
Martin Vogelbaum
/s/ DAVID A. SHOTLAND
------------------------------------------- Director March 29, 2000
David A. Shotland
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
*1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended
*3.2 Restated Certificate of Incorporation of the Company, to be
effective immediately prior to the closing of this offering
3.3 Bylaws of the Company
*3.4 Restated Bylaws of the Company, to be effective immediately
after the closing of this offering
*4.1 Specimen certificate for shares of common stock
*5 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C.
10.1 1997 Employee, Director and Consultant Stock Option Plan, as
amended, including form of stock option agreement for
incentive and non-statutory stock options.
10.2 Lease Agreement between 205 Broadway Realty Trust and the
Company, dated May 15, 1998.
10.3 Amendment to Loan Documents dated as of June 24, 1999 by and
between the Company and Imperial Bank.
10.4 Loan Agreement dated as of July 10, 1998 by and between the
Company and Imperial Bank.
10.5 General Security Agreement, dated as of July 10, 1998 by and
between the Company and Imperial Bank.
10.6 Employment Agreement, dated March 18, 1999 by and between
the Company and Taylor J. Crouch.
10.7 Employment Agreement, dated January 27, 1998 by and between
the Company and Anne L. Bailey.
10.8 Employment Agreement, dated July 1, 1998 by and between the
Company and Colin W. Dykes, Ph.D.
10.9 Employment Agreement, dated January 21, 2000 by and between
the Company and Bruce Maloff, Ph.D.
10.10 Employment Agreement, dated March 15, 1993 by and between
the Company and Vincent P. Stanton, Jr., M.D.
10.11 Employment Agreement, dated December 23, 1998 by and between
the Company and Richard P. Shea.
**10.12 Alliance Agreement dated August 2, 1999 by and between the
Company and Covance, Inc.
**10.13 Marketing Alliance Agreement dated as of December 1, 1998 by
and between the Company and Quintiles Transnational Corp.
**10.14 Co-Marketing of Services Agreement, dated as of July 27,
1999 by and between the Company and NMI.
23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5).
24 Power of Attorney (included at page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment
** Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 406 of the Securities Act.
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAGENICS, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law of
the State of Delaware
Variagenics, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution was
duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Corporation be and hereby is deleted and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) Three Million Nine Hundred
Twenty-Seven Thousand Five Hundred Nineteen (3,927,519) shares of Common Stock,
$.0l par value per share ("Common Stock"), and (ii) Two Million Five Hundred
Three Thousand Seven Hundred Eighty-Seven (2,503,787) shares of Preferred Stock,
$.01 par value per share ("Preferred Stock"), of which Five Hundred Three
Thousand Seven Hundred Eighty-Seven (503,787) shares have been designated Series
A Convertible Preferred Stock and Two Million (2,000,000) shares have been
designated Series B Convertible Preferred Stock.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class and series of capital stock of the Corporation.
<PAGE>
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding,
including shares issuable upon conversion of shares of Preferred Stock then
outstanding, and upon exercise of options and warrants then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
special voting rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General
2
<PAGE>
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise specifically provided in this Certificate of Incorporation, no vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the issuance of any shares of any series of the Preferred Stock authorized by
and complying with the conditions of this Certificate of Incorporation, the
right to have such vote being expressly waived by all present and future holders
of the capital stock of the Corporation.
C. SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED
STOCK.
Five Hundred Three Thousand Seven Hundred Eighty-Seven (503,787) shares of
the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and Two Million (2,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock"), each of the Series A and B
Preferred Stock with the following rights, preferences, powers, privileges and
restrictions, qualifications and limitations.
1. Dividends.
(a) The holders of the outstanding shares of Series A and B
Preferred Stock shall, sharing ratably, assuming the conversion of all shares to
shares of Common Stock as provided in Paragraph 4 (an "As Converted Basis"), be
entitled to receive, out of any funds legally available therefor, (i) prior to
any distribution (as defined below) to the holders of Common Stock,
non-cumulative dividends payable in cash or in kind at the election of the
Corporation when and if declared by the Board of Directors of the Corporation,
at the annual rate of $0.51 per share per annum, and (ii) such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock or the Series C Convertible Preferred
Stock (the "Series C Preferred Stock") until the holders of the Series A and B
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series A and B Preferred
Stock in an amount at least equal to the product of (i) the per share amount, if
any, of the distributions to be declared, paid or set aside for the Common
Stock, multiplied by (ii) the number of whole shares of Common Stock into which
such share of Series A or B Preferred Stock is then convertible.
(c) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases
3
<PAGE>
of Common Stock held by employees or directors of, or consultants to, the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase at a price equal to the original issue
price of such shares and other than redemptions in liquidation or dissolution of
the Corporation) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
and B Preferred Stock then outstanding, sharing ratably on the basis of the
respective A and B Liquidation Amounts (as defined below), shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series A and B
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock, Series C
Preferred Stock or any other class or series of stock ranking on liquidation
junior to the Series A and B Preferred Stock (such Common Stock and other stock
being collectively referred to as "Junior Stock") by reason of their ownership
thereof, an amount (the "A Liquidation Amount" and the "B Liquidation Amount" as
applicable) equal to the greater of (i) $9.24 per share with respect to shares
of Series A Preferred Stock and $6.45 per share with respect to shares of Series
B Preferred Stock (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared or accrued but unpaid thereon, or (ii)
such amount per share as would have been payable had each such share been
converted into Common Stock pursuant to Paragraph 4 immediately prior to such
liquidation, dissolution or winding up. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A and B Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Series A and B
Preferred Stock and any other class or series of stock ranking on liquidation on
a parity with the Series A and B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A and B Preferred Stock
and any other class or series of stock of the Corporation ranking on liquidation
on a parity with the Series A and B Preferred Stock, holders of Series A or B
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, and holders of shares of Junior Stock then outstanding shall share
ratably, on an As Converted Basis, in the remaining assets and funds of the
Corporation available for distribution to its stockholders.
4
<PAGE>
(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of a majority of the then outstanding shares of
Series A, B and C Preferred Stock, exclusively and voting together as a single
class, so elect by giving written notice thereof to the Corporation at least
three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraphs 2(a) and
2(b) above. The Corporation shall promptly provide to the holders of shares of
Series A, B and C Preferred Stock such information concerning the terms of such
merger, consolidation or asset sale and the value of the assets of the
Corporation as may reasonably be requested by the holders of Series A, B and C
Preferred Stock in order to assist them in determining whether to make such an
election. If the holders of the Series A, B and C Preferred Stock make such an
election, the Corporation shall use its best efforts to amend the agreement or
plan of merger or consolidation to adjust the rate at which the shares of
capital stock of the Corporation are converted into or exchanged for cash, new
securities or other property to give effect to such election. The amount deemed
distributed to the holders of Series A, B and C Preferred Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation. If no
notice of the election permitted by this Subparagraph (c) is given, the
provisions of Subparagraph 4(i) shall apply.
3. Voting.
(a) Each holder of outstanding shares of Series A or B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A or B Preferred Stock
held by such holder are then convertible (as adjusted from time to time pursuant
to Paragraph 4 of this Section C), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law, by the provisions
of Subparagraphs 3(b), 3(c), 3(d), 3(f), 3(g), 3(h), 3(i) or 3(j) below, by the
provisions of Paragraph 7 or by the provisions establishing any other series of
Series Preferred Stock, holders of Series A and B Preferred Stock and of any
other outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred Stock,
exclusively and voting as a separate class, shall be entitled to elect, by an
affirmative vote or written consent of a majority of the issued and outstanding
shares of Series A Preferred Stock, two (2) directors of the Corporation which
shall be designated by a majority in interest of the
5
<PAGE>
shares of Series A Preferred Stock; provided that such class voting rights shall
terminate upon the earlier of June 20, 2007 or the closing of the Corporation's
initial public offering of shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $15,000,000 of gross proceeds to the Corporation at a minimum price
of $20.00 per share (subject to appropriate adjustment for stock splits, stock
dividends, recapitalizations and other similar events) (a "Qualified Public
Offering"). At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the directors as set forth in the first sentence of this
Paragraph 3(b). Any vacancy in said directorship shall be filled only by the
nomination of a replacement director by a majority in interest of the shares of
Series A Preferred Stock and an affirmative vote or written consent as described
in the first sentence of this Paragraph 3(b).
(c) The holders of record of the shares of Series B Preferred Stock,
exclusively and voting as a separate class, shall be entitled to elect, by an
affirmative vote or written consent of a majority of the issued and outstanding
shares of Series B Preferred Stock, three (3) directors of the Corporation (one
of which shall be designated by Atlas Venture Fund III, L.P. ("Atlas Venture"),
one of which shall be designated by Forward Ventures Vanguard Fund II ("Forward
Ventures") and one of which shall be designated by Oxford Bioscience Partners
II, L.P., Oxford Bioscience Partners (Adjunct) II LP, and Oxford Bioscience
Partners (Bermuda) II Limited Partnership (collectively "Oxford Bioscience");
provided that such class voting rights shall terminate upon the earlier of June
20, 2007 or the closing of a Qualified Public Offering by the Corporation. At
any meeting held for the purpose of electing directors, the presence in person
or by proxy of the holders of a majority of the shares of Series B Preferred
Stock then outstanding shall constitute a quorum for the purpose of electing the
directors as set forth in the first sentence of this Paragraph 3(c). Any vacancy
in said directorships shall be filled only by a replacement director designated
by the same party who designated the departed director and an affirmative vote
or written consent as described in the first sentence of this Paragraph 3(c).
(d) The holders of record of the shares of Series A and B Preferred
Stock, exclusively and voting together as a single class, shall be entitled to
elect, by an affirmative vote or written consent of not less than 66 2/3% of the
issued and outstanding shares of Series A and B Preferred Stock, one (1)
director of the Corporation nominated by a majority of the Board of Directors;
provided that such class voting rights shall terminate upon the earliest to
occur of (i) less than 50,000 shares of Preferred Stock being outstanding at the
time of such vote, (ii) June 20, 2007 or (iii) the closing of a Qualified Public
Offering by the Corporation. At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of a majority of
the shares of Series A Preferred Stock then outstanding and a majority of the
Series B Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the director as set forth in the first sentence of this
Paragraph 3(d). Any vacancy in said directorship shall be filled only by the
nomination of a replacement director by a majority of the Board of Directors and
an affirmative vote or written consent as described in the first sentence of
this Paragraph 3(d).
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(e) The holders of record of the shares of Common Stock and of any
other class or series of voting stock (including the Series A and B Preferred
Stock and the Series C Preferred Stock), voting together as a single class,
shall be entitled to elect by a majority vote the balance of the total number of
directors of the Corporation.
(f) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series A and B Preferred Stock (as defined in Subparagraph
3(j) hereof), exclusively and voting together as a single class:
(1) repurchase any of its Common Stock except in connection with the
termination of employment of the holder thereof;
(2) take or permit to be taken any actions that would result in any
holder of Series A Preferred Stock being required to recognize taxable
income under Section 305 of the Internal Revenue Code of 1986, as amended
(or any successor provision);
(3) declare or pay any dividends on the Common Stock; or
(4) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially
all of its properties or assets, (C) assign, grant a license under or
otherwise transfer all or substantially all of its technology or
intellectual property rights;
provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(g) The Corporation shall not, without the affirmative vote or
written consent of the holders of not less than 66 2/3% of the issued and
outstanding shares of Qualified Series A and B Preferred Stock (as defined in
subparagraph 3(j) hereof), exclusively and voting together as a single class:
(1) permit any change in the number of directorships of the
Corporation, which number shall initially be eight (8); or
(2) authorize, issue or sell equity securities of the Corporation,
options, warrants or other rights to subscribe for, purchase or otherwise
acquire any equity securities of the Corporation, or any debt securities
convertible into equity securities of the Corporation, other than equity
securities issued upon conversion of convertible securities and equity
securities issued upon exercise of securities exercisable for equity
securities, in a transaction resulting in an entity, except for Rovent II
Limited Partnership and Advent Partners Limited Partnership (collectively
"Advent International Corporation"), Atlas Venture, Forward Ventures, The
Goldman Sachs Group, L.P. ("Goldman Sachs"), Oxford Bioscience or Kummell
Investments Limited (all of the foregoing collectively, the "Investors"),
having beneficial ownership of 15% or more of the equity securities of the
Corporation;
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provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(h) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series A Preferred Stock, exclusively and voting as a
separate class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series A Preferred Stock (other than two million
(2,000,000) shares of Series B Preferred Stock, which is on a parity with
the Series A Preferred Stock); or
(2) amend, alter or repeal in any way any provision of the
Corporation's Certificate of Incorporation, in order to (i) increase the
number of authorized shares of Series A Preferred Stock or (ii) effect any
change which would have an adverse effect on the rights, preferences and
privileges of the Series A Preferred Stock;
provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(i) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series B Preferred Stock, exclusively and voting as a
separate class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series B Preferred Stock; or
(2) amend, alter or repeal in any way any provision of the
Corporation's Certificate of Incorporation, in order to (i) increase the
number of authorized shares of Series B Preferred Stock or (ii) effect any
change which would have an adverse effect on the rights, preferences and
privileges of the Series B Preferred Stock;
provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(j) For purposes of this Article FOURTH "Qualified Series A
Preferred Stock" or "Qualified Series B Stock" shall mean shares of Series
A or B Preferred Stock held by an Investor (as defined in Paragraph
3(g)(2) hereof), an Affiliate of an Investor or a person who (i) acquired
at least 50,000 shares of Series A or B Preferred Stock, including shares
of Common Stock into which such shares were converted, as adjusted for
stock splits, stock dividends, recapitalization and similar events, (ii)
at the time of such acquisition delivered to the Corporation a written
instrument identifying itself, giving the Corporation notice of the
acquisition of such shares, identifying any securities of the Corporation
owned or acquired by it and agreeing that such person will keep
confidential and will not disclose or divulge any confidential,
proprietary or secure
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information which such person may obtain from the Corporation pursuant to
financial statements, reports and other materials submitted by the
Corporation to such person, unless such information is known, or until
such information becomes known, to the public; provided however, that such
person may disclose such information (A) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain
their services in connection with it investment in the Corporation, (B) to
any prospective purchaser of any Qualified Series A or B Preferred Shares
from such person (other than a person or entity described in (iii) below,
as long as such prospective purchaser agrees in writing to be bound by the
provisions of this subsection (ii), (C) to any Affiliate to such person or
to a partner, shareholder or subsidiary of such person who is bound to
protect the confidential or proprietary nature of such information, (D) as
may be required or appropriate in any report, statement or testimony
submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such person, (E) as may be required or
appropriate in response to any summons or subpoena or in connection with
any litigation, or (F) in order to comply with any law, order, regulation
or ruling applicable to such holder, and (iii) is not reasonably
determined by the Board of Directors of the Corporation to be affiliated
with a competition of the Corporation or otherwise have interests adverse
to the best interests of the Corporation. Notwithstanding anything to the
contrary contained herein any shares of Series A or B Preferred Stock
transferred by any Investor which is a partnership or corporation to any
partner, retired partner or stockholder thereof, who agrees to be bound as
set forth in subsection (ii) above shall be Qualified Preferred Shares.
For purposes of this subsection, "Affiliate" shall mean, in respect of any
person or entity controlling, controlled by, or under common control with,
such person or entity, and the term "control" shall have the meaning given
to it under the Securities Act or 1933, as amended and the rules and
regulations promulgated thereunder.
4. Optional Conversion. The holders of the Series A and B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A and B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by (i) dividing $9.24 by the Series A Conversion Price (as
defined below) in effect at the time of conversion with respect to shares of
Series A Preferred Stock, and (ii) dividing $6.45 by the Series B Conversion
Price (as defined below) in effect at the time of conversion with respect to
shares of Series B Preferred Stock. The "Series A Conversion Price" shall
initially be $9.24, and the "Series B Conversion Price" shall initially be
$6.45. Such initial Series A Conversion Price and Series B Conversion Price
(collectively sometimes referred to as "Conversion Prices"), and the rate at
which shares of Series A and Preferred Stock and Series B Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of Series A or B
Preferred Stock pursuant to Paragraph 6 of this Section C, the Conversion Rights
of the shares designated for
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redemption shall terminate at the close of business on the fifth day preceding
the date fixed for redemption, unless the redemption price is not paid when due,
in which case the Conversion Rights for such shares shall continue until such
price is paid in full. In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of business on the first day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series A and B Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A or B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price or Series B Conversion Price, as applicable.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A or B Preferred Stock to
convert shares of Series A or B Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for
such shares of Series A or B Preferred Stock, at the office of the
transfer agent for the Series A or B Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer
agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A or B Preferred Stock
represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized
in writing. The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion Date, issue
and deliver at such office to such holder of Series A or B Preferred
Stock, or to his or its nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A and
B Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the
conversion of the Series A and B Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series A and B Preferred
Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series A or B
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Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A and B Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared or accrued but unpaid
thereon. Any shares of Series A and B Preferred Stock so converted shall
be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
or B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A or B Preferred Stock
pursuant to this Paragraph 4. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series A or B Preferred Stock so
converted were registered, and no such issuance or delivery shall be made
unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustments to Conversion Prices for Diluting Issues:
(i) Special Definitions. For purposes of this Subparagraph
4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options to acquire shares
described in Subparagraph 4(d)(i)(D) below.
(B) "Original Issue Date" shall mean the date on which
the first share of Series B Preferred Stock was issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subparagraph
4(d)(iii) below, deemed to be issued) by the Corporation after the
Original Issue Date, other than shares of Common Stock issued or
issuable:
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(I) upon conversion of shares of Series A or B
Preferred Stock outstanding on the Original
Issue Date;
(II) as a dividend or distribution on Series A or
B Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of
Common Stock that are excluded from the
definition of Additional Shares of Common
Stock by the foregoing clauses (I) and (II)
or this clause (III); or
(IV) to employees or directors of, or consultants
to, the Corporation pursuant to any plan,
arrangement or agreement approved by the
Board of Directors of the Corporation.
(ii) No Adjustment of Conversion Prices. No adjustment in the
number of shares of Common Stock into which the Series A or B Preferred
Stock is convertible shall be made, by adjustment in the applicable Series
A Conversion Price or Series B Conversion Price thereof: (A) unless the
consideration per share (determined pursuant to Subparagraph 4(d)(v)) for
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series B Conversion Price in effect on the
date of, and immediately prior to, the issue of such Additional Shares, or
(B) if prior to such issuance, the Corporation receives written notice
from the holders of a majority of the then outstanding shares of Series A
and B Preferred Stock, exclusively and voting together as a single class,
agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock. If the Corporation at any time or from time to time after
the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class
of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set
forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant
to Subparagraph 4(d)(v) of this Section C) of such Additional Shares of
Common Stock would be less than the Series B Conversion Price in effect on
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the date of and immediately prior to such issue, or such record date, as
the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Prices shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, upon the
exercise, conversion or exchange thereof, the Conversion Prices
computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Conversion Prices then in effect shall
forthwith be readjusted to such Conversion Prices as would have
obtained had the adjustment which was made upon the issuance of such
unexercised Option not been made, and the Additional Shares of
Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Prices;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange
of any Option or Convertible Security, including, but not limited
to, a change resulting from the anti-dilution provisions thereof,
the Conversion Prices then in effect shall forthwith be readjusted
to such Conversion Prices as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing either Conversion Price to
an amount which exceeds the lower of (i) the applicable Conversion
Price on the original adjustment date, or (ii) the applicable
Conversion Price that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(iv) Adjustment of Conversion Prices Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall at
any time issue Additional
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Shares of Common Stock (including Additional Shares of Common Stock deemed
to be issued pursuant to Subparagraph 4(d)(iii), but excluding shares
issued as a dividend or distribution as provided in Subparagraph 4(f) or
upon a stock split or combination as provided in Subparagraph 4(e)),
without consideration or for a consideration per share less than the
Series B Conversion Price in effect on the date of and immediately prior
to such issue, then and in such event, the Series A Conversion Price and
Series B Conversion Price in effect at such time shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series A Conversion Price and the Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1)
the number of shares of Common Stock outstanding immediately prior to such
issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at
such Series A or B Conversion Price; and (B) the denominator of which
shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common
Stock so issued; provided that, (i) for the purpose of this Subparagraph
4(d)(iv), all shares of Common Stock issuable upon conversion of
Convertible Securities outstanding immediately prior to such issue shall
be deemed to be outstanding, and (ii) the number of shares of Common Stock
deemed issuable upon conversion of such outstanding Convertible Securities
shall not give effect to any adjustments to the exercise or conversion
price or conversion rate of such Convertible Securities resulting from the
issuance of Additional Shares of Common Stock that is the subject of this
calculation.
(v) Determination of Consideration. For purposes of this
Subparagraph 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) Cash and Property: Such consideration:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above, as
determined in good faith by the Board of Directors.
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(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued pursuant to
Subparagraph 4(d)(iii), relating to Options and Convertible
Securities, shall be determined by dividing:
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue
of such Options or Convertible Securities, plus
the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of
such consideration) payable to the Corporation
upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities, or in the case of Options for
Convertible Securities, the exercise of such
Options for Convertible Securities and the
conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained therein
for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which
are comprised of shares of the same series or class of Preferred Stock,
and such issuance dates occur within a period of no more than 120 days,
then the Conversion Prices shall be adjusted only once on account of such
issuances, with such adjustment to occur upon the final such issuance and
to give effect to all such issuances as if they occurred on the date of
the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price and
Series B Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares of
Common Stock, the Series A Conversion Price and Series B Conversion Price then
in effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or
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fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Series A Conversion Price and Series B
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Series A Conversion
Price and Series B Conversion Price then in effect by a fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and Series B Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and Series B Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
for the Series A and B Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of the Series A and B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had the Series A or B Preferred Stock been converted into Common Stock
on the date of such event and had thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph with respect to
the rights of the holders of the Series A or B Preferred Stock.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A or B Preferred
Stock shall be changed into the same or a different, number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Series A or B Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization,
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reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A or B Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(c)), each share of Series A and B Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A or B Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series A and B Preferred Stock, to the end that the provisions set forth in
this Paragraph 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A or B Preferred Stock.
(j) No Impairment. The Corporation 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 Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A and B Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A or B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A or B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price or Series B
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A or B Preferred Stock, as applicable.
(l) Notice of Record Date. In the event:
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(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A and B Preferred Stock, and shall
cause to be mailed to the holders of the Series A and B Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Mandatory Conversion.
(a) All outstanding shares of Series A, B and C Preferred Stock
shall automatically be converted into shares of Common Stock, at the then
effective Series A Conversion Price, Series B Conversion Price, or Series C
Conversion Price, as applicable, (i) upon the closing of the sale of shares of
Common Stock, at a price of at least $20.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least
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$15,000,000 of gross proceeds to the Corporation, or (ii) upon the affirmative
vote or written consent of the holders of not less than 66 2/3% of the issued
and outstanding shares of Series A and B Preferred Stock, exclusively and voting
together as a single class (the "Mandatory Conversion Date").
(b) All holders of record of shares of Series A and B Preferred
Stock will be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A and B
Preferred Stock pursuant to this Paragraph 5. Such notice need not be given in
advance of the occurrence of a Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Series A and B Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series A and B Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A and B Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Paragraph 5. On the Mandatory Conversion
Date, all rights with respect to the Series A and B Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A or B Preferred Stock
has been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversation Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
A or B Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subparagraph 4(b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series A and B Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A or B Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A or B Preferred Stock accordingly.
6. Optional Redemption.
(a) Election of Holders to Require Redemption. At any time, on or
after June 20, 2002 , at the election of the holders of a 66 2/3% of the shares
of Series A Preferred Stock
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then outstanding, the Corporation shall, to the extent permitted by law at such
time, be required to redeem all of the outstanding shares of Series A Preferred
Stock upon the terms described in this Paragraph 6. At any time, on or after
June 20, 2002 , at the election of the holders of a 66 2/3% of the shares of
Series B Preferred Stock then outstanding, the Corporation shall, to the extent
permitted by law at such time, be required to redeem all of the outstanding
shares of Series B Preferred Stock upon the terms described in this Paragraph 6.
(b) Redemption Price. The redemption price per share of Series A
Preferred Stock shall be $9.24 per share, plus all accrued and unpaid dividends
thereon, on such share up to and including the date fixed for redemption of such
shares of Series A Preferred Stock (the "Series A Redemption Price"). The
redemption price per share of Series B Preferred Stock shall be $6.45 per share,
plus all accrued and unpaid dividends thereon, on such share up to and including
the date fixed for redemption of such shares of Series B Preferred Stock (the
"Series B Redemption Price"). The Series A Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series A Preferred Stock. The Series B
Redemption Price shall be equitably adjusted whenever there shall occur a
subdivision, combination, reclassification or recapitalization relating to the
Series B Preferred Stock.
(c) Redemption Notice. If the holders of a 66 2/3% of the
outstanding shares of Series A Preferred Stock or Series B Preferred Stock shall
elect to require the Corporation to redeem all of the outstanding shares of
Series A Preferred Stock or Series B Preferred Stock, as applicable (the Series
A Preferred Stock or Series B Preferred Stock being redeemed the "Redeeming
Preferred Stock"), such holders shall deliver a written notice to the
Corporation not less than thirty (30) days prior to a date fixed by such holders
for the redemption of the shares of Redeeming Preferred Stock (the "Redemption
Date") and stated in such notice. Not later than five (5) days prior to the
Redemption Date, the Corporation shall mail, postage prepaid, written notice of
the redemption (the "Redemption Notice") to each holder of record of Redeeming
Preferred Stock, at its address as appears on the records of the Corporation.
Failure of the Corporation to deliver the Redemption Notice shall not affect its
obligation to redeem any shares of Redeeming Preferred Stock pursuant to this
Paragraph 6. The Redemption Notice shall state:
(i) the total number of shares of Redeeming Preferred Stock to be
redeemed on such Redemption Date and the number of shares of
Redeeming Preferred Stock to be redeemed from the holder to which
such notice is addressed;
(ii) the date of such Redemption Date and the Series A Redemption
Price or Series B Redemption Price, as applicable; and
(iii) that the holder shall surrender to the Corporation on or
before such Redemption Date, at its principal office or such other
place as may be designated in the Redemption Notice, any
certificate(s) held by it representing shares to be redeemed.
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(d) Surrender of Certificates. Each holder of shares of Redeeming
Preferred Stock being redeemed shall surrender the certificate(s) held by it
representing such shares to the Corporation at its principal office or such
other place as may be designated in the Redemption Notice. Upon such surrender,
the Corporation shall pay to the order of the person whose name appears on such
certificate(s) the Series A Redemption Price or Series B Redemption Price, as
applicable, for such shares, and each surrendered certificate shall be
cancelled. In the event that, pursuant to Subparagraph 6(a) of this Section C,
not all of the shares of Redeeming Preferred Stock represented by a surrendered
certificate are being redeemed, the Corporation shall deliver to the holder, at
the expense of the Corporation, a new certificate representing the number of
shares of Redeeming Preferred Stock not redeemed.
(e) No Dividends, Conversion or Interest after Redemption. If the funds
necessary for such redemption shall have been set aside by the Corporation and
deposited with a bank or trust company, in an irrevocable trust for the benefit
of the holders of the Redeeming Preferred Stock that has been called for
redemption, then, notwithstanding that any certificates for shares that have
been called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding from and after
such redemption date, shall not be entitled to any further dividends pursuant to
Paragraph 1 of this Section C and shall not be entitled to conversion pursuant
to Paragraph 4 of this Section C, and all rights of holders of such shares so
called for redemption shall forthwith, after such redemption date, cease and
terminate, excepting only the right to receive the redemption funds therefor to
which they are entitled, but without interest. Any interest accrued on funds so
deposited and unclaimed by stockholders entitled thereto shall be paid to such
stockholders at the time their respective shares are redeemed or to the
Corporation at the time unclaimed amounts are paid to it. In case the holders of
Redeeming Preferred Stock which shall have been called for redemption shall not,
within six (6) years after a Redemption Date, claim the amounts so deposited
with respect to the redemption thereof, any such bank or trust company shall,
upon demand, pay over to the Corporation such unclaimed amounts and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof to such holder and such holder shall look only to the Corporation for
the payment thereof. Any funds so deposited with a bank or trust company which
shall not be required for such redemption by reason of the exercise subsequent
to the date of such deposit of the right of conversion of any shares of
Redeeming Preferred Stock, or otherwise, shall be returned to the Corporation
forthwith.
(f) Dividends on Shares Not Redeemed. Any shares of Redeeming Preferred
Stock not redeemed when and as required by this paragraph shall continue to bear
dividends at 125% of the rate, and otherwise in the same manner, as set forth in
Paragraphs 1(a) and 1(b) of this Section C.
7. Amendments to the Certificate of Incorporation. Notwithstanding the
provisions of Article TENTH hereof, the provisions of Paragraph 3 hereof may not
be repealed or amended in any respect, nor may any other provision be amended,
adopted or repealed which would have the effect of modifying or permitting
circumvention of such provisions, unless such action is approved by the
affirmative vote or written consent of the holders of not less than 66 2/3% of
the
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issued and outstanding shares of Series A and B Preferred Stock, exclusively and
voting together as a single class.
C. SERIES C CONVERTIBLE PREFERRED STOCK .
Seventy-Seven Thousand Five Hundred Nineteen (77,519) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. Dividends.
(a) The holders of the outstanding shares of Series C Preferred
Stock shall, assuming the conversion of all shares to shares of Common Stock as
provided in Paragraph 4 (an "As Converted Basis"), be entitled to receive, out
of any funds legally available therefor, such dividends or distributions when
and if declared by the Board of Directors of the Corporation sharing ratably
with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series C
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series C Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series C Preferred Stock is then convertible.
(c) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding, shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of Series A and B Preferred Stock and any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to the Series
C Preferred
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Stock (collectively referred to in this Section C as "Senior Preferred Stock"),
but before any payment shall be made to the holders of Common Stock or any other
class or series of stock ranking on liquidation junior to the Series C Preferred
Stock (such Common Stock and other stock being collectively referred to in this
Section C as "Junior Stock") by reason of their ownership thereof, an amount
(the "C Liquidation Amount") equal to the greater of (i) $6.45 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends declared or accrued but unpaid thereon, or (ii) such amount
per share as would have been payable had each such share been converted into
Common Stock pursuant to Paragraph 4 immediately prior to such liquidation,
dissolution or winding up. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series C Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series C Preferred Stock and any other class
or series of stock ranking on liquidation on a parity with the Series C
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series C Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series C Preferred Stock, holders of Series C Preferred Stock,
upon the dissolution, liquidation or winding up of the Corporation, and holders
of shares of Junior Stock then outstanding shall share ratably, on an As
Converted Basis, in the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of a majority of the then outstanding shares of
Series A, B and C Preferred Stock, exclusively and voting together as a single
class, so elect by giving written notice thereof to the Corporation at least
three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraphs 2(a) and
2(b) above. The Corporation shall promptly provide to the holders of shares of
Series A, B and C Preferred Stock such information concerning the terms of such
merger, consolidation or asset sale and the value of the assets of the
Corporation as may reasonably be requested by the holders of Series A, B and C
Preferred Stock in order to assist them in determining whether to make such an
election. If the holders of the Series A, B and C Preferred Stock make such an
election, the Corporation shall use its best efforts to amend the agreement or
plan of merger or consolidation to adjust the rate at
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which the shares of capital stock of the Corporation are converted into or
exchanged for cash, new securities or other property to give effect to such
election. The amount deemed distributed to the holders of Series A, B and C
Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation. If no notice of the election permitted by this Subparagraph (c)
is given, the provisions of Subparagraph 4(i) shall apply.
3. Voting.
Each holder of outstanding shares of Series C Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series C Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Paragraph 4 of this
Section C), at each meeting of stockholders of the Corporation (and written
actions of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law or by the provisions establishing any
other series of Series Preferred Stock, holders of Series C Preferred Stock and
of any other outstanding series of Series Preferred Stock shall vote together
with the holders of Common Stock as a single class.
4. Optional Conversion. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $6.45 by the Series C Conversion Price (as defined
below) in effect at the time of conversion with respect to shares of Series C
Preferred Stock. The "Series C Conversion Price" shall initially be $6.45. Such
initial Series C Conversion Price and the rate at which shares of Series C
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Series C Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price, as applicable.
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(c) Mechanics of Conversion.
(i) In order for a holder of Series C Preferred Stock to
convert shares of Series C Preferred Stock into shares of Common Stock,
such holder shall surrender the certificate or certificates for such
shares of Series C Preferred Stock, at the office of the transfer agent
for the Series C Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together
with written notice that such holder elects to convert all or any number
of the shares of the Series C Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of
such certificates and notice by the transfer agent (or by the Corporation
if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to
such holder of Series C Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the Series C
Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series C Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared or accrued but unpaid
dividends on the Series C Preferred Stock surrendered for conversion or on
the Common Stock delivered upon conversion.
(iv) All shares of Series C Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared or accrued but unpaid
thereon. Any shares of Series C Preferred Stock so converted shall be
retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon
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conversion of shares of Series C Preferred Stock pursuant to this
Paragraph 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other than that
in which the shares of Series C Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and
until the person or entity requesting such issuance has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series C Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the Series C
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series C
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Series C Conversion
Price then in effect by a fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series C Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series C Conversion
Price shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
for the Series C Preferred Stock shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the
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Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had the Series C Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series C Preferred
Stock.
(g) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series C Preferred Stock
shall be changed into the same or a different, number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series C Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series C Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(c)), each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Paragraph 4 set forth with respect
to the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that the provisions set forth in this Paragraph 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series C Preferred Stock.
(i) No Impairment. The Corporation 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 Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order
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to protect the Conversion Rights of the holders of the Series C Preferred Stock
against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Paragraph 4,
the Corporation 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 Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series C Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Series C Conversion then in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series C Preferred Stock, as
applicable.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Preferred Stock, and shall cause to
be mailed to the holders of the Series C Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
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(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Mandatory Conversion.
(a) All outstanding shares of Series C Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Series C Conversion Price, (i) upon the closing of the sale of shares of Common
Stock, at a price of at least $20.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $15,000,000 of gross proceeds to the Corporation, or (ii)
upon the affirmative vote or written consent of the holders of not less than 66
2/3% of the issued and outstanding shares of Series A and B Preferred Stock,
exclusively and voting together as a single class, to covert all shares of A, B
and C Preferred Stock, as provided in subsection C.5. hereof (the "Mandatory
Conversion Date").
(b) All holders of record of shares of Series C Preferred Stock will
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series C Preferred
Stock pursuant to this Paragraph 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
C Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series C Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series C Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Paragraph 5. On the Mandatory Conversion Date, all rights with respect
to the Series C Preferred Stock so converted, including the rights, if any, to
receive notices and vote, will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series C Preferred Stock has been converted, and payment of any declared or
accrued but unpaid dividends thereon (all of which shall be deemed to be
declared by the Board of Directors on the Mandatory Conversation Date). If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series C Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the
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provisions hereof and cash as provided in Subparagraph 4(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series C Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series C Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series C Preferred Stock accordingly.
FIFTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- ---------------
John J. Kao 531 Hammond Street
Chestnut Hill, MA 02167
SIXTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend
or repeal the By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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EIGHTH: Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed by its President this 7th day of September, 1997.
VARIAGENICS, INC.
By: /s/ Fred D. Ledley
---------------------------
President
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CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAGENICS, INC.
Pursuant to Section 242
of the General Corporation Law of
THE STATE OF DELAWARE
----------------------------------------
Variagenics, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Amended and Restated Certificate
of Incorporation of the Corporation be and hereby is deleted and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is (i) Four Million Seven Hundred
Thousand (4,700,000) shares of Common Stock, $.0l par value per share ("Common
Stock"), and (ii) Two Million Eight Hundred Three Thousand Eight Hundred
Seventy-Six (2,803,876) shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which Five Hundred Three Thousand Seven Hundred
Eighty-Seven (503,787) shares have been designated Series A Convertible
Preferred Stock, and Two Million (2,000,000) shares have been designated Series
B Convertible Preferred Stock, Seventy-Seven Thousand Five Hundred Nineteen
(77,519) shares have been designated Series C Convertible Preferred Stock and
Two Hundred Twenty-Two Thousand Five Hundred Seventy (222,570) shares have been
designated Series D Convertible Preferred Stock.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class and series of capital stock of the Corporation.
<PAGE>
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased
or decreased (but not below the number of shares thereof then outstanding,
including shares issuable upon conversion of shares of Preferred Stock then
outstanding, and upon exercise of options and warrants then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, special voting rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter permitted
by the General
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Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise specifically provided in this Certificate of Incorporation, no vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the issuance of any shares of any series of the Preferred Stock authorized by
and complying with the conditions of this Certificate of Incorporation, the
right to have such vote being expressly waived by all present and future holders
of the capital stock of the Corporation.
C. SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED
STOCK.
Five Hundred Three Thousand Seven Hundred Eighty-Seven (503,787) shares
of the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and Two Million (2,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock"), each of the Series A and B
Preferred Stock with the following rights, preferences, powers, privileges and
restrictions, qualifications and limitations.
1. DIVIDENDS.
(a) The holders of the outstanding shares of Series A and B
Preferred Stock shall, sharing ratably, assuming the conversion of all shares to
shares of Common Stock as provided in Paragraph 4 (an "As Converted Basis"), be
entitled to receive, out of any funds legally available therefor, (i) prior to
any distribution (as defined below) to the holders of Common Stock,
non-cumulative dividends payable in cash or in kind at the election of the
Corporation when and if declared by the Board of Directors of the Corporation,
at the annual rate of $0.51 per share per annum, and (ii) such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, the Series C Convertible Preferred
Stock (the "Series C Preferred Stock") or the Series D Convertible Preferred
Stock (the "Series D Preferred Stock") until the holders of the Series A and B
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series A and B Preferred
Stock in an amount at least equal to the product of (i) the per share amount, if
any, of the distributions to be declared, paid or set aside for the Common
Stock, multiplied by (ii) the number of whole shares of Common Stock into which
such share of Series A or B Preferred Stock is then convertible.
(c) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the
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Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase at a price equal to the
original issue price of such shares and other than redemptions in liquidation or
dissolution of the Corporation) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
and B Preferred Stock then outstanding, sharing ratably on the basis of the
respective A and B Liquidation Amounts (as defined below), shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series A and B
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock, Series C
Preferred Stock, Series D Preferred Stock or any other class or series of stock
ranking on liquidation junior to the Series A and B Preferred Stock (such Common
Stock and other stock being collectively referred to as "Junior Stock") by
reason of their ownership thereof, an amount (the "A Liquidation Amount" and the
"B Liquidation Amount" as applicable) equal to the greater of (i) $9.24 per
share with respect to shares of Series A Preferred Stock and $6.45 per share
with respect to shares of Series B Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared or
accrued but unpaid thereon, or (ii) such amount per share as would have been
payable had each such share been converted into Common Stock pursuant to
Paragraph 4 immediately prior to such liquidation, dissolution or winding up. If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A and
B Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series A and B Preferred Stock and any other class or series of
stock ranking on liquidation on a parity with the Series A and B Preferred Stock
shall share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A and B Preferred Stock
and any other class or series of stock of the Corporation ranking on liquidation
on a parity with the Series A and B Preferred Stock and holders of Series C or D
Preferred Stock, holders of Series A or B Preferred Stock, upon the dissolution,
liquidation or winding up of the Corporation, and holders of shares of Junior
Stock then outstanding shall share ratably, on an As Converted Basis, in the
remaining assets and funds of the Corporation available for distribution to its
stockholders.
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(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of a majority of the then outstanding shares of
Series A, B, C and D Preferred Stock, exclusively and voting together as a
single class, so elect by giving written notice thereof to the Corporation at
least three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraphs 2(a) and
2(b) above. The Corporation shall promptly provide to the holders of shares of
Series A, B, C and D Preferred Stock such information concerning the terms of
such merger, consolidation or asset sale and the value of the assets of the
Corporation as may reasonably be requested by the holders of Series A, B, C and
D Preferred Stock in order to assist them in determining whether to make such an
election. If the holders of the Series A, B, C and D Preferred Stock make such
an election, the Corporation shall use its best efforts to amend the agreement
or plan of merger or consolidation to adjust the rate at which the shares of
capital stock of the Corporation are converted into or exchanged for cash, new
securities or other property to give effect to such election. The amount deemed
distributed to the holders of Series A, B, C and D Preferred Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation. If no
notice of the election permitted by this Subparagraph (c) is given, the
provisions of Subparagraph 4(i) shall apply.
3. VOTING.
(a) Each holder of outstanding shares of Series A or B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A or B Preferred Stock
held by such holder are then convertible (as adjusted from time to time pursuant
to Paragraph 4 of this Section C), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law, by the provisions
of Subparagraphs 3(b), 3(c), 3(d), 3(f), 3(g), 3(h), 3(i) or 3(j) below, by the
provisions of Paragraph 7 or by the provisions establishing any other series of
Series Preferred Stock, holders of Series A and B Preferred Stock and of any
other outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred
Stock, exclusively and voting as a separate class, shall be entitled to elect,
by an affirmative vote or written consent of a majority of the issued and
outstanding shares of Series A Preferred Stock, two (2) directors of the
Corporation which shall be designated by a majority in interest of the
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shares of Series A Preferred Stock; PROVIDED that such class voting rights shall
terminate upon the earlier of June 20, 2007 or the closing of the Corporation's
initial public offering of shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $15,000,000 of gross proceeds to the Corporation at a minimum price
of $20.00 per share (subject to appropriate adjustment for stock splits, stock
dividends, recapitalizations and other similar events) (a "Qualified Public
Offering"). At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the directors as set forth in the first sentence of this
Paragraph 3(b). Any vacancy in said directorship shall be filled only by the
nomination of a replacement director by a majority in interest of the shares of
Series A Preferred Stock and an affirmative vote or written consent as described
in the first sentence of this Paragraph 3(b).
(c) The holders of record of the shares of Series B Preferred
Stock, exclusively and voting as a separate class, shall be entitled to elect,
by an affirmative vote or written consent of a majority of the issued and
outstanding shares of Series B Preferred Stock, three (3) directors of the
Corporation (one of which shall be designated by Atlas Venture Fund III, L.P.
("Atlas Venture"), one of which shall be designated by Forward Ventures Vanguard
Fund II ("Forward Ventures") and one of which shall be designated by Oxford
Bioscience Partners II, L.P., Oxford Bioscience Partners (Adjunct) II LP, and
Oxford Bioscience Partners (Bermuda) II Limited Partnership (collectively
"Oxford Bioscience"); PROVIDED that such class voting rights shall terminate
upon the earlier of June 20, 2007 or the closing of a Qualified Public Offering
by the Corporation. At any meeting held for the purpose of electing directors,
the presence in person or by proxy of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the directors as set forth in the first sentence of this
Paragraph 3(c). Any vacancy in said directorships shall be filled only by a
replacement director designated by the same party who designated the departed
director and an affirmative vote or written consent as described in the first
sentence of this Paragraph 3(c).
(d) The holders of record of the shares of Series A and B
Preferred Stock, exclusively and voting together as a single class, shall be
entitled to elect, by an affirmative vote or written consent of not less than 66
2/3% of the issued and outstanding shares of Series A and B Preferred Stock, one
(1) director of the Corporation nominated by a majority of the Board of
Directors; PROVIDED that such class voting rights shall terminate upon the
earliest to occur of (i) less than 50,000 shares of Preferred Stock being
outstanding at the time of such vote, (ii) June 20, 2007 or (iii) the closing of
a Qualified Public Offering by the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding and a
majority of the Series B Preferred Stock then outstanding shall constitute a
quorum for the purpose of electing the director as set forth in the first
sentence of this Paragraph 3(d). Any vacancy in said directorship shall be
filled only by the nomination of a replacement director by a majority of the
Board of Directors and an affirmative vote or written consent as described in
the first sentence of this Paragraph 3(d).
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(e) The holders of record of the shares of Common Stock and of any
other class or series of voting stock (including the Series A and B Preferred
Stock and the Series C and D Preferred Stock), voting together as a single
class, shall be entitled to elect by a majority vote the balance of the total
number of directors of the Corporation.
(f) The Corporation shall not, without the affirmative vote or
twritten consent of the holders of a majority of the issued and outstanding
shares of Qualified Series A and B Preferred Stock (as defined in Subparagraph
3(j) hereof), exclusively and voting together as a single class:
(1) repurchase any of its Common Stock except in connection with
the termination of employment of the holder thereof;
(2) take or permit to be taken any actions that would result in
any holder of Series A Preferred Stock being required to recognize
taxable income under Section 305 of the Internal Revenue Code of 1986,
as amended (or any successor provision);
(3) declare or pay any dividends on the Common Stock; or
(4) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or
substantially all of its properties or assets, (C) assign, grant a
license under or otherwise transfer all or substantially all of its
technology or intellectual property rights;
PROVIDED that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(g) The Corporation shall not, without the affirmative vote or
written consent of the holders of not less than 66 2/3% of the issued and
outstanding shares of Qualified Series A and B Preferred Stock (as defined in
subparagraph 3(j) hereof), exclusively and voting together as a single class:
(1) permit any change in the number of directorships of the
Corporation, which number shall initially be eight (8); or
(2) authorize, issue or sell equity securities of the Corporation,
options, warrants or other rights to subscribe for, purchase or
otherwise acquire any equity securities of the Corporation, or any debt
securities convertible into equity securities of the Corporation, other
than equity securities issued upon conversion of convertible securities
and equity securities issued upon exercise of securities exercisable
for equity securities, in a transaction resulting in an entity, except
for Rovent II Limited Partnership and Advent Partners Limited
Partnership (collectively "Advent International Corporation"), Atlas
Venture, Forward Ventures, The Goldman Sachs Group, L.P. ("Goldman
Sachs"), Oxford Bioscience or Kummell Investments Limited (all of the
foregoing collectively, the "Investors"), having beneficial ownership
of 15% or more of the equity securities of the Corporation;
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PROVIDED that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(h) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series A Preferred Stock, exclusively and voting as a
separate class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series A Preferred Stock (other than two million
(2,000,000) shares of Series B Preferred Stock, which is on a parity
with the Series A Preferred Stock); or
(2) amend, alter or repeal in any way any provision of the
Corporation's Certificate of Incorporation, in order to (i) increase
the number of authorized shares of Series A Preferred Stock or (ii)
effect any change which would have an adverse effect on the rights,
preferences and privileges of the Series A Preferred Stock;
PROVIDED that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(i) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series B Preferred Stock, exclusively and voting as a
separate class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series B Preferred Stock; or
(2) amend, alter or repeal in any way any provision of the
Corporation's Certificate of Incorporation, in order to (i) increase
the number of authorized shares of Series B Preferred Stock or (ii)
effect any change which would have an adverse effect on the rights,
preferences and privileges of the Series B Preferred Stock;
PROVIDED that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(j) For purposes of this Article FOURTH "Qualified Series A
Preferred Stock" or "Qualified Series B Stock" shall mean shares of Series A or
B Preferred Stock held by an Investor (as defined in Paragraph 3(g)(2) hereof),
an Affiliate of an Investor or a person who (i) acquired at least 50,000 shares
of Series A or B Preferred Stock, including shares of Common Stock into which
such shares were converted, as adjusted for stock splits, stock dividends,
recapitalization and similar events, (ii) at the time of such acquisition
delivered to the Corporation a written instrument identifying itself, giving the
Corporation notice of the acquisition of such shares, identifying any securities
of the Corporation owned or acquired by it and agreeing that such person will
keep confidential and will not disclose or divulge any confidential, proprietary
or secure information which such person may obtain from the Corporation pursuant
to financial statements, reports and other materials submitted by the
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Corporation to such person, unless such information is known, or until such
information becomes known, to the public; PROVIDED HOWEVER, that such person may
disclose such information (A) to its attorneys, accountants, consultants, and
other professionals to the extent necessary to obtain their services in
connection with it investment in the Corporation, (B) to any prospective
purchaser of any Qualified Series A or B Preferred Shares from such person
(other than a person or entity described in (iii) below, as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
subsection (ii), (C) to any Affiliate to such person or to a partner,
shareholder or subsidiary of such person who is bound to protect the
confidential or proprietary nature of such information, (D) as may be required
or appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such person, (E) as may be required or appropriate in response to any summons or
subpoena or in connection with any litigation, or (F) in order to comply with
any law, order, regulation or ruling applicable to such holder, and (iii) is not
reasonably determined by the Board of Directors of the Corporation to be
affiliated with a competition of the Corporation or otherwise have interests
adverse to the best interests of the Corporation. Notwithstanding anything to
the contrary contained herein any shares of Series A or B Preferred Stock
transferred by any Investor which is a partnership or corporation to any
partner, retired partner or stockholder thereof, who agrees to be bound as set
forth in subsection (ii) above shall be Qualified Preferred Shares. For purposes
of this subsection, "Affiliate" shall mean, in respect of any person or entity
controlling, controlled by, or under common control with, such person or entity,
and the term "control" shall have the meaning given to it under the Securities
Act or 1933, as amended and the rules and regulations promulgated thereunder.
4. OPTIONAL CONVERSION. The holders of the Series A and B Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A and B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by (i) dividing $9.24 by the Series A Conversion Price (as
defined below) in effect at the time of conversion with respect to shares of
Series A Preferred Stock, and (ii) dividing $6.45 by the Series B Conversion
Price (as defined below) in effect at the time of conversion with respect to
shares of Series B Preferred Stock. The "Series A Conversion Price" shall
initially be $9.24, and the "Series B Conversion Price" shall initially be
$6.45. Such initial Series A Conversion Price and Series B Conversion Price
(collectively sometimes referred to as "Conversion Prices"), and the rate at
which shares of Series A Preferred Stock and Series B Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of Series A or B
Preferred Stock pursuant to Paragraph 6 of this Section C, the Conversion Rights
of the shares designated for redemption shall terminate at the close of business
on the fifth day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation
of the Corporation, the Conversion Rights shall terminate at the close of
business on the first day
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preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series A and B Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A or B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price or Series B Conversion Price, as applicable.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A or B Preferred Stock to
convert shares of Series A or B Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for
such shares of Series A or B Preferred Stock, at the office of the
transfer agent for the Series A or B Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder
elects to convert all or any number of the shares of the Series A or B
Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or his or its
attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if
the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office
to such holder of Series A or B Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash
in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A and
B Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series A and B Preferred Stock, such number of its
duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A and B
Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series A or B Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A and B Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer
be deemed to be
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outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease
and terminate on the Conversion Date, except only the right of the
holders thereof to receive shares of Common Stock in exchange therefor
and payment of any dividends declared or accrued but unpaid thereon.
Any shares of Series A and B Preferred Stock so converted shall be
retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized
Series A or B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock upon conversion of shares of Series A or B
Preferred Stock pursuant to this Paragraph 4. The Corporation shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares
of Common Stock in a name other than that in which the shares of Series
A or B Preferred Stock so converted were registered, and no such
issuance or delivery shall be made unless and until the person or
entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICES FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subparagraph
4(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options to acquire shares
described in Subparagraph 4(d)(i)(D) below.
(B) "SERIES B ORIGINAL ISSUE DATE" shall mean the date on
which the first share of Series B Preferred Stock was issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subparagraph
4(d)(iii) below, deemed to be issued) by the Corporation after the
Series B Original Issue Date, other than shares of Common Stock
issued or issuable:
(I) upon conversion of shares of Series A or B
Preferred Stock outstanding on the Series B
Original Issue Date;
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(II) as a dividend or distribution on Series A or B
Preferred Stock;
(III) by reason of a dividend, stock split, split-up
or other distribution on shares of Common Stock
that are excluded from the definition of
Additional Shares of Common Stock by the
foregoing clauses (I) and (II) or this clause
(III); or
(IV) to employees or directors of, or consultants to,
the Corporation pursuant to any plan,
arrangement or agreement approved by the Board
of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICES. No adjustment in the
number of shares of Common Stock into which the Series A or B Preferred
Stock is convertible shall be made, by adjustment in the applicable
Series A Conversion Price or Series B Conversion Price thereof: (A)
unless the consideration per share (determined pursuant to Subparagraph
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be
issued by the Corporation is less than the Series B Conversion Price in
effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (B) if prior to such issuance, the Corporation
receives written notice from the holders of a majority of the then
outstanding shares of Series A and B Preferred Stock, exclusively and
voting together as a single class, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of
Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. If the Corporation at any time or from time to time after
the Series B Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders
of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard
to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Subparagraph 4(d)(v) of this Section C) of such
Additional Shares of Common Stock would be less than the Series B
Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
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(A) No further adjustment in the Conversion Prices shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, upon the
exercise, conversion or exchange thereof, the Conversion Prices
computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Prices then in effect shall forthwith be
readjusted to such Conversion Prices as would have obtained had
the adjustment which was made upon the issuance of such
unexercised Option not been made, and the Additional Shares of
Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Prices;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, including, but not limited to,
a change resulting from the anti-dilution provisions thereof, the
Conversion Prices then in effect shall forthwith be readjusted to
such Conversion Prices as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing either Conversion Price
to an amount which exceeds the lower of (i) the applicable
Conversion Price on the original adjustment date, or (ii) the
applicable Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(iv) ADJUSTMENT OF CONVERSION PRICES UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Corporation shall at any time
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subparagraph 4(d)(iii),
but excluding shares issued as a dividend or distribution as provided
in Subparagraph 4(f) or upon a stock split or combination as provided
in Subparagraph 4(e)), without consideration or for a consideration per
share
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less than the Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, the Series A
Conversion Price and Series B Conversion Price in effect at such time
shall be reduced, concurrently with such issue, to a price (calculated
to the nearest cent) determined by multiplying the Series A Conversion
Price and the Series B Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to
be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A or B
Conversion Price; and (B) the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued;
PROVIDED that, (i) for the purpose of this Subparagraph 4(d)(iv), all
shares of Common Stock issuable upon conversion of Convertible
Securities outstanding immediately prior to such issue shall be deemed
to be outstanding, and (ii) the number of shares of Common Stock deemed
issuable upon conversion of such outstanding Convertible Securities
shall not give effect to any adjustments to the exercise or conversion
price or conversion rate of such Convertible Securities resulting from
the issuance of Additional Shares of Common Stock that is the subject
of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subparagraph 4(d), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) CASH AND PROPERTY: Such consideration:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided
in clauses (I) and (II) above, as determined in good faith by the
Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subparagraph 4(d)(iii), relating
to Options and Convertible Securities, shall be determined by dividing:
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(x) the total amount, if any, received or receivable
by the Corporation as consideration for the
issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any
provision contained therein for a subsequent
adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities, or in the case of Options for
Convertible Securities, the exercise of such
Options for Convertible Securities and the
conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained
therein for a subsequent adjustment of such
number) issuable upon the exercise of such
Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock
which are comprised of shares of the same series or class of Preferred
Stock, and such issuance dates occur within a period of no more than
120 days, then the Conversion Prices shall be adjusted only once on
account of such issuances, with such adjustment to occur upon the final
such issuance and to give effect to all such issuances as if they
occurred on the date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series B Original
Issue Date effect a subdivision of the outstanding Common Stock, the Series A
Conversion Price and Series B Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased. If the Corporation shall at
any time or from time to time after the Series B Original Issue Date combine the
outstanding shares of Common Stock, the Series A Conversion Price and Series B
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series B
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Series A Conversion Price and Series B Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been
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fixed, as of the close of business on such record date, by multiplying the
Series A Conversion Price and Series B Conversion Price then in effect by a
fraction:
(x) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and Series B Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and Series B Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Series B
Original Issue Date for the Series A and B Preferred Stock shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series A and B Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series A or B Preferred Stock
been converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Series A
or B Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A or B Preferred
Stock shall be changed into the same or a different, number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Series A or B Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into which
such shares of Series A or B Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
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(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(c)), each share of Series A and B Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A or B Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series A and B Preferred Stock, to the end that the provisions set forth in
this Paragraph 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A or B Preferred Stock.
(j) NO IMPAIRMENT. The Corporation 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 Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A and B Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A or B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A or B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price or Series B
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A or B Preferred Stock, as applicable.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
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(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or substantially all of
the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A and B Preferred Stock, and shall
cause to be mailed to the holders of the Series A and B Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
5. MANDATORY CONVERSION.
(a) All outstanding shares of Series A and B Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Series A Conversion Price or Series B Conversion Price, as applicable, (i) upon
the closing of the sale of shares of Common Stock, at a price of at least $20.00
per share (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares), in a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $15,000,000 of gross
proceeds to the Corporation, or (ii) upon the affirmative vote or written
consent of the holders of not less than 66 2/3% of the issued and outstanding
shares of Series A and B Preferred Stock, exclusively and voting together as a
single class (the "Mandatory Conversion Date").
(b) All holders of record of shares of Series A and B Preferred
Stock will be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A and B
Preferred Stock pursuant to this Paragraph 5.
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Such notice need not be given in advance of the occurrence of a Mandatory
Conversion Date. Such notice shall be sent by first class or registered mail,
postage prepaid, to each record holder of Series A and B Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
A and B Preferred Stock (or the records of the Corporation, if it serves as its
own transfer agent). Upon receipt of such notice, each holder of shares of
Series A and B Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Paragraph 5.
On the Mandatory Conversion Date, all rights with respect to the Series A and B
Preferred Stock so converted, including the rights, if any, to receive notices
and vote, will terminate, except only the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to receive certificates
for the number of shares of Common Stock into which such Series A or B Preferred
Stock has been converted, and payment of any declared or accrued but unpaid
dividends thereon (all of which shall be deemed to be declared by the Board of
Directors on the Mandatory Conversation Date). If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
Mandatory Conversion Date and the surrender of the certificate or certificates
for Series A or B Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subparagraph 4(b) in respect of any fraction of a share of Common Stock
otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A and B Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A or B Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A or B Preferred Stock accordingly.
6. OPTIONAL REDEMPTION.
(a) ELECTION OF HOLDERS TO REQUIRE REDEMPTION. At any time, on or
after June 20, 2002 , at the election of the holders of a 66 2/3% of the shares
of Series A Preferred Stock then outstanding, the Corporation shall, to the
extent permitted by law at such time, be required to redeem all of the
outstanding shares of Series A Preferred Stock upon the terms described in this
Paragraph 6. At any time, on or after June 20, 2002 , at the election of the
holders of a 66 2/3% of the shares of Series B Preferred Stock then outstanding,
the Corporation shall, to the extent permitted by law at such time, be required
to redeem all of the outstanding shares of Series B Preferred Stock upon the
terms described in this Paragraph 6.
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(b) REDEMPTION PRICE. The redemption price per share of Series A
Preferred Stock shall be $9.24 per share, plus all accrued and unpaid dividends
thereon, on such share up to and including the date fixed for redemption of such
shares of Series A Preferred Stock (the "Series A Redemption Price"). The
redemption price per share of Series B Preferred Stock shall be $6.45 per share,
plus all accrued and unpaid dividends thereon, on such share up to and including
the date fixed for redemption of such shares of Series B Preferred Stock (the
"Series B Redemption Price"). The Series A Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series A Preferred Stock. The Series B
Redemption Price shall be equitably adjusted whenever there shall occur a
subdivision, combination, reclassification or recapitalization relating to the
Series B Preferred Stock.
(c) REDEMPTION NOTICE. If the holders of a 66 2/3% of the
outstanding shares of Series A Preferred Stock or Series B Preferred Stock shall
elect to require the Corporation to redeem all of the outstanding shares of
Series A Preferred Stock or Series B Preferred Stock, as applicable (the Series
A Preferred Stock or Series B Preferred Stock being redeemed the "Redeeming
Preferred Stock"), such holders shall deliver a written notice to the
Corporation not less than thirty (30) days prior to a date fixed by such holders
for the redemption of the shares of Redeeming Preferred Stock (the "Redemption
Date") and stated in such notice. Not later than five (5) days prior to the
Redemption Date, the Corporation shall mail, postage prepaid, written notice of
the redemption (the "Redemption Notice") to each holder of record of Redeeming
Preferred Stock, at its address as appears on the records of the Corporation.
Failure of the Corporation to deliver the Redemption Notice shall not affect its
obligation to redeem any shares of Redeeming Preferred Stock pursuant to this
Paragraph 6. The Redemption Notice shall state:
(i) the total number of shares of Redeeming Preferred Stock to be
redeemed on such Redemption Date and the number of shares of
Redeeming Preferred Stock to be redeemed from the holder to which
such notice is addressed;
(ii) the date of such Redemption Date and the Series A Redemption
Price or Series B Redemption Price, as applicable; and
(iii) that the holder shall surrender to the Corporation on or
before such Redemption Date, at its principal office or such other
place as may be designated in the Redemption Notice, any
certificate(s) held by it representing shares to be redeemed.
(d) SURRENDER OF CERTIFICATES. Each holder of shares of Redeeming
Preferred Stock being redeemed shall surrender the certificate(s) held by it
representing such shares to the Corporation at its principal office or such
other place as may be designated in the Redemption Notice. Upon such surrender,
the Corporation shall pay to the order of the person whose name appears on such
certificate(s) the Series A Redemption Price or Series B Redemption Price, as
applicable, for such shares, and each surrendered certificate shall be
cancelled. In the event that, pursuant to Subparagraph 6(a) of this Section C,
not all of the shares of Redeeming Preferred Stock represented by a surrendered
certificate are being redeemed, the Corporation shall deliver
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to the holder, at the expense of the Corporation, a new certificate representing
the number of shares of Redeeming Preferred Stock not redeemed.
(e) NO DIVIDENDS, CONVERSION OR INTEREST AFTER REDEMPTION. If the
funds necessary for such redemption shall have been set aside by the Corporation
and deposited with a bank or trust company, in an irrevocable trust for the
benefit of the holders of the Redeeming Preferred Stock that has been called for
redemption, then, notwithstanding that any certificates for shares that have
been called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding from and after
such redemption date, shall not be entitled to any further dividends pursuant to
Paragraph 1 of this Section C and shall not be entitled to conversion pursuant
to Paragraph 4 of this Section C, and all rights of holders of such shares so
called for redemption shall forthwith, after such redemption date, cease and
terminate, excepting only the right to receive the redemption funds therefor to
which they are entitled, but without interest. Any interest accrued on funds so
deposited and unclaimed by stockholders entitled thereto shall be paid to such
stockholders at the time their respective shares are redeemed or to the
Corporation at the time unclaimed amounts are paid to it. In case the holders of
Redeeming Preferred Stock which shall have been called for redemption shall not,
within six (6) years after a Redemption Date, claim the amounts so deposited
with respect to the redemption thereof, any such bank or trust company shall,
upon demand, pay over to the Corporation such unclaimed amounts and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof to such holder and such holder shall look only to the Corporation for
the payment thereof. Any funds so deposited with a bank or trust company which
shall not be required for such redemption by reason of the exercise subsequent
to the date of such deposit of the right of conversion of any shares of
Redeeming Preferred Stock, or otherwise, shall be returned to the Corporation
forthwith.
(f) DIVIDENDS ON SHARES NOT REDEEMED. Any shares of Redeeming
Preferred Stock not redeemed when and as required by this paragraph shall
continue to bear dividends at 125% of the rate, and otherwise in the same
manner, as set forth in Paragraphs 1(a) and 1(b) of this Section C.
7. AMENDMENTS TO THE CERTIFICATE OF INCORPORATION. Notwithstanding the
provisions of Article TENTH hereof, the provisions of Paragraph 3 hereof may not
be repealed or amended in any respect, nor may any other provision be amended,
adopted or repealed which would have the effect of modifying or permitting
circumvention of such provisions, unless such action is approved by the
affirmative vote or written consent of the holders of not less than 66 2/3% of
the issued and outstanding shares of Series A and B Preferred Stock, exclusively
and voting together as a single class.
D. SERIES C CONVERTIBLE PREFERRED STOCK AND SERIES D CONVERTIBLE PREFERRED
STOCK.
Seventy-Seven Thousand Five Hundred Nineteen (77,519) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock") and Two
Hundred Twenty-Two Thousand Five
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Hundred Seventy (222,570) shares of the authorized and unissued Preferred Stock
of the Corporation are hereby designated "Series D Convertible Preferred Stock"
(the "Series D Preferred Stock"), each of the Series C and D Preferred Stock
with the following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. DIVIDENDS.
(a) The holders of the outstanding shares of Series C and D
Preferred Stock shall, assuming the conversion of all shares to shares of Common
Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled to
receive, out of any funds legally available therefor, such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock or Series D Preferred Stock until the
holders of the Series C Preferred Stock then outstanding shall have first
received, or simultaneously receive, a cash dividend on each outstanding share
of Series C Preferred Stock in an amount at least equal to the product of (i)
the per share amount, if any, of the distributions to be declared, paid or set
aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series C Preferred Stock is then
convertible.
(c) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series D
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series D Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series D Preferred Stock is then convertible.
(d) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its
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stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of Series A and B Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series C Preferred Stock (collectively referred to in this
Section D as "Senior C Preferred Stock"), but before any payment shall be made
to the holders of Common Stock, Series D Preferred Stock or any other class or
series of stock ranking on liquidation junior to the Series C Preferred Stock
(such Common Stock and other stock being collectively referred to in this
Section D as "Junior C Stock") by reason of their ownership thereof, an amount
(the "C Liquidation Amount") equal to the greater of (i) $6.45 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends declared or accrued but unpaid thereon, or (ii) such amount
per share as would have been payable had each such share been converted into
Common Stock pursuant to Paragraph 4 immediately prior to such liquidation,
dissolution or winding up. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series C Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series C Preferred Stock and any other class
or series of stock ranking on liquidation on a parity with the Series C
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series D
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of Series A and B Preferred Stock, Series C Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation prior
and in preference to the Series D Preferred Stock (collectively referred to in
this Section D as "Senior D Preferred Stock"), but before any payment shall be
made to the holders of Common Stock or any other class or series of stock
ranking on liquidation junior to the Series D Preferred Stock (such Common Stock
and other stock being collectively referred to in this Section D as "Junior D
Stock") by reason of their ownership thereof, an amount (the "D Liquidation
Amount") equal to the greater of (i) $10.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared or
accrued but unpaid thereon, or (ii) such amount per share as would have been
payable had each such share been converted into Common Stock pursuant to
Paragraph 4 immediately prior to such liquidation, dissolution or winding up. If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series D
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Series D Preferred Stock and any other class or series of stock
ranking on liquidation on a parity with the Series D Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be payable in
respect
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of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(c) After the payment of all preferential amounts required to be
paid to the holders of Senior C and D Preferred Stock, Series C and D Preferred
Stock and any other class or series of stock of the Corporation ranking on
liquidation on a parity with the Series C or D Preferred Stock, holders of
Series C and D Preferred Stock, upon the dissolution, liquidation or winding up
of the Corporation, and holders of shares of Junior C and D Stock then
outstanding shall share ratably, on an As Converted Basis, in the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
(d) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of a majority of the then outstanding shares of
Series A, B, C and D Preferred Stock, exclusively and voting together as a
single class, so elect by giving written notice thereof to the Corporation at
least three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraphs 2(a), 2(b)
and 2(c) above. The Corporation shall promptly provide to the holders of shares
of Series A, B, C and D Preferred Stock such information concerning the terms of
such merger, consolidation or asset sale and the value of the assets of the
Corporation as may reasonably be requested by the holders of Series A, B, C and
D Preferred Stock in order to assist them in determining whether to make such an
election. If the holders of the Series A, B, C and D Preferred Stock make such
an election, the Corporation shall use its best efforts to amend the agreement
or plan of merger or consolidation to adjust the rate at which the shares of
capital stock of the Corporation are converted into or exchanged for cash, new
securities or other property to give effect to such election. The amount deemed
distributed to the holders of Series A, B, C and D Preferred Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation. If no
notice of the election permitted by this Subparagraph (d) is given, the
provisions of Subparagraph 4(i) shall apply.
3. VOTING. Each holder of outstanding shares of Series C or D Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C or D Preferred Stock
held by such holder are then convertible (as adjusted from time to time pursuant
to Paragraph 4 of this Section D), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions establishing any other series of
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Series Preferred Stock, holders of Series C and D Preferred Stock and of any
other outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
4. OPTIONAL CONVERSION. The holders of the Series C and D Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C and D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by (i) dividing $6.45 by the Series C Conversion Price (as
defined below) in effect at the time of conversion with respect to shares of
Series C Preferred Stock; and (ii) dividing $10.00 by the Series D Conversion
Price (as defined below) in effect at the time of conversion with respect to
shares of Series D Preferred Stock. The "Series C Conversion Price" shall
initially be $6.45, and the "Series D Conversion Price" shall initially be
$10.00. Such initial Series C Conversion Price and Series D Conversion Price
(collectively, sometimes referred to as "Conversion Prices") and the rate at
which shares of Series C Preferred Stock and Series D Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Series C and D Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series C or D Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price or Series D Conversion Price, as applicable.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C or D Preferred Stock to
convert shares of Series C or D Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for
such shares of Series C or D Preferred Stock, at the office of the
transfer agent for the Series C or D Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder
elects to convert all or any number of the shares of the Series C or D
Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or his or its
attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by
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the Corporation if the Corporation serves as its own transfer agent)
shall be the conversion date ("Conversion Date"). The Corporation
shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Series C or D Preferred Stock,
or to his or its nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series C and
D Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C and D Preferred Stock, such number of its
duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series C and D
Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series C or D Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series C and D Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer
be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any dividends declared or accrued but
unpaid thereon. Any shares of Series C and D Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and
the Corporation (without the need for stockholder action) may from time
to time take such appropriate action as may be necessary to reduce the
authorized Series C or D Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock upon conversion of shares of Series C or D
Preferred Stock pursuant to this Paragraph 4. The Corporation shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares
of Common Stock in a name other than that in which the shares of Series
C or D Preferred Stock so converted were registered, and no such
issuance or delivery shall be made unless and until the person or
entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date on which the
first share of Series C Preferred Stock or Series D Preferred Stock, as
applicable was issued (the "Original Issue Date") effect a subdivision of the
outstanding Common Stock, the Series C Conversion Price and Series D
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Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Series C Conversion Price and Series D Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series C
Conversion Price and Series D Conversion Price then in effect shall be decreased
as of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
Series C Conversion Price and Series D Conversion Price then in effect by a
fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series C Conversion Price and Series D Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series C Conversion Price and Series D Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series C and
D Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had the Series C or D Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Series C
or D Preferred Stock.
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(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series C or D Preferred
Stock shall be changed into the same or a different, number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Series C or D Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into which
such shares of Series C or D Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(d)), each share of Series C and D Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series C or D Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series C and D Preferred Stock, to the end that the provisions set forth in
this Paragraph 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series C or D Preferred Stock.
(i) NO IMPAIRMENT. The Corporation 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 Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C and D Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C or D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series C or D Preferred Stock, furnish or cause to be
furnished to such holder a similar
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certificate setting forth (i) such adjustments and readjustments, (ii) the
Series C Conversion Price or Series D Conversion Price then in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series C or D Preferred
Stock, as applicable.
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or substantially all of
the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C and D Preferred Stock, and shall
cause to be mailed to the holders of the Series C and D Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
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5. MANDATORY CONVERSION.
(a) All outstanding shares of Series C and D Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Series C Conversion Price or Series D Conversion Price, as applicable, (i) upon
the closing of the sale of shares of Common Stock, at a price of at least $20.00
per share (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares), in a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $15,000,000 of gross
proceeds to the Corporation, or (ii) upon the affirmative vote or written
consent of the holders of not less than 66 2/3% of the issued and outstanding
shares of Series A and B Preferred Stock, exclusively and voting together as a
single class, to convert all shares of A, B, C and D Preferred Stock, as
provided in subsection C.5. hereof (the "Mandatory Conversion Date").
(b) All holders of record of shares of Series C and D Preferred
Stock will be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series C and D
Preferred Stock pursuant to this Paragraph 5. Such notice need not be given in
advance of the occurrence of a Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Series C and D Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series C and D Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series C and D Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Paragraph 5. On the Mandatory Conversion
Date, all rights with respect to the Series C and D Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series C or D Preferred Stock
has been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversation Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
C or D Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subparagraph 4(b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series C and D Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series C or D Preferred
Stock represented thereby converted into Common
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Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series C or D Preferred
Stock accordingly.
IN WITNESS WHEREOF, this Certificate of Amendment to be executed by its
President this 16TH day of DECEMBER, 1998.
VARIAGENICS, INC.
By: /s/ FRED D. LEDLEY, M.D.
--------------------------------------
President
Fred D. Ledley, M.D.
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CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAGENICS, INC.
Pursuant to Section 242
of the General Corporation Law of
The State Of Delaware
------------------------
Variagenics, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Amended and Restated Certificate
of Incorporation of the Corporation be and hereby is deleted and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is (i) Twelve Million Forty-two
Thousand Three Hundred (12,042,300) shares of Common Stock, $.0l par value per
share ("Common Stock"), and (ii) Nine Million Seven Hundred Thirty-two Thousand
Two Hundred Six (9,732,206) shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which Five Hundred Three Thousand Seven Hundred
Eighty-Seven (503,787) shares have been designated Series A Convertible
Preferred Stock, and One Million Eight Hundred Eighty-Three Thousand Five
Hundred Forty-Seven (1,883,547) shares have been designated Series B Convertible
Preferred Stock, Seventy-Seven Thousand Five Hundred Nineteen (77,519) shares
have been designated Series C Convertible Preferred Stock, Three Hundred Twenty
Thousand (320,000) shares have been designated Series D Convertible Preferred
Stock, Four Million Six Hundred Forty-Eight Thousand Seven Hundred Eighty-Nine
(4,648,789) shares have been designated Series E Convertible Preferred Stock,
and Two Million Two Hundred Ninety-Eight Thousand Five Hundred Sixty-Four
(2,298,564) shares have been designated Series E-2 Convertible Preferred Stock.
<PAGE>
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class and series of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased
or decreased (but not below the number of shares thereof then outstanding,
including shares issuable upon conversion of shares of Preferred Stock then
outstanding, and upon exercise of options and warrants then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Any shares of Preferred Stock which may be redeemed, purchased or
acquired by the Corporation may be reissued except as otherwise provided by law.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly provided.
C. SERIES A CONVERTIBLE PREFERRED STOCK, SERIES B CONVERTIBLE PREFERRED
STOCK, SERIES E CONVERTIBLE PREFERRED STOCK AND SERIES E-2 CONVERTIBLE PREFERRED
STOCK.
Five Hundred Three Thousand Seven Hundred Eighty-Seven (503,787) shares
of the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), One Million Eight Hundred
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Eighty-Three Thousand Five Hundred Forty-Seven (1,883,547) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock"), Four
Million Six Hundred Forty-Eight Thousand Seven Hundred Eighty-Nine (4,648,789)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series E Convertible Preferred Stock" (the "Series E
Preferred Stock") and Two Million Two Hundred Ninety-Eight Thousand Five Hundred
Sixty-Four (2,298,564) shares of the authorized and unissued Preferred Stock of
the Corporation are hereby designated "Series E-2 Convertible Preferred Stock"
(the "Series E-2 Preferred Stock") , each of the Series A, Series B, Series E
and Series E-2 Preferred Stock with the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. DIVIDENDS.
(a) The holders of the outstanding shares of Series E and E-2
Preferred Stock shall, sharing ratably, assuming the conversion of all shares to
shares of Common Stock as provided in Paragraph 4 (an "As Converted Basis"), be
entitled to receive, out of any funds legally available therefor, (i) prior to
any distribution (as defined below) to the holders of Common Stock,
non-cumulative dividends payable in cash or in kind at the election of the
Corporation when and if declared by the Board of Directors of the Corporation,
at the annual rate of $0.29 per share per annum, and (ii) such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, the Series C Convertible Preferred Stock (the "Series C
Preferred Stock") or the Series D Convertible Preferred Stock (the "Series D
Preferred Stock") until the holders of the Series E and E-2 Preferred Stock then
outstanding shall have first received, or simultaneously receive, a cash
dividend on each outstanding share of Series E and E-2 Preferred Stock in an
amount at least equal to the product of (i) the per share amount, if any, of the
distributions to be declared, paid or set aside for the Common Stock, multiplied
by (ii) the number of whole shares of Common Stock into which such share of
Series E or E-2 Preferred Stock is then convertible.
(c) The holders of the outstanding shares of Series A and B
Preferred Stock shall, assuming the conversion of all shares to shares of Common
Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled to
receive, out of any funds legally available therefor, such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(d) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, Series C Preferred Stock or Series D
Preferred Stock until the holders of the Series A and B Preferred Stock then
outstanding shall have first received, or simultaneously receive, a cash
dividend on each outstanding share of Series A and B Preferred Stock in an
amount at least equal to the product of (i) the per share amount, if any, of the
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distributions to be declared, paid or set aside for the Common Stock, multiplied
by (ii) the number of whole shares of Common Stock into which such share of
Series A or B Preferred Stock is then convertible.
(e) For purposes of this Paragraph 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series E
Preferred Stock then outstanding, shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders before any
payment shall be made to the holders of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E-2 Preferred Stock or any other class or series of stock ranking on
liquidation junior to the Series E Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount (the "E Liquidation Amount") equal to $3.25 per
share with respect to shares of Series E Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares) plus any dividends declared or
accrued but unpaid thereon. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series E Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series E Preferred Stock and any other class
or series of stock ranking on liquidation on a parity with the Series E
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of the E Liquidation Amount to the holders
of Series E Preferred Stock, and any other class or series of stock of the
Corporation ranking on liquidation on a parity with the Series E Preferred
Stock, holders of Series E Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, and holders of shares of Junior Stock then
outstanding shall share ratably, on an As Converted Basis, in the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
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(c) The occurrence of any merger or consolidation of the
Corporation into or with another corporation (except one in which the holders of
capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least 50% by voting power of the capital stock
of the surviving corporation), or the sale of all or substantially all the
assets of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraphs 2(a) and
2(b) above, unless the holders of a majority of the then outstanding shares of
Series E Preferred Stock, exclusively and voting together as a single class,
elect that such event shall not constitute a liquidation by giving written
notice thereof to the Corporation at least three days before the effective date
of such event. The Corporation shall promptly provide to the holders of shares
of Series E and E-2 Preferred Stock such information concerning the terms of
such merger, consolidation or asset sale and the value of the assets of the
Corporation as may reasonably be requested by the holders of Series E and E-2
Preferred Stock in order to assist them in determining whether to make such an
election. In the event of a deemed liquidation, the Corporation shall use its
best efforts to amend the agreement or plan of merger or consolidation to adjust
the rate at which the shares of capital stock of the Corporation are converted
into or exchanged for cash, new securities or other property to give effect to
such election. The amount deemed distributed to the holders of Series A, B, E
and E-2 Preferred Stock upon any such merger or consolidation shall be the cash
or the value of the property, rights or securities distributed to such holders
by the acquiring person, firm or other entity. The value of such property,
rights or other securities shall be determined in good faith by the Board of
Directors of the Corporation. If no notice of the election permitted by this
Subparagraph (c) is given, the provisions of Subparagraph 4(i) shall apply.
3. VOTING.
(a) Each holder of outstanding shares of Series A, B, E or E-2
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Series A, B, E or E-2
Preferred Stock held by such holder are then convertible (as adjusted from time
to time pursuant to Paragraph 4 of this Section C), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law, by
the provisions of Subparagraphs 3(b), 3(c), 3(d), 3(f) or 3(g) below, by the
provisions of Paragraph 7 or by the provisions establishing any other series of
Series Preferred Stock, holders of Series A, B, E and E-2 Preferred Stock and of
any other outstanding series of Series Preferred Stock shall vote together with
the holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred
Stock, exclusively and voting as a separate class, shall be entitled to elect,
by an affirmative vote or written consent of a majority of the issued and
outstanding shares of Series A Preferred Stock, one (1) director of the
Corporation which shall be designated by a majority in interest of the shares of
Series A Preferred Stock; PROVIDED that such class voting rights shall terminate
upon
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the closing of the Corporation's initial public offering of shares of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended, resulting in at least $20,000,000 of gross proceeds to the
Corporation at a minimum price of $10.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, recapitalizations and other
similar events) (a "Qualified Public Offering"). At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum for the purpose of electing the director as set forth in the
first sentence of this Paragraph 3(b). Any vacancy in said directorship shall be
filled only by the nomination of a replacement director by a majority in
interest of the shares of Series A Preferred Stock and an affirmative vote or
written consent as described in the first sentence of this Paragraph 3(b).
(c) The holders of record of the shares of Series B Preferred
Stock, exclusively and voting as a separate class, shall be entitled to elect,
by an affirmative vote or written consent of a majority of the issued and
outstanding shares of Series B Preferred Stock, one (1) director of the
Corporation which shall be designated by a majority in interest of the shares of
Series B Preferred Stock; PROVIDED that such class voting rights shall terminate
upon the closing of a Qualified Public Offering by the Corporation. At any
meeting held for the purpose of electing directors, the presence in person or by
proxy of the holders of a majority of the shares of Series B Preferred Stock
then outstanding shall constitute a quorum for the purpose of electing the
director as set forth in the first sentence of this Paragraph 3(c). Any vacancy
in said directorship shall be filled only by the nomination of a replacement
director by a majority in interest of the shares of Series B Preferred Stock and
an affirmative vote or written consent as described in the first sentence of
this Paragraph 3(c).
(d) The holders of record of the shares of Series E and E-2
Preferred Stock, exclusively and voting together as a single class, shall be
entitled to elect, by an affirmative vote or written consent of a majority of
the issued and outstanding shares of Series E and E-2 Preferred Stock, two (2)
directors of the Corporation (one of which shall be designated by The Sprout
Group and the other of which shall be designated by a majority in interest of
the shares of Series E and E-2 Preferred Stock, voting together as a single
class); PROVIDED that such class voting rights shall terminate upon the closing
of a Qualified Public Offering by the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series E Preferred Stock then outstanding and a
majority of the Series E-2 Preferred Stock then outstanding shall constitute a
quorum for the purpose of electing the directors as set forth in the first
sentence of this Paragraph 3(d). Any vacancy in said directorships shall be
filled only by a replacement director designated by The Sprout Group (if such
vacancy is a designee of The Sprout Group) or the nomination of a replacement
director by a majority in interest of the shares of Series E and Series E-2
Preferred Stock, voting together as a single class (if such vacancy is a
designee of the majority in interest of the shares of Series E and Series E-2
Preferred Stock), and an affirmative vote or written consent as described in the
first sentence of this Paragraph 3(d).
(e) The holders of record of the shares of Common Stock and of any
other class or series of voting stock (including the Series A, B, E and E-2
Preferred Stock and the
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Series C and D Preferred Stock), voting together as a single class, shall be
entitled to elect as directors by a majority vote (i) either the Chief Executive
Officer or the Chief Business Officer of the Corporation as nominated by a
majority of the Board of Directors and; (ii) three (3) directors which directors
shall be non-employee directors of the Corporation as nominated by a majority of
the Board of Directors.
(f) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series E and E-2 Preferred Stock (as defined in Subparagraph
3(g) hereof), exclusively and voting together as a single class:
(1) redeem, repurchase or acquire any of its Common Stock except
in connection with (A) the termination of employment agreements with
the holders thereof or (B) the exercise of the Corporation's right of
first refusal under the Corporation's By-Laws or the Second Amended and
Restated Right of First Refusal Agreement dated as of July 30, 1999;
(2) permit any change in the number of directorships of the
Corporation, which number shall initially be set at eight (8);
(3) (A) merge with or into or consolidate with any other
corporation in a transaction resulting in the shareholders of the
Corporation owning less than 50% of the resulting Corporation's voting
capital stock, (B) sell, lease, or otherwise dispose of all or
substantially all of its properties or assets, (C) assign, grant a
license under or otherwise transfer all or substantially all of its
technology or intellectual property rights;
(4) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series E or E-2 Preferred Stock;
(5) amend, alter or repeal in any way any provision of the
Corporation's Amended and Restated Certificate of Incorporation, in
order to (i) increase the number of authorized shares of Series E or
E-2 Preferred Stock or (ii) effect any change which would have an
adverse effect on the rights, preferences and privileges of the Series
E or E-2 Preferred Stock; or
(6) authorize any debt securities other than unsecured debt of
less than Two Million Dollars ($2,000,000) or any debt secured by
accounts receivable, inventory, real property, fixtures or equipment.
PROVIDED that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(g) For purposes of this Article FOURTH "Qualified Series E and
E-2 Preferred Stock" shall mean shares of Series E or E-2 Preferred Stock held
by The Sprout Group, Kummell Investments Limited, Rovent II Limited Partnership,
Advent Partners Limited Partnership, Atlas Venture Fund III, L.P., Forward
Ventures Vanguard Fund II, The Goldman
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Sachs Group, L.P., Oxford Bioscience Partners II L.P., Oxford Bioscience
Partners (Adjunct) II L.P and Oxford Bioscience Partners (Bermuda) II Limited
Partnership (individually, an "Investor" and collectively, the "Investors"), an
Affiliate of an Investor or a person who (i) acquired at least 300,000 shares of
Series E or E-2 Preferred Stock, including shares of Common Stock into which
such shares were converted, as adjusted for stock splits, stock dividends,
recapitalization and similar events and (ii) at the time of such acquisition
delivered to the Corporation a written instrument identifying itself, giving the
Corporation notice of the acquisition of such shares, identifying any securities
of the Corporation owned or acquired by it and agreeing that such person will
keep confidential and will not disclose or divulge any confidential, proprietary
or secure information which such person may obtain from the Corporation pursuant
to financial statements, reports and other materials submitted by the
Corporation to such person, unless such information is known, or until such
information becomes known, to the public; PROVIDED HOWEVER, that such person may
disclose such information (A) to its attorneys, accountants, consultants, and
other professionals to the extent necessary to obtain their services in
connection with it investment in the Corporation, (B) to any prospective
purchaser of any Qualified Series E or E-2 Preferred Shares from such person (as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this subsection (ii), (C) to any Affiliate to such person or to a
partner, shareholder or subsidiary of such person who is bound to protect the
confidential or proprietary nature of such information, (D) as may be required
or appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such person, (E) as may be required or appropriate in response to any summons or
subpoena or in connection with any litigation, or (F) in order to comply with
any law, order, regulation or ruling applicable to such holder. Notwithstanding
anything to the contrary contained herein any shares of Series E or E-2
Preferred Stock transferred by any Investor which is a partnership or
corporation to any partner, retired partner or stockholder thereof, who agrees
to be bound as set forth in subsection (ii) above shall be Qualified Preferred
Shares. For purposes of this subsection, "Affiliate" shall mean, in respect of
any person or entity controlling, controlled by, or under common control with,
such person or entity, and the term "control" shall have the meaning given to it
under the Securities Act or 1933, as amended and the rules and regulations
promulgated thereunder.
4. OPTIONAL CONVERSION. The holders of the Series A and B Preferred
Stock and the Series E and E-2 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A and B Preferred Stock
and Series E and E-2 Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by (i) dividing $3.25
by the Series A Conversion Price (as defined below) in effect at
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the time of conversion with respect to shares of Series A Preferred Stock, (ii)
dividing $3.25 by the Series B Conversion Price (as defined below) in effect at
the time of conversion with respect to shares of Series B Preferred Stock; (i)
dividing $3.25 by the Series E Conversion Price (as defined below) in effect at
the time of conversion with respect to shares of Series E Preferred Stock; and
(ii) dividing $3.25 by the Series E-2 Conversion Price (as defined below) in
effect at the time of conversion with respect to shares of Series E-2 Preferred
Stock . The "Series A Conversion Price" shall initially be $3.25, the "Series B
Conversion Price" shall initially be $3.25, the "Series E Conversion Price"
shall initially be $3.25 and the "Series E-2 Conversion Price" shall initially
be $3.25. Such initial Series A Conversion Price, Series B Conversion Price,
Series E Conversion Price and Series E-2 Conversion Price (collectively
sometimes referred to as "Conversion Prices"), and the rate at which shares of
Series A Preferred Stock, Series B Preferred Stock, Series E Preferred Stock and
Series E-2 Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A, B, E
or E-2 Preferred Stock pursuant to Paragraph 6 of this Section C, the Conversion
Rights of the shares designated for redemption shall terminate at the close of
business on the fifth day preceding the date fixed for redemption, unless the
redemption price is not paid when due, in which case the Conversion Rights for
such shares shall continue until such price is paid in full. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first day preceding the date fixed for the payment of
any amounts distributable on liquidation to the holders of Series A and B
Preferred Stock and Series E and E-2 Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A, B, E or E-2 Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price or Series E-2 Conversion Price, as applicable.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A, B, E or E-2 Preferred
Stock to convert shares of Series A, B, E or E-2 Preferred Stock into
shares of Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series A, B, E or E-2 Preferred Stock,
at the office of the transfer agent for the Series A, B, E or E-2
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written
notice that such holder elects to convert all or any number of the
shares of the Series A, B, E or E-2 Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name
or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If
required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by
the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its
own transfer agent) shall be the conversion date ("Conversion Date").
The Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of Series A, B, E
or E-2 Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled, together with cash in lieu of any fraction of
a share.
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(ii) The Corporation shall at all times when the Series A, B,
E and E-2 Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A, B, E and E-2 Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
Series A, B, E and E-2 Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series A, B, E or E-2 Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A, B, E and E-2 Preferred Stock
which shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date,
except only the right of the holders thereof to receive shares of
Common Stock in exchange therefor and payment of any dividends declared
or accrued but unpaid thereon. Any shares of Series A, B, E and E-2
Preferred Stock so converted shall be retired and cancelled and shall
not be reissued, and the Corporation (without the need for stockholder
action) may from time to time take such appropriate action as may be
necessary to reduce the authorized Series A, B, E or E-2 Preferred
Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock upon conversion of shares of Series A, B, E or
E-2 Preferred Stock pursuant to this Paragraph 4. The Corporation shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares
of Common Stock in a name other than that in which the shares of Series
A, B, E or E-2 Preferred Stock so converted were registered, and no
such issuance or delivery shall be made unless and until the person or
entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICES FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subparagraph
4(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options to acquire shares
described in Subparagraph 4(d)(i)(D) below.
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(B) "SERIES E ORIGINAL ISSUE DATE" shall mean the date on
which the first share of Series E Preferred Stock was issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subparagraph
4(d)(iii) below, deemed to be issued) by the Corporation after the
Series E Original Issue Date, other than shares of Common Stock
issued or issuable:
(I) upon conversion of shares of Series A, B, C, D,
E or E-2 Preferred Stock outstanding on the
Series E Original Issue Date;
(II) as a dividend or distribution on Series A, B, C,
D, E, or E-2 Preferred Stock;
(III) by reason of a dividend, stock split, split-up
or other distribution on shares of Common Stock
that are excluded from the definition of
Additional Shares of Common Stock by the
foregoing clauses (I) and (II) or this clause
(III); or
(IV) to employees or directors of, or consultants to,
the Corporation pursuant to any plan,
arrangement or agreement approved by the Board
of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICES.
(A) No adjustment in the number of shares of Common Stock
into which the Series A or B Preferred Stock is convertible shall
be made, by adjustment in the applicable Series A Conversion Price
or Series B Conversion Price thereof: (A) unless the consideration
per share (determined pursuant to Subparagraph 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the applicable Series A Conversion
Price or Series B Conversion Price in effect on the date of, and
immediately prior to, the issue of such Additional Shares, or (B)
if prior to such issuance, the Corporation receives written notice
from the holders of a majority of the then outstanding shares of
Series A and B Preferred Stock, exclusively and voting together as
a single class, agreeing that no such adjustment shall be made as
the result of the issuance of Additional Shares of Common Stock.
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(B) No adjustment in the number of shares of Common Stock
into which the Series E or E-2 Preferred Stock is convertible
shall be made, by adjustment in the applicable Series E Conversion
Price or Series E-2 Conversion Price thereof: (A) unless the
consideration per share (determined pursuant to Subparagraph
4(d)(v)) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Series E
Conversion Price or Series E-2 Conversion Price, as applicable, in
effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (B) if prior to such issuance, the
Corporation receives written notice from the holders of a majority
of the then outstanding shares of Series E and E-2 Preferred
Stock, exclusively and voting together as a single class, agreeing
that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. If the Corporation at any time or from time to time after
the Series E Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders
of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard
to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Subparagraph 4(d)(v) of this Section C) of such
Additional Shares of Common Stock would be less than the applicable
Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price or Series E-2 Conversion Price in effect on the date
of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Prices shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, upon the
exercise, conversion or exchange thereof, the Conversion Prices
computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects
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such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Prices then in effect shall forthwith be
readjusted to such Conversion Prices as would have obtained had
the adjustment which was made upon the issuance of such
unexercised Option not been made, and the Additional Shares of
Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Prices;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, including, but not limited to,
a change resulting from the anti-dilution provisions thereof, the
Conversion Prices then in effect shall forthwith be readjusted to
such Conversion Prices as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing either Conversion Price
to an amount which exceeds the lower of (i) the applicable
Conversion Price on the original adjustment date, or (ii) the
applicable Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(iv) ADJUSTMENT OF CONVERSION PRICES UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Corporation shall at any time
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subparagraph 4(d)(iii),
but excluding shares issued as a dividend or distribution as provided
in Subparagraph 4(f) or upon a stock split or combination as provided
in Subparagraph 4(e)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price, Series B
Conversion Price, Series E Conversion Price or Series E-2 Conversion
Price in effect on the date of and immediately prior to such issue,
then and in such event, the Series A Conversion Price, Series B
Conversion Price, Series E Conversion Price and Series E-2 Conversion
Price in effect at such time shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by
multiplying the Series A Conversion Price, the Series B Conversion
Price, the Series E Conversion Price and the Series E-2 Conversion
Price by a fraction, (A) the numerator of which shall be (1) the number
of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the
total number of Additional Shares of Common Stock so issued would
purchase at such Series A, B, E or E-2 Conversion Price; and (B) the
denominator of which shall be
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the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so
issued; PROVIDED that, (i) for the purpose of this Subparagraph
4(d)(iv), all shares of Common Stock issuable upon conversion of
Convertible Securities outstanding immediately prior to such issue
shall be deemed to be outstanding, and (ii) the number of shares of
Common Stock deemed issuable upon conversion of such outstanding
Convertible Securities shall not give effect to any adjustments to the
exercise or conversion price or conversion rate of such Convertible
Securities resulting from the issuance of Additional Shares of Common
Stock that is the subject of this calculation.
Notwithstanding the foregoing, until January 31, 2001 the Series E
Conversion Price and the Series E-2 Conversion Price shall be reduced,
concurrently with such issuance described in the foregoing paragraph,
to a price equal to the lowest consideration per share received or to
be received by the Corporation for the Additional Shares of Common
Stock so issued instead of pursuant to the formula set forth in the
foregoing paragraph.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subparagraph 4(d), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) CASH AND PROPERTY: Such consideration:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both,
be the proportion of such consideration so received, computed
as provided in clauses (I) and (II) above, as determined in
good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subparagraph
4(d)(iii), relating to Options and Convertible Securities, shall
be determined by dividing:
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the
issue of such Options or Convertible Securities,
plus the minimum aggregate
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<PAGE>
amount of additional consideration (as set forth
in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of
such Options or the conversion or exchange of
such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise
of such Options for Convertible Securities and
the conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained
therein for a subsequent adjustment of such
number) issuable upon the exercise of such
Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock
which are comprised of shares of the same series or class of Preferred
Stock, and such issuance dates occur within a period of no more than
120 days, then the Conversion Prices shall be adjusted only once on
account of such issuances, with such adjustment to occur upon the final
such issuance and to give effect to all such issuances as if they
occurred on the date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series E Original
Issue Date effect a subdivision of the outstanding Common Stock, the Series A
Conversion Price, Series B Conversion Price, Series E Conversion Price and
Series E-2 Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased. If the Corporation shall at any time or from
time to time after the Series E Original Issue Date combine the outstanding
shares of Common Stock, the Series A Conversion Price, Series B Conversion
Price, Series E Conversion Price and the Series E-2 Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series E
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Series A Conversion Price, Series B Conversion Price, Series
E Conversion Price and Series E-2 Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price and the Series E-2 Conversion Price then in effect by a
fraction:
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(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record
date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price and Series E-2 Conversion Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the Series A
Conversion Price, Series B Conversion Price, Series E Conversion Price and
Series E-2 Conversion Price shall be adjusted pursuant to this paragraph as of
the time of actual payment of such dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Series E
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A, B, E and E-2 Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had the Series A, B, E or E-2 Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A, B, E or E-2
Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A, B, E or E-2
Preferred Stock shall be changed into the same or a different, number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A, B, E or E-2 Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series A, B, E or E-2 Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
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(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(c)), each share of Series A, B, E and E-2 Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A, B, E or E-2 Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series A, B, E and E-2 Preferred Stock, to the end that the provisions set
forth in this Paragraph 4 (including provisions with respect to changes in and
other adjustments of the Conversion Prices) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A, B, E or E-2
Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Amended and Restated 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
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Paragraph 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A, B, E and E-2 Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A, B, E or E-2 Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A, B, E or E-2 Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments, (ii) the Series A Conversion
Price, Series B Conversion Price, Series E Conversion Price or Series E-2
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A, B, E or E-2 Preferred Stock, as applicable.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
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(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of
all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A, B, E and E-2 Preferred Stock, and
shall cause to be mailed to the holders of the Series A, B, E and E-2 Preferred
Stock at their last addresses as shown on the records of the Corporation or such
transfer agent, at least ten days prior to the date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
5. MANDATORY CONVERSION.
(a) All outstanding shares of Series A, B, E and E-2 Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price or Series E-2 Conversion Price as applicable, (i) upon the
closing of the sale of shares of Common Stock, at a price of at least $10.00 per
share (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares), in a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $20,000,000 of gross
proceeds to the Corporation, or (ii) upon the affirmative vote or written
consent of the holders of not less than a majority of the issued and outstanding
shares of Series E and E-2 Preferred Stock, exclusively and voting together as a
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single class to convert all shares of Series A, B, E and E-2 Preferred Stock
(the "Mandatory Conversion Date").
(b) All holders of record of shares of Series A, B, E and E-2
Preferred Stock will be given written notice of the Mandatory Conversion Date
and the place designated for mandatory conversion of all such shares of Series
A, B, E and E-2 Preferred Stock pursuant to this Paragraph 5. Such notice need
not be given in advance of the occurrence of a Mandatory Conversion Date. Such
notice shall be sent by first class or registered mail, postage prepaid, to each
record holder of Series A, B, E and E-2 Preferred Stock at such holder's address
last shown on the records of the transfer agent for the Series A, B, E and E-2
Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series A,
B, E and E-2 Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Paragraph 5.
On the Mandatory Conversion Date, all rights with respect to the Series A, B, E
and E-2 Preferred Stock so converted, including the rights, if any, to receive
notices and vote, will terminate, except only the rights of the holders thereof,
upon surrender of their certificate or certificates therefor, to receive
certificates for the number of shares of Common Stock into which such Series A,
B, E or E-2 Preferred Stock has been converted, and payment of any declared or
accrued but unpaid dividends thereon (all of which shall be deemed to be
declared by the Board of Directors on the Mandatory Conversation Date). If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A, B, E or E-2 Preferred Stock, the Corporation shall
cause to be issued and delivered to such holder, or on his or its written order,
a certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subparagraph 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A, B, E and E-2
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A, B, E or E-2 Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A, B, E or E-2
Preferred Stock accordingly.
6. OPTIONAL REDEMPTION.
(a) ELECTION OF HOLDERS TO REQUIRE REDEMPTION. At any time, on or
after July 30, 2004 , at the election of the holders of a majority of the shares
of Series A, B, C, D, E and E-2 Preferred Stock then outstanding and together as
a single class, the Corporation shall, to the
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extent permitted by law at such time, be required to redeem all of the
outstanding shares of Series A, B, C, D, E and E-2 Preferred Stock, in three
equal annual installments, with one-third of the shares redeemable on the
Redemption Date (as defined below), one-third redeemable on the first
anniversary of the Redemption Date (the "Second Redemption Date") and one-third
redeemable on the third anniversary of the Redemption Date (the "Third
Redemption Date") upon the terms described in this Paragraph 6.
(b) REDEMPTION PRICE. The redemption price per share of Series A
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon, and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series A Preferred Stock (the "Series A Redemption Price"). The
redemption price per share of Series B Preferred Stock shall be $3.25 per share,
plus an additional $.29 per share for each full year between July 30, 1999 and
the applicable Redemption Date, plus all accrued and unpaid dividends thereon,
and less all dividends actually paid thereon, on such share up to and including
the date fixed for redemption of such shares of Series B Preferred Stock (the
"Series B Redemption Price"). The redemption price per share of Series C
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series C Preferred Stock (the "Series C Redemption Price"). The
redemption price per share of Series D Preferred Stock shall be $3.25 per share,
plus an additional $.29 per share for each full year between July 30, 1999 and
the applicable Redemption Date, plus all accrued and unpaid dividends thereon
and less all dividends actually paid thereon, on such share up to and including
the date fixed for redemption of such shares of Series D Preferred Stock (the
"Series D Redemption Price"). The redemption price per share of Series E
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series E Preferred Stock (the "Series E Redemption Price"). The
redemption price per share of Series E-2 Preferred Stock shall be $3.25 per
share, plus all accrued and unpaid dividends thereon, including the dividend
provided for in subsection 1(a) of this paragraph, on such share up to and
including the date fixed for redemption of such shares of Series E-2 Preferred
Stock (the "Series E-2 Redemption Price"). The Series A Redemption Price shall
be equitably adjusted whenever there shall occur a subdivision, combination,
reclassification or recapitalization relating to the Series A Preferred Stock.
The Series B Redemption Price shall be equitably adjusted whenever there shall
occur a subdivision, combination, reclassification or recapitalization relating
to the Series B Preferred Stock. The Series C Redemption Price shall be
equitably adjusted whenever there shall occur a subdivision, combination,
reclassification or recapitalization relating to the Series C Preferred Stock.
The Series D Redemption Price shall be equitably adjusted whenever there shall
occur a subdivision, combination, reclassification or recapitalization relating
to the Series D Preferred Stock. The Series E Redemption Price shall be
equitably adjusted whenever there shall occur a subdivision, combination,
reclassification or recapitalization relating to the Series E Preferred Stock.
The Series E-2 Redemption Price shall be equitably adjusted whenever there shall
occur a
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subdivision, combination, reclassification or recapitalization relating to the
Series E-2 Preferred Stock.
(c) REDEMPTION NOTICE. If the holders of a majority of the
outstanding shares of Series A, B, C, D, E and E-2 Preferred Stock shall elect
to require the Corporation to redeem all of the outstanding shares of Series A,
B, C, D, E and E-2 Preferred Stock (the "Redeeming Preferred Stock"), such
holders shall deliver a written notice to the Corporation not less than thirty
(30) days prior to a date fixed by such holders for the redemption of the shares
of Redeeming Preferred Stock (the "Redemption Date") and stated in such notice.
Not later than five (5) days prior to the Redemption Date, the Corporation shall
mail, postage prepaid, written notice of the redemption (the "Redemption
Notice") to each holder of record of Redeeming Preferred Stock, at its address
as appears on the records of the Corporation. Failure of the Corporation to
deliver the Redemption Notice shall not affect its obligation to redeem any
shares of Redeeming Preferred Stock pursuant to this Paragraph 6. The Redemption
Notice shall state:
(i) the total number of shares of Redeeming Preferred Stock to be
redeemed on the Redemption Date, the Second Redemption Date and
the Third Redemption Date and the number of shares of Redeeming
Preferred Stock to be redeemed on each such date from the holder
to which such notice is addressed;
(ii) the date of the Redemption Date, the Second Redemption Date
and the Third Redemption Date and the Series A Redemption Price,
Series B Redemption Price, Series C Redemption Price, Series D
Redemption Price, Series E Redemption Price and Series E-2
Redemption Price, as applicable; and
(iii) that the holder shall surrender to the Corporation on or
before the Redemption Date, the Second Redemption Date and the
Third Redemption Date at its principal office or such other place
as may be designated in the Redemption Notice, any certificate(s)
held by it representing shares to be redeemed.
(d) SURRENDER OF CERTIFICATES. Each holder of shares of Redeeming
Preferred Stock being redeemed shall surrender the certificate(s) held by it
representing such shares to the Corporation at its principal office or such
other place as may be designated in the Redemption Notice. Upon such surrender,
the Corporation shall pay to the order of the person whose name appears on such
certificate(s) the Series A Redemption Price, Series B Redemption Price, Series
C Redemption Price, Series D Redemption Price, Series E Redemption Price or
Series E-2 Redemption Price, as applicable, for such shares, and each
surrendered certificate shall be cancelled. In the event that, pursuant to
Subparagraph 6(a) of this Section C, not all of the shares of Redeeming
Preferred Stock represented by a surrendered certificate are being redeemed, the
Corporation shall deliver to the holder, at the expense of the Corporation, a
new certificate representing the number of shares of Redeeming Preferred Stock
not redeemed.
(e) NO DIVIDENDS, CONVERSION OR INTEREST AFTER REDEMPTION. If the
funds necessary for such redemption shall have been set aside by the Corporation
and deposited with a bank or trust company, in an irrevocable trust for the
benefit of the holders of the Redeeming
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Preferred Stock that has been called for redemption, then, notwithstanding that
any certificates for shares that have been called for redemption shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding from and after such redemption date, shall not be
entitled to any further dividends pursuant to Paragraph 1 of this Section C and
shall not be entitled to conversion pursuant to Paragraph 4 of this Section C,
and all rights of holders of such shares so called for redemption shall
forthwith, after such redemption date, cease and terminate, excepting only the
right to receive the redemption funds therefor to which they are entitled, but
without interest. Any interest accrued on funds so deposited and unclaimed by
stockholders entitled thereto shall be paid to such stockholders at the time
their respective shares are redeemed or to the Corporation at the time unclaimed
amounts are paid to it. In case the holders of Redeeming Preferred Stock which
shall have been called for redemption shall not, within six (6) years after the
Redemption Date, claim the amounts so deposited with respect to the redemption
thereof, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof to such holder and
such holder shall look only to the Corporation for the payment thereof. Any
funds so deposited with a bank or trust company which shall not be required for
such redemption by reason of the exercise subsequent to the date of such deposit
of the right of conversion of any shares of Redeeming Preferred Stock, or
otherwise, shall be returned to the Corporation forthwith.
(f) DIVIDENDS ON SHARES NOT REDEEMED. Any shares of Redeeming
Preferred Stock not redeemed when and as required by this paragraph shall
continue to bear dividends at 200% of the rate, and otherwise in the same
manner, as set forth in Paragraphs 1(a), 1(b), 1(c) and 1(d) of this Section C.
7. AMENDMENTS TO THE CERTIFICATE OF INCORPORATION. Notwithstanding the
provisions of Article TENTH hereof, the provisions of Paragraph 3 hereof may not
be repealed or amended in any respect, nor may any other provision be amended,
adopted or repealed which would have the effect of modifying or permitting
circumvention of such provisions, unless (i) with respect to Paragraph 3, except
for subsections (b), (c) or (d), such action is approved by the affirmative vote
or written consent of the holders of not less than 66 2/3% of the issued and
outstanding shares of Series A, B, E and E-2 Preferred Stock, exclusively and
voting together as a single class; (ii) with respect to Paragraph 3(b), such
action is approved by the affirmative vote or written consent of the holders of
a majority of the Series A Preferred Stock voting separately as a class, (iii)
with respect to Paragraph 3(c), such action is approved by the affirmative vote
or written consent of the holders of a majority of the Series B Preferred Stock
voting separately as a class, and (iv) with respect to Paragraph 3(d), such
action is approved by the affirmative vote or written consent of the holders of
a majority of the Series E and E-2 Preferred Stock voting separately as a class.
D. SERIES C CONVERTIBLE PREFERRED STOCK AND SERIES D CONVERTIBLE PREFERRED
STOCK.
Seventy-Seven Thousand Five Hundred Nineteen (77,519) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock") and
Three Hundred Twenty Thousand
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(320,000) shares of the authorized and unissued Preferred Stock of the
Corporation are hereby designated "Series D Convertible Preferred Stock" (the
"Series D Preferred Stock"), each of the Series C and D Preferred Stock with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. DIVIDENDS.
(a) The holders of the outstanding shares of Series C and D
Preferred Stock shall, assuming the conversion of all shares to shares of Common
Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled to
receive, out of any funds legally available therefor, such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock or Series D Preferred Stock until the
holders of the Series C Preferred Stock then outstanding shall have first
received, or simultaneously receive, a cash dividend on each outstanding share
of Series C Preferred Stock in an amount at least equal to the product of (i)
the per share amount, if any, of the distributions to be declared, paid or set
aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series C Preferred Stock is then
convertible.
(c) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series D
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series D Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series D Preferred Stock is then convertible.
(d) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after the payment of all
preferential amounts required to be paid to the holders of Series E Preferred
Stock, and any other class or series of stock of the
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Corporation ranking on liquidation on a parity with the Series E Preferred
Stock, holders of Series C and D Preferred Stock, upon the dissolution,
liquidation or winding up of the Corporation, and holders of shares of Series E
Preferred Stock and Junior Stock then outstanding shall share ratably, on an As
Converted Basis, in the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(b) The occurrence of any merger or consolidation of the
Corporation into or with another corporation (except one in which the holders of
capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least 50% by voting power of the capital stock
of the surviving corporation), or the sale of all or substantially all the
assets of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subparagraph 2(a) above,
unless the holders of a majority of the then outstanding shares of Series E and
E-2 Preferred Stock, exclusively and voting together as a single class), elect
that such event not constitute a liquidation, by giving written notice thereof
to the Corporation at least three days before the effective date of, unless such
event. In the event of a deemed liquidation, the Corporation shall use its best
efforts to amend the agreement or plan of merger or consolidation to adjust the
rate at which the shares of capital stock of the Corporation are converted into
or exchanged for cash, new securities or other property to give effect to such
election. The amount deemed distributed to the holders of Series C and D
Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation. If no notice of the election permitted by this Subparagraph (b)
is given, the provisions of Subparagraph 4(i) shall apply.
3. VOTING. Each holder of outstanding shares of Series C or D
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Series C or D Preferred
Stock held by such holder are then convertible (as adjusted from time to time
pursuant to Paragraph 4 of this Section D), at each meeting of stockholders of
the Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions establishing any other series of Series Preferred Stock, holders of
Series C and D Preferred Stock and of any other outstanding series of Series
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
4. OPTIONAL CONVERSION. The holders of the Series C and D Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C and D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and
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nonassessable shares of Common Stock as is determined by (i) dividing $3.25 by
the Series C Conversion Price (as defined below) in effect at the time of
conversion with respect to shares of Series C Preferred Stock; and (ii) dividing
$3.25 by the Series D Conversion Price (as defined below) in effect at the time
of conversion with respect to shares of Series D Preferred Stock. The "Series C
Conversion Price" shall initially be $3.25, and the "Series D Conversion Price"
shall initially be $3.25. Such initial Series C Conversion Price and Series D
Conversion Price (collectively, sometimes referred to as "Conversion Prices")
and the rate at which shares of Series C Preferred Stock and Series D Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Series C and D Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series C or D Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price or Series D Conversion Price, as applicable.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C or D Preferred Stock to
convert shares of Series C or D Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for
such shares of Series C or D Preferred Stock, at the office of the
transfer agent for the Series C or D Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder
elects to convert all or any number of the shares of the Series C or D
Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or his or its
attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if
the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office
to such holder of Series C or D Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash
in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series C and
D Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C and D
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Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C and D Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series C or D Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series C and D Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer
be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any dividends declared or accrued but
unpaid thereon. Any shares of Series C and D Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and
the Corporation (without the need for stockholder action) may from time
to time take such appropriate action as may be necessary to reduce the
authorized Series C or D Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of
shares of Common Stock upon conversion of shares of Series C or D
Preferred Stock pursuant to this Paragraph 4. The Corporation shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares
of Common Stock in a name other than that in which the shares of Series
C or D Preferred Stock so converted were registered, and no such
issuance or delivery shall be made unless and until the person or
entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date on which the
first share of Series C Preferred Stock or Series D Preferred Stock, as
applicable was issued (the "Original Issue Date") effect a subdivision of the
outstanding Common Stock, the Series C Conversion Price and Series D Conversion
Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Series C Conversion Price and Series D Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a
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dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Series C Conversion Price and Series D
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Series C Conversion
Price and Series D Conversion Price then in effect by a fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series C Conversion Price and Series D Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series C Conversion Price and Series D Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series C and
D Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had the Series C or D Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Series C
or D Preferred Stock.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series C or D Preferred
Stock shall be changed into the same or a different, number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Series C or D Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into
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which such shares of Series C or D Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(b)), each share of Series C and D Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series C or D Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series C and D Preferred Stock, to the end that the provisions set forth in
this Paragraph 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series C or D Preferred Stock.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of its
Amended and Restated 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
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Paragraph 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series C and D Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C or D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series C or D Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series C Conversion Price or Series D
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series C or D Preferred Stock, as applicable.
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(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of
all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C and D Preferred Stock, and shall
cause to be mailed to the holders of the Series C and D Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and the
date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) All outstanding shares of Series C and D Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Series C Conversion Price or Series D Conversion Price, as applicable, (i) upon
the closing of the sale of shares of Common Stock, at a price of at least $10.00
per share (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations
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affecting such shares), in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $20,000,000 of gross proceeds to the Corporation, or (ii) upon the
affirmative vote or written consent of the holders of a majority of the issued
and outstanding shares of Series E and E-2 Preferred Stock, exclusively and
voting together as a single class, to convert all shares of C and D Preferred
Stock hereof (the "C and D Mandatory Conversion Date").
(b) All holders of record of shares of Series C and D Preferred
Stock will be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series C and D
Preferred Stock pursuant to this Paragraph 5. Such notice need not be given in
advance of the occurrence of a Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Series C and D Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series C and D Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series C and D Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Paragraph 5. On the Mandatory Conversion
Date, all rights with respect to the Series C and D Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series C or D Preferred Stock
has been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversation Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
C or D Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subparagraph 4(b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series C and D Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series C or D Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series C or D Preferred Stock accordingly.
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IN WITNESS WHEREOF, this Certificate of Amendment to be executed by its
President this 30TH day of July, 1999.
VARIAGENICS, INC.
By: /s/ TAYLOR J. CROUCH
---------------------------------
Taylor J. Crouch, President
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CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAGENICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Variagenics, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution was
duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Corporation be and hereby is deleted and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) Seventeen Million One Hundred
Fifty-Five Thousand Four Hundred Seventy-Three (17,155,473) shares of Common
Stock, $.0l par value per share ("Common Stock"), and (ii) Thirteen Million Six
Hundred Fifty-Three Thousand Seven Hundred Seventy-Four (13,653,774) shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which Five
Hundred Three Thousand Seven Hundred Eighty-Seven (503,787) shares have been
designated Series A Convertible Preferred Stock, and One Million Eight Hundred
Eighty-Three Thousand Five Hundred Forty-Seven (1,883,547) shares have been
designated Series B Convertible Preferred Stock, Seventy-Seven Thousand Five
Hundred Nineteen (77,519) shares have been designated Series C Convertible
Preferred Stock, Three Hundred Twenty Thousand (320,000) shares have been
designated Series D Convertible Preferred Stock, Four Million Six Hundred
Forty-Eight Thousand Seven Hundred Eighty-Nine (4,648,789) shares have been
designated Series E Convertible Preferred Stock, Two Million Two Hundred
Ninety-Eight Thousand Five Hundred Sixty-Four (2,298,564) shares have been
designated Series E-2 Convertible Preferred Stock, and Three Million Nine
Hundred Twenty-One Thousand Five Hundred Sixty-Eight (3,921,568) shares have
been designated Series F Convertible Preferred Stock.
<PAGE>
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class and series of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding,
including shares issuable upon conversion of shares of Preferred Stock then
outstanding, and upon exercise of options and warrants then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Any shares of Preferred Stock which may be redeemed, purchased or acquired
by the Corporation may be reissued except as otherwise provided by law.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly provided.
C. SERIES A CONVERTIBLE PREFERRED STOCK, SERIES B CONVERTIBLE PREFERRED
STOCK, SERIES E CONVERTIBLE PREFERRED STOCK, SERIES E-2 CONVERTIBLE PREFERRED
STOCK AND SERIES F CONVERTIBLE PREFERRED STOCK.
Five Hundred Three Thousand Seven Hundred Eighty-Seven (503,787) shares of
the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A
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Convertible Preferred Stock" (the "Series A Preferred Stock"), One Million Eight
Hundred Eighty-Three Thousand Five Hundred Forty-Seven (1,883,547) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock"), Four
Million Six Hundred Forty-Eight Thousand Seven Hundred Eighty-Nine (4,648,789)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series E Convertible Preferred Stock" (the "Series E
Preferred Stock"), Two Million Two Hundred Ninety-Eight Thousand Five Hundred
Sixty-Four (2,298,564) shares of the authorized and unissued Preferred Stock of
the Corporation are hereby designated "Series E-2 Convertible Preferred Stock"
(the "Series E-2 Preferred Stock") and Three Million Nine Hundred Twenty-One
Thousand Five Hundred Sixty-Eight (3,921,568) shares of the authorized and
unissued Preferred Stock of the Corporation are hereby designated "Series F
Convertible Preferred Stock" (the "Series F Preferred Stock"), each of the
Series A, Series B, Series E, Series E-2 and Series F Preferred Stock with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. Dividends.
(a) The holders of the outstanding shares of Series F Preferred Stock
shall, sharing ratably, assuming the conversion of all shares to shares of
Common Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled
to receive, out of any funds legally available therefor, (i) prior to any
distribution (as defined below) to the holders of Common Stock, non-cumulative
dividends payable in cash or in kind at the election of the Corporation when and
if declared by the Board of Directors of the Corporation, at the annual rate of
$0.46 per share per annum, and (ii) such dividends or distributions when and if
declared by the Board of Directors of the Corporation sharing ratably with
holders of Common Stock on an As Converted Basis.
(b) The holders of the outstanding shares of Series E and E-2
Preferred Stock shall, sharing ratably, assuming the conversion of all shares to
shares of Common Stock as provided in Paragraph 4 (an "As Converted Basis"), be
entitled to receive, out of any funds legally available therefor, (i) prior to
any distribution (as defined below) to the holders of Common Stock,
non-cumulative dividends payable in cash or in kind at the election of the
Corporation when and if declared by the Board of Directors of the Corporation,
at the annual rate of $0.29 per share per annum, and (ii) such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(c) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, the Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), the Series D Convertible Preferred Stock (the "Series D
Preferred Stock"), Series E Preferred Stock or Series E-2 Preferred Stock until
the holders of the Series F Preferred Stock then outstanding shall have first
received, or simultaneously receive, a cash dividend on each outstanding share
of Series F Preferred Stock in an amount at least equal to the product of (i)
the per share amount, if any, of the distributions to be declared, paid or set
aside for the Common Stock, multiplied by (ii) the
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number of whole shares of Common Stock into which such share of Series F
Preferred Stock is then convertible.
(d) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock until the
holders of the Series E and E-2 Preferred Stock then outstanding shall have
first received, or simultaneously receive, a cash dividend on each outstanding
share of Series E and E-2 Preferred Stock in an amount at least equal to the
product of (i) the per share amount, if any, of the distributions to be
declared, paid or set aside for the Common Stock, multiplied by (ii) the number
of whole shares of Common Stock into which such share of Series E or E-2
Preferred Stock is then convertible.
(e) The holders of the outstanding shares of Series A and B
Preferred Stock shall, assuming the conversion of all shares to shares of Common
Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled to
receive, out of any funds legally available therefor, such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
(f) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, Series C Preferred Stock or Series D
Preferred Stock until the holders of the Series A and B Preferred Stock then
outstanding shall have first received, or simultaneously receive, a cash
dividend on each outstanding share of Series A and B Preferred Stock in an
amount at least equal to the product of (i) the per share amount, if any, of the
distributions to be declared, paid or set aside for the Common Stock, multiplied
by (ii) the number of whole shares of Common Stock into which such share of
Series A or B Preferred Stock is then convertible.
(g) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets and funds of the
Corporation available for distribution to its stockholders shall be distributed
ratably to the holders of the Corporation's Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series E-2 Preferred Stock and Series F
Preferred Stock on an
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<PAGE>
As Converted Basis; provided, however, that the holders of Series F Preferred
Stock then outstanding may elect, by an affirmative vote or written consent of
the holders of at least 60% of the outstanding shares of Series F Preferred
Stock, voting exclusively and together as a single class, in lieu of receipt of
their ratable distribution on a par with the holders of the Corporation's Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series E-2
Preferred Stock, to be paid out of the assets of the Corporation available for
distribution to its stockholders before any payment shall be made to the holders
of Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series E-2
Preferred Stock or any other class or series of stock ranking on liquidation
junior to the Series F Preferred Stock (such Common Stock and other stock being
collectively referred to as "Junior Stock") by reason of their ownership
thereof, an amount (the "F Liquidation Amount") equal to $5.10 per share with
respect to shares of Series F Preferred Stock (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) plus an additional $.46 per share plus
all dividends declared or accrued but unpaid thereon and less all dividends
actually paid thereon, for each full year between the issuance of the Series F
Preferred and the date of such liquidation, dissolution or winding up of the
Corporation, in lieu of receipt of their ratable distribution to be shared with
the Junior Stock. If upon any such liquidation, dissolution or winding up of the
Corporation and such election by the holders of the then outstanding shares of
Series F Preferred Stock, the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series F Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series F Preferred Stock and any other class
or series of stock ranking on liquidation on a parity with the Series F
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Series E and
E-2 Preferred Stock then outstanding may elect, voting exclusively and together
as a single class, in lieu of receipt of their ratable distribution on a par
with the holders of the Corporation's Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series F Preferred Stock, to be paid out of the assets of the Corporation
available for distribution to its stockholders after payment has been made to
the holders of the then outstanding shares of Series F Preferred Stock but
before any payment shall be made to the holders of Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock or any other class or series of stock ranking on liquidation
junior to the Series E and E-2 Preferred Stock (such Common Stock and other
stock being collectively referred to as the "Junior-2 Stock") by reason of their
ownership thereof, an amount (the "E Liquidation Amount") equal to $3.25 per
share with respect to shares of Series E and E-2 Preferred Stock (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) plus an
additional $.29 per share plus all dividends declared or accrued but unpaid
thereon and less all dividends actually paid thereon, for each full year between
the issuance of the Series E and E-2 Preferred and the date of such
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<PAGE>
liquidation, dissolution or winding up of the Corporation, in lieu of receipt of
their ratable distribution to be shared with the Junior-2 Stock. If upon any
such involuntary liquidation, dissolution or winding up of the Corporation and
such election by the holders of the then outstanding shares of Series F
Preferred Stock, and after any distribution is paid to the holders of the then
outstanding shares of Series F Preferred Stock, the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series E and E-2 Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Series E and E-2
Preferred Stock and any other class or series of stock ranking on liquidation on
a parity with the Series E and E-2 Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(c) If the holders of the Series F Preferred Stock elect to receive
the F Liquidation Amount, after the payment of the F Liquidation Amount to the
holders of Series F Preferred Stock, and any other class or series of stock of
the Corporation ranking on liquidation on a parity with the Series F Preferred
Stock, holders of shares of Junior Stock then outstanding, upon the dissolution,
liquidation or winding up of the Corporation, shall share ratably, on an As
Converted Basis, in the remaining assets and funds of the Corporation available
for distribution to its stockholders; provided, however, that if the holders of
the Series E and E-2 Preferred Stock elect to receive the E Liquidation Amount,
after the payment of the F Liquidation Amount to the holders of the Series F
Preferred Stock (and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series F Preferred Stock), and the
payment of the E Liquidation Amount to the holders of the Series E and E-2
Preferred Stock (and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series E and E-2 Preferred Stock),
holders of shares of Junior-2 Stock then outstanding upon the dissolution,
liquidation or winding up of the Corporation shall share ratably, on an As
Converted Basis, in the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(d) The occurrence of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, shall be deemed to be a liquidation of the Corporation, and all
consideration payable to the stockholders of the Corporation (in the case of a
merger or consolidation), or all consideration payable to the Corporation,
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subparagraphs 2(a), 2(b) and 2(c) above, unless
the holders of a majority of the then outstanding shares of Series E, E-2 and F
Preferred Stock, exclusively and voting together as a single class, elect that
such event shall not constitute a liquidation by giving written notice thereof
to the Corporation at least three days before the effective date of such event.
The Corporation shall promptly provide to the holders of shares of Series E, E-2
and F Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series E, E-2 and F Preferred
Stock in order to assist them in determining whether to make
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such an election. In the event of a deemed liquidation, the Corporation shall
use its best efforts to amend the agreement or plan of merger or consolidation
to adjust the rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property to give
effect to such election. The amount deemed distributed to the holders of Series
A, B, E, E-2 and F Preferred Stock upon any such merger or consolidation shall
be the cash or the value of the property, rights or securities distributed to
such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation. If no notice of the election permitted by
this Subparagraph (d) is given, the provisions of Subparagraph 4(i) shall apply.
3. Voting.
(a) Each holder of outstanding shares of Series A, B, E, E-2 or F
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Series A, B, E, E-2 or F
Preferred Stock held by such holder are then convertible (as adjusted from time
to time pursuant to Paragraph 4 of this Section C), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law, by
the provisions of Subparagraphs 3(b), 3(c), 3(d), 3(e), 3(g), 3(h) or 3(i)
below, by the provisions of Paragraph 7 or by the provisions establishing any
other series of Series Preferred Stock, holders of Series A, B, E, E-2 or F
Preferred Stock and of any other outstanding series of Series Preferred Stock
shall vote together with the holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred Stock,
exclusively and voting as a separate class, shall be entitled to elect, by an
affirmative vote or written consent of a majority of the issued and outstanding
shares of Series A Preferred Stock, one (1) director of the Corporation which
shall be designated by a majority in interest of the shares of Series A
Preferred Stock; provided that such class voting rights shall terminate upon the
closing of the Corporation's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $20,000,000 of gross proceeds to the
Corporation at a minimum price of $10.20 per share (subject to appropriate
adjustment for stock splits, stock dividends, recapitalizations and other
similar events) (a "Qualified Public Offering"). At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum for the purpose of electing the director as set forth in the
first sentence of this Subparagraph 3(b). Any vacancy in said directorship shall
be filled only by the nomination of a replacement director by a majority in
interest of the shares of Series A Preferred Stock and an affirmative vote or
written consent as described in the first sentence of this Subparagraph 3(b).
(c) The holders of record of the shares of Series B Preferred Stock,
exclusively and voting as a separate class, shall be entitled to elect, by an
affirmative vote or written consent of a majority of the issued and outstanding
shares of Series B Preferred Stock,
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one (1) director of the Corporation which shall be designated by a majority in
interest of the shares of Series B Preferred Stock; provided that such class
voting rights shall terminate upon the closing of a Qualified Public Offering by
the Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the director as set forth in the first sentence of this
Subparagraph 3(c). Any vacancy in said directorship shall be filled only by the
nomination of a replacement director by a majority in interest of the shares of
Series B Preferred Stock and an affirmative vote or written consent as described
in the first sentence of this Subparagraph 3(c).
(d) The holders of record of the shares of Series E and E-2
Preferred Stock, exclusively and voting together as a single class, shall be
entitled to elect, by an affirmative vote or written consent of a majority of
the issued and outstanding shares of Series E and E-2 Preferred Stock, two (2)
directors of the Corporation (one of which shall be designated by The Sprout
Group and the other of which shall be designated by a majority in interest of
the shares of Series E and E-2 Preferred Stock, voting together as a single
class); provided that such class voting rights shall terminate upon the closing
of a Qualified Public Offering by the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series E Preferred Stock then outstanding and a
majority of the Series E-2 Preferred Stock then outstanding shall constitute a
quorum for the purpose of electing the directors as set forth in the first
sentence of this Subparagraph 3(d). Any vacancy in said directorships shall be
filled only by a replacement director designated by The Sprout Group (if such
vacancy is a designee of The Sprout Group) or the nomination of a replacement
director by a majority in interest of the shares of Series E and Series E-2
Preferred Stock, voting together as a single class (if such vacancy is a
designee of the majority in interest of the shares of Series E and Series E-2
Preferred Stock), and an affirmative vote or written consent as described in the
first sentence of this Subparagraph 3(d).
(e) The holders of record of the shares of Series F Preferred Stock,
exclusively and voting as a separate class, shall be entitled to elect, by an
affirmative vote or written consent of at least 60% of the issued and
outstanding shares of Series F Preferred Stock, one (1) director of the
Corporation which shall be designated by CIBC WMV Inc.; provided that such class
voting rights shall terminate upon the closing of a Qualified Public Offering by
the Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series F Preferred Stock then outstanding shall constitute a quorum for the
purpose of electing the director as set forth in the first sentence of this
Subparagraph 3(e). Any vacancy in said directorship shall be filled only by the
nomination of a replacement director by a majority in interest of the shares of
Series F Preferred Stock and an affirmative vote or written consent as described
in the first sentence of this Subparagraph 3(e).
(f) The holders of record of the shares of Common Stock and of any
other class or series of voting stock (including the Series A, B, E, E-2 and F
Preferred Stock and the Series C and D Preferred Stock), voting together as a
single class, shall be entitled to elect as directors by a majority vote (i)
either the Chief Executive Officer or the Chief Business Officer
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of the Corporation as nominated by a majority of the Board of Directors and;
(ii) three (3) directors which directors shall be non-employee directors of the
Corporation as nominated by a majority of the Board of Directors.
(g) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series E and E-2 Preferred Stock (as defined in Subparagraph
3(j) hereof) and Series F Preferred Stock, exclusively and voting together as a
single class:
(1) redeem, repurchase or acquire any of its Common Stock except in
connection with (A) the termination of employment agreements with the
holders thereof or (B) the exercise of the Corporation's right of first
refusal under the Corporation's By-Laws or the Second Amended and Restated
Right of First Refusal Agreement dated as of July 30, 1999;
(2) permit any change in the number of directorships of the
Corporation, which number shall initially be set at nine (9);
(3) (A) merge with or into or consolidate with any other corporation
in a transaction resulting in the shareholders of the Corporation owning
less than 50% of the resulting Corporation's voting capital stock, (B)
sell, lease, or otherwise dispose of all or substantially all of its
properties or assets, (C) assign, grant a license under or otherwise
transfer all or substantially all of its technology or intellectual
property rights; or
(4) authorize any debt securities other than unsecured debt of less
than Two Million Dollars ($2,000,000) or any debt secured by accounts
receivable, inventory, real property, fixtures or equipment.
provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(h) The Corporation shall not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Qualified Series E and E-2 Preferred Stock (as defined in Subparagraph
3(j) hereof), exclusively and voting together as a single class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities, other than Series F Preferred Stock, having rights,
preferences and privileges senior to or on a parity with the Series E or
E-2 Preferred Stock; or
(2) amend, alter or repeal in any way any provision of the
Corporation's Amended and Restated Certificate of Incorporation or Bylaws,
in order to (i) increase the number of authorized shares of Series E or
E-2 Preferred Stock or (ii) effect any change which would have an adverse
effect on the rights, preferences and privileges of the Series E or E-2
Preferred Stock.
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provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(i) The Corporation shall not, without the affirmative vote or
written consent of the holders of at least 60% of the issued and outstanding
shares of Series F Preferred Stock, exclusively and voting together as a single
class:
(1) authorize, issue or sell any equity security or any security
convertible into or evidencing the right to purchase shares of such
securities having rights, preferences and privileges senior to or on a
parity with the Series F Preferred Stock; or
(2) amend, alter or repeal in any way any provision of the
Corporation's Amended and Restated Certificate of Incorporation or Bylaws,
in order to (i) increase the number of authorized shares of Series F
Preferred Stock or (ii) effect any change which would have an adverse
effect on the rights, preferences and privileges of the Series F Preferred
Stock.
provided that such voting rights shall terminate upon the closing of a Qualified
Public Offering.
(j) For purposes of this Article FOURTH "Qualified Series E and E-2
Preferred Stock" shall mean shares of Series E or E-2 Preferred Stock held by
The Sprout Group, Kummell Investments Limited, Rovent II Limited Partnership,
Advent Partners Limited Partnership, Atlas Venture Fund III, L.P., Atlas Venture
Entrepreneurs' Fund III, L.P., Forward Ventures III, L.P., Forward Ventures III
Institutional Partners, L.P., The Goldman Sachs Group, L.P., Oxford Bioscience
Partners II L.P., Oxford Bioscience Partners (Adjunct) II L.P., Oxford
Bioscience Partners (GS-Adjunct) II, L.P. and Oxford Bioscience Partners
(Bermuda) II L.P. (individually, an "Investor" and collectively, the
"Investors"), an Affiliate of an Investor or a person who (i) acquired at least
300,000 shares of Series E or E-2 Preferred Stock, including shares of Common
Stock into which such shares were converted, as adjusted for stock splits, stock
dividends, recapitalization and similar events and (ii) at the time of such
acquisition delivered to the Corporation a written instrument identifying
itself, giving the Corporation notice of the acquisition of such shares,
identifying any securities of the Corporation owned or acquired by it and
agreeing that such person will keep confidential and will not disclose or
divulge any confidential, proprietary or secure information which such person
may obtain from the Corporation pursuant to financial statements, reports and
other materials submitted by the Corporation to such person, unless such
information is known, or until such information becomes known, to the public;
provided however, that such person may disclose such information (A) to its
attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Corporation, (B) to any prospective purchaser of any Qualified Series E or E-2
Preferred Shares from such person (as long as such prospective purchaser agrees
in writing to be bound by the provisions of this subsection (ii), (C) to any
Affiliate of such person or to a partner, shareholder or subsidiary of such
person who is bound to protect the confidential or proprietary nature of such
information, (D) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such person, (E) as may be
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required or appropriate in response to any summons or subpoena or in connection
with any litigation, or (F) in order to comply with any law, order, regulation
or ruling applicable to such holder. Notwithstanding anything to the contrary
contained herein any shares of Series E or E-2 Preferred Stock transferred by
any Investor which is a partnership or corporation to any partner, retired
partner or stockholder thereof, who agrees to be bound as set forth in
subsection (ii) above shall be Qualified Series E and E-2 Preferred Stock. For
purposes of this subsection, "Affiliate" shall mean, in respect of any person or
entity controlling, controlled by, or under common control with, such person or
entity, and the term "control" shall have the meaning given to it under the
Securities Act or 1933, as amended and the rules and regulations promulgated
thereunder.
4. Optional Conversion. The holders of the Series A and B Preferred Stock,
the Series E and E-2 Preferred Stock and the Series F Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A and B Preferred Stock,
Series E and E-2 Preferred Stock and Series F Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by (i) dividing $3.25 by the Series A Conversion Price (as defined
below) in effect at the time of conversion with respect to shares of Series A
Preferred Stock; (ii) dividing $3.25 by the Series B Conversion Price (as
defined below) in effect at the time of conversion with respect to shares of
Series B Preferred Stock; (iii) dividing $3.25 by the Series E Conversion Price
(as defined below) in effect at the time of conversion with respect to shares of
Series E Preferred Stock; (iv) dividing $3.25 by the Series E-2 Conversion Price
(as defined below) in effect at the time of conversion with respect to shares of
Series E-2 Preferred Stock; and (v) dividing $5.10 by the Series F Conversion
Price (as defined below) in effect at the time of conversion with respect to
shares of Series F Preferred Stock. The "Series A Conversion Price" shall
initially be $3.25, the "Series B Conversion Price" shall initially be $3.25,
the "Series E Conversion Price" shall initially be $3.25, the "Series E-2
Conversion Price" shall initially be $3.25 and the "Series F Conversion Price"
shall initially be $5.10. Such initial Series A Conversion Price, Series B
Conversion Price, Series E Conversion Price, Series E-2 Conversion Price and
Series F Conversion Price (collectively sometimes referred to as "Conversion
Prices"), and the rate at which shares of Series A Preferred Stock, Series B
Preferred Stock, Series E Preferred Stock, Series E-2 Preferred Stock and Series
F Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A, B, E,
E-2 or F Preferred Stock pursuant to Paragraph 6 of this Section C, the
Conversion Rights of the shares designated for redemption shall terminate at the
close of business on the fifth day preceding the date fixed for redemption,
unless the redemption price is not paid when due, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the
event of a liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first day preceding the date fixed for the
payment of any amounts distributable on liquidation to the
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holders of Series A and B Preferred Stock, Series E and E-2 Preferred Stock and
Series F Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A, B, E, E-2 or F Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price, Series E-2 Conversion Price or Series F Conversion Price, as
applicable.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A, B, E, E-2 or F
Preferred Stock to convert shares of Series A, B, E, E-2 or F Preferred
Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Series A, B, E, E-2 or F
Preferred Stock, at the office of the transfer agent for the Series A, B,
E, E-2 or F Preferred Stock (or at the principal office of the Corporation
if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Series A, B, E, E-2 or F Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of
such certificates and notice by the transfer agent (or by the Corporation
if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to
such holder of Series A, B, E, E-2 or F Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share.
(ii) The Corporation shall at all times when the Series A, B,
E, E-2 and F Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A, B, E, E-2 and F Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
Series A, B, E, E-2 and F Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series A, B, E, E-2 or F Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
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(iv) All shares of Series A, B, E, E-2 and F Preferred Stock
which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such
shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only
the right of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any dividends declared or accrued but
unpaid thereon. Any shares of Series A, B, E, E-2 and F Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and
the Corporation (without the need for stockholder action) may from time to
time take such appropriate action as may be necessary to reduce the
authorized Series A, B, E, E-2 or F Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A, B, E, E-2 or F
Preferred Stock pursuant to this Paragraph 4. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of Common Stock
in a name other than that in which the shares of Series A, B, E, E-2 or F
Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting
such issuance has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has
been paid.
(d) Adjustments to Conversion Prices for Diluting Issues:
(i) Special Definitions. For purposes of this Subparagraph
4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options to acquire shares
described in Subparagraph 4(d)(i)(D) below.
(B) "Series F Original Issue Date" shall mean the date
on which the first share of Series F Preferred Stock was issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subparagraph
4(d)(iii) below, deemed to be issued) by the Corporation after the
Series F Original Issue Date, other than shares of Common Stock
issued or issuable:
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(I) upon conversion of shares of Series A, B, C,
D, E, E-2 or F Preferred Stock outstanding
on the Series F Original Issue Date;
(II) as a dividend or distribution on Series A,
B, C, D, E, E-2 or F Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of
Common Stock that are excluded from the
definition of Additional Shares of Common
Stock by the foregoing clauses (I) and (II)
or this clause (III); or
(IV) to employees or directors of, or consultants
to, the Corporation pursuant to any plan,
arrangement or agreement approved by the
Board of Directors of the Corporation.
(ii) No Adjustment of Conversion Prices.
(A) No adjustment in the number of shares of Common
Stock into which the Series A or B Preferred Stock is convertible
shall be made, by adjustment in the applicable Series A Conversion
Price or Series B Conversion Price thereof: (A) unless the
consideration per share (determined pursuant to Subparagraph
4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Series A
Conversion Price or Series B Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares,
or (B) if prior to such issuance, the Corporation receives written
notice from the holders of a majority of the then outstanding shares
of Series A and B Preferred Stock, exclusively and voting together
as a single class, agreeing that no such adjustment shall be made as
the result of the issuance of Additional Shares of Common Stock.
(B) No adjustment in the number of shares of Common
Stock into which the Series E or E-2 Preferred Stock is convertible
shall be made, by adjustment in the applicable Series E Conversion
Price or Series E-2 Conversion Price thereof: (A) unless the
consideration per share (determined pursuant to Subparagraph
4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the Series E Conversion
Price or Series E-2 Conversion Price, as applicable, in effect on
the date of, and immediately prior to, the issue of such Additional
Shares, or (B) if prior to such issuance, the Corporation receives
written notice from the holders of a majority of the then
outstanding shares of Series E and E-2 Preferred Stock, exclusively
and voting together as a single class, agreeing that no such
adjustment shall be made as the result of the issuance of Additional
Shares of Common Stock.
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(C) No adjustment in the number of shares of Common
Stock into which the Series F Preferred Stock is convertible shall
be made, by adjustment in the applicable Series F Conversion Price
thereof: (A) unless the consideration per share (determined pursuant
to Subparagraph 4(d)(v)) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the
Series F Conversion Price in effect on the date of, and immediately
prior to, the issue of such Additional Shares, or (B) if prior to
such issuance, the Corporation receives written notice from the
holders of at least 60% of the then outstanding shares of Series F
Preferred Stock, exclusively and voting together as a single class,
agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock. If the Corporation at any time or from time to time after
the Series F Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of
any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock
(as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant
to Subparagraph 4(d)(v) of this Section C) of such Additional Shares of
Common Stock would be less than the applicable Series A Conversion Price,
Series B Conversion Price, Series E Conversion Price, Series E-2
Conversion Price or Series F Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Prices shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, upon the
exercise, conversion or exchange thereof, the Conversion Prices
computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects
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such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Conversion Prices then in effect shall
forthwith be readjusted to such Conversion Prices as would have
obtained had the adjustment which was made upon the issuance of such
unexercised Option not been made, and the Additional Shares of
Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Prices;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange
of any Option or Convertible Security, including, but not limited
to, a change resulting from the anti-dilution provisions thereof,
the Conversion Prices then in effect shall forthwith be readjusted
to such Conversion Prices as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing either Conversion Price to
an amount which exceeds the lower of (i) the applicable Conversion
Price on the original adjustment date, or (ii) the applicable
Conversion Price that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(iv) Adjustment of Conversion Prices Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall at
any time issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subparagraph
4(d)(iii), but excluding shares issued as a dividend or distribution as
provided in Subparagraph 4(f) or upon a stock split or combination as
provided in Subparagraph 4(e)), without consideration or for a
consideration per share less than the applicable Series A Conversion
Price, Series B Conversion Price, Series E Conversion Price, Series E-2
Conversion Price or Series F Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, the Series A
Conversion Price, Series B Conversion Price, Series E Conversion Price,
Series E-2 Conversion Price and Series F Conversion Price in effect at
such time shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying the Series A
Conversion Price, the Series B Conversion Price, the Series E Conversion
Price, the Series E-2 Conversion Price and Series F Conversion Price by a
fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the
number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at
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<PAGE>
such Series A, B, E, E-2 or F Conversion Price; and (B) the denominator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares
of Common Stock so issued; provided that, (i) for the purpose of this
Subparagraph 4(d)(iv), all shares of Common Stock issuable upon conversion
of Convertible Securities outstanding immediately prior to such issue
shall be deemed to be outstanding, and (ii) the number of shares of Common
Stock deemed issuable upon conversion of such outstanding Convertible
Securities shall not give effect to any adjustments to the exercise or
conversion price or conversion rate of such Convertible Securities
resulting from the issuance of Additional Shares of Common Stock that is
the subject of this calculation.
Notwithstanding the foregoing, until January 31, 2001 the
Series E Conversion Price, the Series E-2 Conversion Price and the Series
F Conversion Price shall be reduced, concurrently with such issuance
described in the foregoing paragraph, to a price equal to the lowest
consideration per share received or to be received by the Corporation for
the Additional Shares of Common Stock so issued instead of pursuant to the
formula set forth in the foregoing paragraph.
(v) Determination of Consideration. For purposes of this
Subparagraph 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) Cash and Property: Such consideration:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued pursuant to
Subparagraph 4(d)(iii), relating to Options and Convertible
Securities, shall be determined by dividing:
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue
of such Options
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or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as
set forth in the instruments relating thereto,
without regard to any provision contained therein
for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of
such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such
Options for Convertible Securities and the
conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained therein
for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which
are comprised of shares of the same series or class of Preferred Stock,
and such issuance dates occur within a period of no more than 120 days,
then the Conversion Prices shall be adjusted only once on account of such
issuances, with such adjustment to occur upon the final such issuance and
to give effect to all such issuances as if they occurred on the date of
the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Series F Original Issue Date
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price, Series B Conversion Price, Series E Conversion Price, Series E-2
Conversion Price and Series F Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased. If the Corporation shall at
any time or from time to time after the Series F Original Issue Date combine the
outstanding shares of Common Stock, the Series A Conversion Price, Series B
Conversion Price, Series E Conversion Price, the Series E-2 Conversion Price and
Series F Conversion Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Series F Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Series A Conversion Price, Series B Conversion Price, Series E Conversion Price,
Series E-2 Conversion Price and Series F Conversion Price then in effect shall
be decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close
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of business on such record date, by multiplying the Series A Conversion Price,
Series B Conversion Price, Series E Conversion Price, the Series E-2 Conversion
Price and Series F Conversion Price then in effect by a fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price, Series E-2 Conversion Price and Series F Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Series A Conversion Price, Series B Conversion Price, Series
E Conversion Price, Series E-2 Conversion Price and Series F Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Series F Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of the Series
A, B, E, E-2 and F Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A, B, E, E-2 or F Preferred Stock been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this paragraph with respect to the rights of
the holders of the Series A, B, E, E-2 or F Preferred Stock.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A, B, E, E-2 or F
Preferred Stock shall be changed into the same or a different, number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A, B, E, E-2 or F Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series A, B, E, E-2 or F
Preferred Stock
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might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(c)), each share of Series A, B, E, E-2 and F Preferred Stock
shall thereafter be convertible (or shall be converted into a security which
shall be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A, B, E, E-2 or F
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Paragraph 4 set forth with respect to the rights and interest thereafter of
the holders of the Series A, B, E, E-2 and F Preferred Stock, to the end that
the provisions set forth in this Paragraph 4 (including provisions with respect
to changes in and other adjustments of the Conversion Prices) shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the conversion of the Series
A, B, E, E-2 or F Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Amended and Restated 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
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Paragraph 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A, B, E, E-2 and F Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A, B, E, E-2 or F Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A, B, E, E-2 or F Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments, (ii) the Series A Conversion
Price, Series B Conversion Price, Series E Conversion Price, Series E-2
Conversion Price or Series F Conversion Price then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
then would be received upon the conversion of Series A, B, E, E-2 or F Preferred
Stock, as applicable.
(l) Notice of Record Date. In the event:
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(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A, B, E, E-2 and F Preferred Stock,
and shall cause to be mailed to the holders of the Series A, B, E, E-2 and F
Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten days prior to the date
specified in (A) below or twenty days before the date specified in (B) below, a
notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Mandatory Conversion.
(a) All outstanding shares of Series A, B, E, E-2 and F Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Series A Conversion Price, Series B Conversion Price, Series E
Conversion Price, Series E-2 Conversion Price or Series F Conversion Price as
applicable, (i) upon the closing of the sale of shares of Common Stock, at a
price of at least $10.20 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a public offering pursuant to an effective
registration statement under the Securities
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Act of 1933, as amended, resulting in at least $20,000,000 of gross proceeds to
the Corporation, or (ii) upon the affirmative vote or written consent of the
holders of not less than a majority of the issued and outstanding shares of
Series E, E-2 and F Preferred Stock, exclusively and voting separately as
different classes to convert all shares of Series A, B, E, E-2 and F Preferred
Stock (the "Mandatory Conversion Date").
(b) All holders of record of shares of Series A, B, E, E-2 and F
Preferred Stock will be given written notice of the Mandatory Conversion Date
and the place designated for mandatory conversion of all such shares of Series
A, B, E, E-2 and F Preferred Stock pursuant to this Paragraph 5. Such notice
need not be given in advance of the occurrence of a Mandatory Conversion Date.
Such notice shall be sent by first class or registered mail, postage prepaid, to
each record holder of Series A, B, E, E-2 and F Preferred Stock at such holder's
address last shown on the records of the transfer agent for the Series A, B, E,
E-2 and F Preferred Stock (or the records of the Corporation, if it serves as
its own transfer agent). Upon receipt of such notice, each holder of shares of
Series A, B, E, E-2 and F Preferred Stock shall surrender his or its certificate
or certificates for all such shares to the Corporation at the place designated
in such notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this
Paragraph 5. On the Mandatory Conversion Date, all rights with respect to the
Series A, B, E, E-2 and F Preferred Stock so converted, including the rights, if
any, to receive notices and vote, will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series A, B, E, E-2 or F Preferred Stock has been converted, and payment of any
declared or accrued but unpaid dividends thereon (all of which shall be deemed
to be declared by the Board of Directors on the Mandatory Conversation Date). If
so required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A, B, E, E-2 or F Preferred Stock, the Corporation shall
cause to be issued and delivered to such holder, or on his or its written order,
a certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subparagraph 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A, B, E, E-2 and F
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A, B, E, E-2 or F Preferred Stock represented thereby converted into
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date. The
Corporation may thereafter take such appropriate action (without the need for
stockholder action) as may be necessary to reduce the authorized Series A, B, E,
E-2 or F Preferred Stock accordingly.
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6. Optional Redemption.
(a) Election of Holders to Require Redemption. At any time, on or
after the earlier to occur of: (i) March 6, 2005 or (ii) such date as any other
outstanding Series Preferred Stock of the Corporation is eligible for
redemption, at the election of the holders of at least 66 2/3% of the shares of
Series A, B, C, D, E, E-2 and F Preferred Stock then outstanding and voting
together as a single class, the Corporation shall, to the extent permitted by
law at such time, be required to redeem all of the outstanding shares of Series
A, B, C, D, E, E-2 and F Preferred Stock, in three equal annual installments,
with one-third of the shares redeemable on the Redemption Date (as defined
below), one-third redeemable on the first anniversary of the Redemption Date
(the "Second Redemption Date") and one-third redeemable on the second
anniversary of the Redemption Date (the "Third Redemption Date") upon the terms
described in this Paragraph 6. The holders of the outstanding shares of Series F
Preferred Stock shall be entitled to redemption of the shares of the outstanding
Series F Preferred Stock then held by such holders on each of the Redemption
Date (as defined below), the Second Redemption Date and the Third Redemption
date prior to any redemption of the outstanding shares of Series A, B, C, D, E
and E-2 Preferred Stock.
(b) Redemption Price. The redemption price per share of Series A
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon, and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series A Preferred Stock (the "Series A Redemption Price"). The
redemption price per share of Series B Preferred Stock shall be $3.25 per share,
plus an additional $.29 per share for each full year between July 30, 1999 and
the applicable Redemption Date, plus all accrued and unpaid dividends thereon,
and less all dividends actually paid thereon, on such share up to and including
the date fixed for redemption of such shares of Series B Preferred Stock (the
"Series B Redemption Price"). The redemption price per share of Series C
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series C Preferred Stock (the "Series C Redemption Price"). The
redemption price per share of Series D Preferred Stock shall be $3.25 per share,
plus an additional $.29 per share for each full year between July 30, 1999 and
the applicable Redemption Date, plus all accrued and unpaid dividends thereon
and less all dividends actually paid thereon, on such share up to and including
the date fixed for redemption of such shares of Series D Preferred Stock (the
"Series D Redemption Price"). The redemption price per share of Series E
Preferred Stock shall be $3.25 per share, plus an additional $.29 per share for
each full year between July 30, 1999 and the applicable Redemption Date, plus
all accrued and unpaid dividends thereon and less all dividends actually paid
thereon, on such share up to and including the date fixed for redemption of such
shares of Series E Preferred Stock (the "Series E Redemption Price"). The
redemption price per share of Series E-2 Preferred Stock shall be $3.25 per
share, plus an additional $.29 per share for each full year between July 30,
1999 and the applicable Redemption Date, plus all accrued and unpaid dividends
thereon and less all dividends actually paid thereon, on such share up to and
including the date fixed for redemption of such
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shares of Series E-2 Preferred Stock (the "Series E-2 Redemption Price"). The
redemption price per share of Series F Preferred Stock shall be $5.10 per share,
plus an additional $.46 per share for each full year between March 6, 2000 and
the applicable Redemption Date, plus all accrued and unpaid dividends thereon
and less all dividends actually paid thereon, on such share up to and including
the date fixed for redemption of such shares of Series F Preferred Stock (the
"Series F Redemption Price"). The Series A Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series A Preferred Stock. The Series B
Redemption Price shall be equitably adjusted whenever there shall occur a
subdivision, combination, reclassification or recapitalization relating to the
Series B Preferred Stock. The Series C Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series C Preferred Stock. The Series D
Redemption Price shall be equitably adjusted whenever there shall occur a
subdivision, combination, reclassification or recapitalization relating to the
Series D Preferred Stock. The Series E Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series E Preferred Stock. The Series E-2
Redemption Price shall be equitably adjusted whenever there shall occur a
subdivision, combination, reclassification or recapitalization relating to the
Series E-2 Preferred Stock. The Series F Redemption Price shall be equitably
adjusted whenever there shall occur a subdivision, combination, reclassification
or recapitalization relating to the Series F Preferred Stock.
(c) Redemption Notice. If the holders of a majority of the
outstanding shares of Series A, B, C, D, E, E-2 and F Preferred Stock shall
elect to require the Corporation to redeem all of the outstanding shares of
Series A, B, C, D, E, E-2 and F Preferred Stock (the "Redeeming Preferred
Stock"), such holders shall deliver a written notice to the Corporation not less
than thirty (30) days prior to a date fixed by such holders for the redemption
of the shares of Redeeming Preferred Stock (the "Redemption Date") and stated in
such notice. Not later than five (5) days prior to the Redemption Date, the
Corporation shall mail, postage prepaid, written notice of the redemption (the
"Redemption Notice") to each holder of record of Redeeming Preferred Stock, at
its address as appears on the records of the Corporation. Failure of the
Corporation to deliver the Redemption Notice shall not affect its obligation to
redeem any shares of Redeeming Preferred Stock pursuant to this Paragraph 6. The
Redemption Notice shall state:
(i) the total number of shares of Redeeming Preferred Stock to be
redeemed on the Redemption Date, the Second Redemption Date and the
Third Redemption Date and the number of shares of Redeeming
Preferred Stock to be redeemed on each such date from the holder to
which such notice is addressed;
(ii) the date of the Redemption Date, the Second Redemption Date and
the Third Redemption Date and the Series A Redemption Price, Series
B Redemption Price, Series C Redemption Price, Series D Redemption
Price, Series E Redemption Price Series E-2 Redemption Price and
Series F Redemption Price, as applicable; and
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(iii) that the holder shall surrender to the Corporation on or
before the Redemption Date, the Second Redemption Date and the Third
Redemption Date at its principal office or such other place as may
be designated in the Redemption Notice, any certificate(s) held by
it representing shares to be redeemed.
(d) Surrender of Certificates. Each holder of shares of Redeeming
Preferred Stock being redeemed shall surrender the certificate(s) held by it
representing such shares to the Corporation at its principal office or such
other place as may be designated in the Redemption Notice. Upon such surrender,
the Corporation shall pay to the order of the person whose name appears on such
certificate(s) the Series A Redemption Price, Series B Redemption Price, Series
C Redemption Price, Series D Redemption Price, Series E Redemption Price, Series
E-2 Redemption Price or Series F Redemption Price, as applicable, for such
shares, and each surrendered certificate shall be cancelled. In the event that,
pursuant to Subparagraph 6(a) of this Section C, not all of the shares of
Redeeming Preferred Stock represented by a surrendered certificate are being
redeemed, the Corporation shall deliver to the holder, at the expense of the
Corporation, a new certificate representing the number of shares of Redeeming
Preferred Stock not redeemed.
(e) No Dividends, Conversion or Interest after Redemption. If the
funds necessary for such redemption shall have been set aside by the Corporation
and deposited with a bank or trust company, in an irrevocable trust for the
benefit of the holders of the Redeeming Preferred Stock that has been called for
redemption, then, notwithstanding that any certificates for shares that have
been called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding from and after
such redemption date, shall not be entitled to any further dividends pursuant to
Paragraph 1 of this Section C and shall not be entitled to conversion pursuant
to Paragraph 4 of this Section C, and all rights of holders of such shares so
called for redemption shall forthwith, after such redemption date, cease and
terminate, excepting only the right to receive the redemption funds therefor to
which they are entitled, but without interest. Any interest accrued on funds so
deposited and unclaimed by stockholders entitled thereto shall be paid to such
stockholders at the time their respective shares are redeemed or to the
Corporation at the time unclaimed amounts are paid to it. In case the holders of
Redeeming Preferred Stock which shall have been called for redemption shall not,
within six (6) years after the Redemption Date, claim the amounts so deposited
with respect to the redemption thereof, any such bank or trust company shall,
upon demand, pay over to the Corporation such unclaimed amounts and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof to such holder and such holder shall look only to the Corporation for
the payment thereof. Any funds so deposited with a bank or trust company which
shall not be required for such redemption by reason of the exercise subsequent
to the date of such deposit of the right of conversion of any shares of
Redeeming Preferred Stock, or otherwise, shall be returned to the Corporation
forthwith.
(f) Dividends on Shares Not Redeemed. Any shares of Redeeming
Preferred Stock not redeemed when and as required by this paragraph shall
continue to bear dividends at 200% of the rate, and otherwise in the same
manner, as set forth in Subparagraphs 1(a), 1(b), 1(c) and 1(d) of this Section
C.
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7. Amendments to the Certificate of Incorporation. Notwithstanding the
provisions of Article TENTH hereof, the provisions of Paragraph 3 hereof may not
be repealed or amended in any respect, nor may any other provision be amended,
adopted or repealed which would have the effect of modifying or permitting
circumvention of such provisions, unless (i) with respect to Paragraph 3, except
for Subparagraphs (b), (c), (d), (e), (g), (h) or (i) such action is approved by
the affirmative vote or written consent of the holders of not less than 66 2/3%
of the issued and outstanding shares of Series A, B, E, E-2 and F Preferred
Stock, exclusively and voting together as a single class; (ii) with respect to
Subparagraph 3(b), such action is approved by the affirmative vote or written
consent of the holders of a majority of the Series A Preferred Stock voting
separately as a class, (iii) with respect to Subparagraph 3(c), such action is
approved by the affirmative vote or written consent of the holders of a majority
of the Series B Preferred Stock voting separately as a class, (iv) with respect
to Subparagraph 3(d), such action is approved by the affirmative vote or written
consent of the holders of a majority of the Series E and E-2 Preferred Stock
voting separately as a class, (v) with respect to Subparagraph 3(e), such action
is approved by the affirmative vote or written consent of the holders of at
least 60% of the Series F Preferred Stock voting separately as a class, (vi)
with respect to Subparagraph 3(g), such action is approved by the affirmative
vote or written consent of the holders of a majority of the issued and
outstanding Qualified Series E and E-2 Preferred Stock and Series F Preferred
Stock, exclusively and voting together as a single class, (vii) with respect to
Subparagraph 3(h), such action is approved by the affirmative vote or written
consent of the holders of a majority of the issued and outstanding Qualified
Series E and E-2 Preferred Stock, exclusively and voting together as a single
class, and (viii) with respect to Subparagraph 3(i), such action is approved by
the affirmative vote or written consent of the holders of at least 60% of the
issued and outstanding shares of Series F Preferred Stock exclusively and voting
together as a single class.
D. SERIES C CONVERTIBLE PREFERRED STOCK AND SERIES D CONVERTIBLE PREFERRED
STOCK.
Seventy-Seven Thousand Five Hundred Nineteen (77,519) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock") and
Three Hundred Twenty Thousand (320,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"), each of the Series C and D
Preferred Stock with the following rights, preferences, powers, privileges and
restrictions, qualifications and limitations.
1. Dividends.
(a) The holders of the outstanding shares of Series C and D
Preferred Stock shall, assuming the conversion of all shares to shares of Common
Stock as provided in Paragraph 4 (an "As Converted Basis"), be entitled to
receive, out of any funds legally available therefor, such dividends or
distributions when and if declared by the Board of Directors of the Corporation
sharing ratably with holders of Common Stock on an As Converted Basis.
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(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock or Series D Preferred Stock until the
holders of the Series C Preferred Stock then outstanding shall have first
received, or simultaneously receive, a cash dividend on each outstanding share
of Series C Preferred Stock in an amount at least equal to the product of (i)
the per share amount, if any, of the distributions to be declared, paid or set
aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series C Preferred Stock is then
convertible.
(c) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series D
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a cash dividend on each outstanding share of Series D Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series D Preferred Stock is then convertible.
(d) For purposes of this Paragraph 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, after the payment of the F Liquidation Amount
which may be paid to the holders of Series F Preferred Stock, and any other
class or series of stock of the Corporation ranking on liquidation on a parity
with the Series F Preferred Stock, holders of Series C and D Preferred Stock
then outstanding upon the dissolution, liquidation or winding up of the
Corporation, and holders of other shares of Junior Stock then outstanding shall
share ratably, on an As Converted Basis, in the remaining assets and funds of
the Corporation available for distribution to its stockholders; provided,
however, that if the holders of the Series E and E-2 Preferred Stock elect to
receive the E Liquidation Amount, after the payment of the F Liquidation Amount
to the holders of the Series F Preferred Stock (and any other class or series of
stock of the Corporation ranking on liquidation on a parity with the Series F
Preferred Stock), and the payment of the E Liquidation Amount to the holders of
the Series E and E-2 Preferred Stock (and any other class or series of stock of
the Corporation ranking on liquidation on a parity with the Series E and E-2
Preferred Stock), holders of Series C and D Preferred Stock then outstanding
upon the dissolution, liquidation or winding up of the Corporation, and holders
of
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other shares of Junior-2 Stock then outstanding shall share ratably, on an As
Converted Basis, in the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(b) The occurrence of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, shall be deemed to be a liquidation of the Corporation, and all
consideration payable to the stockholders of the Corporation (in the case of a
merger or consolidation), or all consideration payable to the Corporation,
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subparagraph 2(a) above, unless the holders of a
majority of the then outstanding shares of Series E, E-2 and F Preferred Stock,
exclusively and voting together as a single class), elect that such event not
constitute a liquidation, by giving written notice thereof to the Corporation at
least three days before the effective date of, unless such event. In the event
of a deemed liquidation, the Corporation shall use its best efforts to amend the
agreement or plan of merger or consolidation to adjust the rate at which the
shares of capital stock of the Corporation are converted into or exchanged for
cash, new securities or other property to give effect to such election. The
amount deemed distributed to the holders of Series C and D Preferred Stock upon
any such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the acquiring person, firm
or other entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation. If no
notice of the election permitted by this Subparagraph (b) is given, the
provisions of Subparagraph 4(i) shall apply.
3. Voting. Each holder of outstanding shares of Series C or D Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C or D Preferred Stock
held by such holder are then convertible (as adjusted from time to time pursuant
to Paragraph 4 of this Section D), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions establishing any other series of Series Preferred Stock, holders of
Series C and D Preferred Stock and of any other outstanding series of Series
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
4. Optional Conversion. The holders of the Series C and D Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C and D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by (i) dividing $3.25 by the Series C Conversion Price (as
defined below) in effect at the time of conversion with respect to shares of
Series C Preferred Stock; and (ii) dividing $3.25 by the Series D Conversion
Price (as defined
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below) in effect at the time of conversion with respect to shares of Series D
Preferred Stock. The "Series C Conversion Price" shall initially be $3.25, and
the "Series D Conversion Price" shall initially be $3.25. Such initial Series C
Conversion Price and Series D Conversion Price (collectively, sometimes referred
to as "Conversion Prices") and the rate at which shares of Series C Preferred
Stock and Series D Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Series C and D Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series C or D Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price or Series D Conversion Price, as applicable.
(c) Mechanics of Conversion.
(i) In order for a holder of Series C or D Preferred Stock to
convert shares of Series C or D Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for
such shares of Series C or D Preferred Stock, at the office of the
transfer agent for the Series C or D Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer
agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series C or D Preferred Stock
represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized
in writing. The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion Date, issue
and deliver at such office to such holder of Series C or D Preferred
Stock, or to his or its nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series C and
D Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C and D Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series C and D Preferred
Stock.
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(iii) Upon any such conversion, no adjustment to the
Conversion Prices shall be made for any declared or accrued but unpaid
dividends on the Series C or D Preferred Stock surrendered for conversion
or on the Common Stock delivered upon conversion.
(iv) All shares of Series C and D Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared or accrued but unpaid
thereon. Any shares of Series C and D Preferred Stock so converted shall
be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series C
or D Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series C or D Preferred Stock
pursuant to this Paragraph 4. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series C or D Preferred Stock so
converted were registered, and no such issuance or delivery shall be made
unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the date on which the first share
of Series C Preferred Stock or Series D Preferred Stock, as applicable was
issued (the "Original Issue Date") effect a subdivision of the outstanding
Common Stock, the Series C Conversion Price and Series D Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the Series C
Conversion Price and Series D Conversion Price then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series C
Conversion Price and Series D Conversion Price then in effect shall be decreased
as of the time of such issuance or, in the event such a record date shall have
been
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fixed, as of the close of business on such record date, by multiplying the
Series C Conversion Price and Series D Conversion Price then in effect by a
fraction:
(x) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series C Conversion Price and Series D Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series C Conversion Price and Series D Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series C and
D Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had the Series C or D Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Series C
or D Preferred Stock.
(g) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series C or D Preferred
Stock shall be changed into the same or a different, number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Series C or D Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into which
such shares of Series C or D Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
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(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subparagraph 2(b)), each share of Series C and D Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series C or D Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Paragraph
4 set forth with respect to the rights and interest thereafter of the holders of
the Series C and D Preferred Stock, to the end that the provisions set forth in
this Paragraph 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series C or D Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of its
Amended and Restated 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
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Paragraph 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series C and D Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Paragraph
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C or D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series C or D Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series C Conversion Price or Series D
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series C or D Preferred Stock, as applicable.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
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(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C and D Preferred Stock, and shall
cause to be mailed to the holders of the Series C and D Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Mandatory Conversion.
(a) All outstanding shares of Series C and D Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Series C Conversion Price or Series D Conversion Price, as applicable, (i) upon
the closing of the sale of shares of Common Stock, at a price of at least $10.20
per share (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares), in a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $20,000,000 of gross
proceeds to the Corporation, or (ii) upon the affirmative vote or written
consent of the holders of not less than a majority of the issued and outstanding
shares of Series E, E-2 and F Preferred Stock, exclusively and voting together
as a single class to convert all shares of Series C and D Preferred Stock (the
"C and D Mandatory Conversion Date").
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(b) All holders of record of shares of Series C and D Preferred
Stock will be given written notice of the C and D Mandatory Conversion Date and
the place designated for mandatory conversion of all such shares of Series C and
D Preferred Stock pursuant to this Paragraph 5. Such notice need not be given in
advance of the occurrence of a C and D Mandatory Conversion Date. Such notice
shall be sent by first class or registered mail, postage prepaid, to each record
holder of Series C and D Preferred Stock at such holder's address last shown on
the records of the transfer agent for the Series C and D Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series C and D Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Paragraph 5. On the C and D Mandatory
Conversion Date, all rights with respect to the Series C and D Preferred Stock
so converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series C or D Preferred Stock
has been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the C and D Mandatory Conversation Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the C and D Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
C or D Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subparagraph 4(b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series C and D Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the C and D Mandatory Conversion Date,
be deemed to have been retired and cancelled and the shares of Series C or D
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series C or D Preferred
Stock accordingly.
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IN WITNESS WHEREOF, this Certificate of Amendment to be executed by its
President this 3rd day of March, 2000.
VARIAGENICS, INC.
By: /s/ Taylor J. Crouch
-----------------------------
Taylor J. Crouch, President
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Exhibit 3.3
AMENDED AND RESTATED BY-LAWS
OF
VARIAGENICS, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at
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the time and place of the meeting during the whole time of the meeting, and may
be inspected by any stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transaction any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes case by the stockholders entitled to vote at the
election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
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ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or by
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or by
the Certificate of Incorporation, may exercise the powers of the full Board
until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be nine (9). Except
as otherwise provided in the Certificate of Incorporation, the number of
directors may be decreased at any time and from time to time either by the
stockholders or by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. Except as otherwise provided
in the Certificate of Incorporation, the directors shall be elected at the
annual meeting of stockholders by such stockholders as have the right to vote
on such election. Directors need not be stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. Except as otherwise provided in the
Certificate of Incorporation, the number of directors may be increased at any
time and from time to time by the stockholders or by a majority of the directors
then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 VACANCIES. Except as otherwise provided in the Certificate of
Incorporation, unless and until filled by vote of the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Except as otherwise provided in the Certificate of Incorporation, a
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the 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.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent
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when such a determination is made shall be given notice of the determination. A
regular meeting of the Board of Directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the office or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such 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 participation by such means shall constitute
presence in person at such meeting.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a difference vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Except as otherwise provided by law or by the Certificate
of Incorporation, any one or more or all of the 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.
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2.15 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary and such other officers with such other titles as the
Board of Directors shall determine, including a Chairman of the Board, a
Vice-Chairman of the Board, a Treasurer and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President and Secretary shall be elected annually by
the Board of Directors at its first meeting following the annual meeting of
stockholders. Other officers may be appointed by the Board of Directors at such
meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or
more offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
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3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
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.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Office of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from to time
prescribe. In the vent of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President
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the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
property executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of
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stockholders or to express consent (or dissent) to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action. Such record
date shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action to which such record
date relates.
If no record date is fixed, 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 before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
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.
ARTICLE 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate of the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any
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officer or representative of the corporation shall as to all persons who rely on
the certificate in good faith be conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum.
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereof, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
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ARTICLE 6 - AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
ARTICLE 7 - TRANSFER RESTRICTIONS
7.1 RIGHT OF FIRST REFUSAL. Notwithstanding anything to the contrary
herein, the provisions of this Article 7 shall not apply to (i) shares of Series
B Convertible Preferred Stock, par value $.01 per share, of the corporation
purchased pursuant to Series B Preferred Stock Purchase Agreement, dated as of
June 20, 1997 by and among the corporation, David E. Housman and the Purchasers
named therein and (ii) to the following shares of capital stock of the
corporation, for as long as the Amended and Restated Right of First Refusal and
Co-Sale Agreement dated as of June 20, 1997 by and among the corporation,
Kummell Investments Limited and the Purchasers named therein, John J. Kao, David
E. Housman, Fred D. Ledley and Vincent P. Stanton, Jr. (the "Refusal Agreement")
remains in full force and effect with respect to such shares: (a) shares of
capital stock owned by David E. Housman, John J. Kao and Fred D. Ledley and (b)
shares of capital stock of the corporation issued after June 20, 1997 to any
employee who is to be an officer of the corporation and a director of the
corporation. No stockholder of the corporation shall sell, assign, pledge or
otherwise transfer (collectively, "transfer") any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
following requirements:
(a) If any stockholder (the "Selling Stockholder") proposes to transfer
any shares of stock of the corporation (the "Offered Shares"), then the Selling
Stockholder shall first give written notice of the proposed transfer (the
"Transfer Notice") to the corporation. The Transfer Notice shall name the
proposed transferee and state the number of Offered Shares, the price per share
and all other material terms and conditions of the transfer.
(b) For 15 days following its receipt of such Transfer Notice, the
corporation shall have the option to purchase all, but not less than all, of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the corporation elects to purchase all of the Offered Shares, it
shall give written notice of its election to the Selling Stockholder within such
15-day period and the settlement of the sale of such Offered Shares shall be
made as provided below in Subsection (c).
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(c) If the corporation elects to acquire all, but not less than all, of
the Offered Shares, the corporation shall so notify the Selling Stockholder and
settlement shall be made at the principal office of the corporation in cash
within 30 days after the corporation receives the Transfer Notice; PROVIDED THAT
if the terms of payment set forth in the Transfer Notice were other than cash
against delivery, the corporation shall pay for the Offered Shares on the same
terms and conditions set forth in the Transfer Notice.
(d) If the corporation does not elect to acquire all of the Offered
Shares, the Selling Stockholder may, within the 90-day period following the
expiration of the option rights granted to the corporation, transfer the Offered
Shares to the proposed transferee or any other purchaser, PROVIDED that this
sale shall not be on terms and conditions more favorable to the purchaser than
those contained in the Transfer Notice. Notwithstanding any of the above, all
Offered Shares transferred pursuant to this Section shall be subject to the
provisions of this Section in the same manner and to the same extent as before
the transfer.
(e) The following transactions shall be exempt from the provisions of
this Section:
(1) A stockholder's transfer of any or all of his shares
either during his lifetime or on death by will or intestacy to his
immediate family or to a trust the beneficiaries of which are
exclusively one or more of the stockholder and a member or members of
the stockholder's immediate family. "Immediate family" shall mean
spouse, lineal descendant, father, mother, brother or sister of the
stockholder making the transfer;
(2) A stockholder's bona fide pledge or mortgage of his shares
with a commercial lending institution;
(3) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of
the corporate stockholder, or pursuant to a sale of substantially all
of the stock or assets of a corporate stockholder;
(4) A corporate stockholder's transfer of any or all of
its shares to any or all of its stockholders;
(5) A transfer by a stockholder which is a partnership
to any or all of its partners or retired partners, or to the estate
of any partner or retired partner;
(6) A transfer pursuant to an agreement among the stockholder
and other stockholder(s) of the corporation providing for
"take-me-along" or "co-sale" rights or any stock restriction agreement
between the stockholder and the corporation;
(7) A transfer to a person who is already a stockholder
of the corporation;
(8) A transfer to the guardian or conservator of the
stockholder;
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(9) Any transfer pursuant to an effective registration
statement filed by the corporation with the Securities and Exchange
Commission;
PROVIDED, HOWEVER, that in any such case, except as otherwise provided
in Subsection (1) below, the transferee, assignee, pledgee, mortgagee
or other recipient shall receive and hold such stock subject to the
provisions of this Section and there shall be no further transfer of
such stock except in accordance with this Section.
(f) A stockholder of the corporation shall be deemed to have given a
Transfer Notice to the corporation and to have offered to sell all of the shares
of stock of the corporation then held by such stockholder:
(1) if such stockholder dies and as a result any transfer
of stock is to be made other than as permitted by Subsection (e)(1)
above;
(2) if such stockholder applies for or consents to the
appointment of a custodian, receiver, trustees or liquidator of any of
his properties;
(3) if such stockholder admits in writing his inability to pay
his debts as they mature;
(4) if there is a dissolution, termination of existence,
liquidation, insolvency or business failure of the stockholder;
(5) if there is a composition or an assignment or trust
mortgage for the benefit of creditors by the stockholder;
(6) upon the commencement by or against the stockholder of any
proceeding under the United States Bankruptcy Code or any other federal
or state bankruptcy, reorganization, receivership, insolvency or other
similar law affecting the rights of creditors generally; or
(7) if that stockholder's shares are subject to (i) attachment
or execution of a judgment or (ii) any other transfer by court order,
operation of law, by gift or otherwise without consideration (other
than pursuant to Subsection (e)).
If any offer is deemed to have been made under this Subsection (f), the
corporation may elect to purchase all or any portion of such Offered Shares, and
the price to be paid by the corporation for the Offered Shares shall be the then
fair market value thereof, as agreed to by the corporation and the Selling
Stockholder. If the parties do not agree upon the price within 20 days after the
deemed offer, then the price shall be the fair market value of such shares as
determined by an appraiser mutually satisfactory to the corporation and the
Selling Stockholder deemed to be making such offer or his
successors-in-interest, or, if they cannot agree on a single appraiser, by an
appraiser appointed by the corporation, a second appraiser appointed by such
Selling
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Stockholder or his successors-in-interest and a third appraiser appointed by the
other two appraisers. Each party shall bear the cost of his or its own
appraiser, and the cost of the third appraiser shall be shared equally by the
parties. If the shares are not purchased by the corporation but are transferred
to other parties, the transferee shall hold such stock subject to the provisions
of this Section and there shall be no further transfer of such stock except in
accordance with this Section.
(g) if any stockholder of the corporation is deemed to have offered his
stock to the corporation pursuant to Subsection (f) hereof, the corporation may
pay for any stock it agrees to purchase with its promissory note (the "Note").
The Note shall contain the following terms:
(1) The principal amount of the Note shall be payable in eight
quarterly installments, with the last such installment payable on the
second anniversary date of the Note's issuance;
(2) The Note shall bear interest at the same rate as two-year
U.S. Treasury notes issued on or about the same date as the Note, with
accrued interest being payable quarterly;
(3) The Note shall provide for acceleration upon default for
60 days in the payment of any installment of principal or interest when
due, shall contain customary default provisions in the event of the
corporation's bankruptcy and similar circumstances and shall be secured
by a pledge of the shares for which the corporation paid with the Note,
PROVIDED, HOWEVER, that the pledgee shall have no right to vote or
receive dividends with respect to such shares until and unless the
pledgee forecloses on such shares after the occurrence of a default
under the Note.
(h) The corporation may assign its rights to purchase stock in any
particular transaction under this Section to one or more persons or entities.
(i) Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions and
provisions of this Section are strictly observed and followed.
(j) The foregoing right of first refusal shall terminate upon either of
the following dates, whichever shall first occur:
(1) upon the effective date of the first public offering of
securities of the corporation which is effected pursuant to a
registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as
amended; or
(2) upon the sale of all or substantially all of the
shares or business of the corporation, by merger, consolidation, sale
of assets or otherwise.
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(k) The certificates representing shares of stock of the corporation
shall bear a legend substantially in the following form (in addition to, or in
combination with, any legend required by applicable federal and state securities
laws and agreements relating to the transfer of the corporation's securities):
The shares represented by this certificate are
subject to a right of first refusal in favor of the
corporation and its other stockholders, as provided in the
By-Laws of the corporation.
(l) Whenever the neuter, masculine or feminine gender or the plural or
singular number is used herein, it shall be deemed to represent whatever gender
or number the context or circumstances require.
(m) Any notice hereunder shall be in writing and shall be deemed to
have been duly given when mailed by first class mail, or delivered by hand, (i)
if to the corporation, to its principal executive office, attention: President;
and (ii) if to a stockholder, to the address of the stockholder listed in the
stock transfer books of the corporation.
<PAGE>
Exhibit 10.1
VARIAGENICS, INC.
AMENDED 1997 EMPLOYEE, DIRECTOR AND
CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Variagenics , Inc. 1997 Employee,
Director and Consultant Stock Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
power to act on its behalf to a committee. (See Paragraph 4)
Affiliate means a corporation which, for purposes of Section 424 of
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the Committee to which the Board of Directors has
delegated power to act under or pursuant to the provisions of the
Plan.
Common Stock means shares of the Company's common stock, $0.01 par
value.
Company means Variagenics, Inc., a Delaware corporation.
Disability or Disabled means permanent and total disability as
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, either (a) the average of
the closing or
<PAGE>
last prices of the Common Stock on the Composite Tape or other
comparable reporting system for the ten (10) consecutive trading
days immediately preceding the applicable date or (b) the closing or
last price of the Common Stock on the Composite Tape or other
comparable reporting system for the trading day immediately
preceding the applicable date, as the Administrator shall determine.
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading days or day referred to in clause (1), and if bid and asked
prices for the Common Stock are regularly reported, either (a) the
average of the mean between the bid and the asked price for the
Common Stock at the close of trading in the over-the-counter market
for the ten (10) trading days on which Common Stock was traded
immediately preceding the applicable date or (b) the mean between
the bid and the asked price for the Common Stock at the close of
trading in the over-the-counter market for the trading day on which
Common Stock was traded immediately preceding the applicable date,
as the Administrator shall determine; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
under Code Section 422.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Options under the Plan.
Non-Qualified Option means an option which is not intended to
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan.
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Participant means a Key Employee, director or consultant to whom one
or more Options are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquired the
Participant's rights to an Option by will or by the laws of descent
and distribution.
Plan means this Variagenics, Inc. Amended 1997 Employee, Director
and Consultant Stock Option Plan.
Shares means shares of the Common Stock as to which Options have
been or may be granted under the Plan or any shares of capital stock
into which the Shares are changed or for which they are exchanged
within the provisions of Paragraph 3 of the Plan. The Shares issued
upon exercise of Options granted under the Plan may be authorized
and unissued shares or shares held by the Company in its treasury,
or both.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs and
Non-Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be 600,000, or the equivalent of such number of
Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 16 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under the Plan. Any Option shall be treated as "outstanding" until such
Option is exercised in full, or terminates or expires under the provisions of
the Plan, or by agreement of the parties to the pertinent
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<PAGE>
Option Agreement.
4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees,
directors and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options shall
be granted; and
d. Specify the terms and conditions upon which an Option or Options may
be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs.
Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Option granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each
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Participant must be a Key Employee, director or consultant of the Company or of
an Affiliate at the time an Option is granted. Notwithstanding any of the
foregoing provisions, the Administrator may authorize the grant of an Option to
a person not then an employee, director or consultant of the Company or of an
Affiliate. The actual grant of such Option, however, shall be conditioned upon
such person becoming eligible to become a Participant at or prior to the time of
the execution of the Option Agreement evidencing such Option. ISOs may be
granted only to Key Employees. Non-Qualified Options may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting of
any Option to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards for any
such Non-Qualified Option:
a. Option Price: The option price (per share) of the Shares
covered by each Option shall be determined by the
Administrator but shall not be less than the par value per
share of Common Stock.
b. Each Option Agreement shall state the number of Shares to
which it pertains;
c. Each Option Agreement shall state the date or dates on which
it first is exercisable and the date after which it may no
longer be exercised, and may provide that the Option rights
accrue or become exercisable in installments over a period of
months or years, or upon the occurrence of certain conditions
or the attainment of stated
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goals or events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
protections for the Company and its other shareholders
including requirements that:
i. The Participant's or the Participant's Survivors' right
to sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and
must also acknowledge that the Shares will bear legends
noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a
Key Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Code Section 422 and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described above, except
clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Code Section 424(d):
i. Ten percent (10%) or less of the total combined voting
power of all classes of share capital of the Company or
an Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
hundred percent (100%) of the Fair Market Value per
share of the Shares on the date of the grant of the
Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or
an Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
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hundred ten percent (110%) of the said Fair Market Value
on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting
power of all classes of share capital of the Company or
an Affiliate, each Option shall terminate not more than
ten (10) years from the date of the grant or at such
earlier time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or
an Affiliate, each Option shall terminate not more than
five (5) years from the date of the grant or at such
earlier time as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company
or an Affiliate) so that the aggregate Fair Market Value
(determined at the time each ISO is granted) of the stock with
respect to which ISOs are exercisable for the first time by
the Participant in any calendar year does not exceed one
hundred thousand dollars ($100,000), provided that this
subparagraph (e) shall have no force or effect if its
inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422(d) of the
Code.
e. Limitation on Grant of ISOs: No ISOs shall be granted after
the date which is the earlier of ten (10) years from the date
of the adoption of the Plan by the Company and the date of the
approval of the Plan by the shareholders of the Company.
- 7 -
<PAGE>
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal office address, together
with provision for payment of the full purchase price in accordance with this
paragraph for the Shares as to which such Option is being exercised, and upon
compliance with any other condition(s) set forth in the Option Agreement. Such
written notice shall be signed by the person exercising the Option, shall state
the number of Shares with respect to which the Option is being exercised and
shall contain any representation required by the Plan or the Option Agreement.
Payment of the purchase price for the Shares as to which such Option is being
exercised shall be made (a) in United States dollars in cash or by check, or (b)
at the discretion of the Administrator, through delivery of shares of Common
Stock having a fair market value equal as of the date of the exercise to the
cash exercise price of the Option, determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at no less than 100% of the applicable Federal rate, as defined in Section
1274(d) of the Code, or (d) at the discretion of the Administrator, in
accordance with a cashless exercise program established with a securities
brokerage firm, and approved by the Administrator or (e) at the discretion of
the Administrator, by any combination of (a), (b), (c) and (d) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation which requires the Company
to take any action with respect to the Shares prior to their issuance. The
Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the
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<PAGE>
Code, as described in paragraph 6(e).
The Administrator may, in its discretion, amend any term or condition of
an outstanding Option provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Option was granted, or in the event of
the death of the Participant, the Participant's Survivors, if the amendment is
adverse to the Participant, (iii) any such amendment of any ISO shall be made
only after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holders of such ISO, and
(iv) with respect to any Option held by any Participant who is subject to the
provisions of Section 16(a) of the 1934 Act, any such amendment shall be made
only after the Administrator, after consulting with counsel for the Company,
determines whether such amendment would constitute the grant of a new Option.
- 9 -
<PAGE>
8. RIGHTS AS A SHAREHOLDER.
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act or the rules thereunder,
provided, however, that the designation of a beneficiary of an Option by a
Participant shall not be deemed a transfer prohibited by this Paragraph. Except
as provided in the preceding sentence, an Option shall be exercisable, during
the Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant
of the Company or of an Affiliate (for any reason other than
termination "for cause", Disability, or death for which events there
are special rules in Paragraphs 11, 12, and 13, respectively), may
exercise any Option granted to him or her to the extent that the
Option is exercisable on the date of such termination of service,
but only within such term as the Administrator has designated in the
pertinent Option
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<PAGE>
Agreement.
b. In no event may an Option Agreement provide, if the Option is
intended to be an ISO, that the time for exercise be later than
three (3) months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of
Paragraph 12 or 13, shall apply to a Participant who subsequently
becomes disabled or dies after the termination of employment,
director status or consultancy, provided, however, in the case of a
Participant's death within three (3) months after the termination of
employment, director status or consulting, the Participant's
Survivors may exercise the Option within one (1) year after the date
of the Participant's death, but in no event after the date of
expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of
an Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant
shall forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who
is absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and
total Disability as defined in Paragraph 1 hereof), or who is on
leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to
have terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Options granted under the Plan shall not be affected by any change
of employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to
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<PAGE>
become an employee of an Affiliate or the Company), such termination
shall affect the Participant's rights under any Option granted to
such Participant in accordance with the terms of the Plan and the
pertinent Option Agreement.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the date the
Participant is notified his or her service is terminated "for cause"
will immediately be forfeited, unless the Option Agreement provides
otherwise.
b. For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the employer,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of cause will be conclusive on the Participant and the
Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service but prior to the exercise of an Option, that
either prior or subsequent to the Participant's termination the
Participant engaged in conduct which would constitute "cause", then
the right to exercise any Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
- 12 -
<PAGE>
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights as would
have accrued had the Participant not become Disabled prior to the
end of the accrual period which next ends following the date of
Disability. The proration shall be based upon the number of days of
such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of
not more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death;
and
- 13 -
<PAGE>
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights which
would have accrued had the Participant not died prior to the end of
the accrual period which next ends following the date of death. The
proration shall be based upon the number of days of such accrual
period prior to the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares 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 Company shall be under no obligation to issue the Shares 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 Company,
prior to the receipt of such Shares, that such person(s) are
acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection with,
the distribution of any such Shares, in which event the person(s)
acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have been taken
for investment 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 Company 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.
- 14 -
<PAGE>
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance
with the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, 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 a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
16. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant'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 written agreement between the
Participant and the Company 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
Company 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 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 Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
- 15 -
<PAGE>
(the "Successor Board"), shall, as to outstanding Options, 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 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 Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this subsection), 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 such Options (either to the extent
then exercisable or, at the discretion of the Administrator, all Options being
made fully exercisable for purposes of this subsection) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant 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 subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
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.
- 16 -
<PAGE>
17. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company 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 Company.
18. FRACTIONAL SHARES.
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant'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 Participant is an employee of the Company
or an Affiliate 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 Participant) 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 Participant the right to have such Participant's ISO's 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 Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
- 17 -
<PAGE>
20. 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 Option holder's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 21), the Option holder shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Option holder, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's 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 fair market value of the
shares withheld for purposes of payroll withholding shall be determined in the
manner provided in Paragraph 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of the shares withheld
is less than the amount of payroll withholdings required, the Option holder may
be required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. 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 and the date of its
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<PAGE>
approval by the shareholders of the Company. The Plan may be terminated at an
earlier date by vote of the shareholders of the Company; 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.
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended 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, at such time, if any,
as the Company has a class of stock registered pursuant to Section 12 of the
1934 Act, 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. Any amendment
approved by the Administrator which is of a scope that requires shareholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options or requires shareholder approval in order to ensure the
compliance of the Plan with Rule 16b-3 at such time, if any, as the Company has
a class of stock registered pursuant to Section 12 of the 1934 Act, shall be
subject to obtaining such shareholder approval. Any modification or amendment of
the Plan shall not, without the consent of a Participant, adversely affect his
or her rights under an Option previously granted to him or her. With the consent
of the Participant affected, the Administrator may amend outstanding Option
Agreements in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements may be amended by the Administrator in a manner which is not
adverse to the Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement shall be deemed to prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant, nor to prevent a Participant from terminating
his or her own employment, consultancy or director status or to give any
Participant a right to be retained in employment or other service
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<PAGE>
by the Company or any Affiliate for any period of time.
25. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the State of Delaware.
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<PAGE>
Exhibit 10.2
SUMMARY OF BASIC TERMS
LEASE
OF BUILDING AT 205 BROADWAY,
CAMBRIDGE, MASSACHUSETTS 02139
TO
VARIAGENICS, INC.
DATED AS OF MAY 15, 1998
================================================================================
The following is a summary of certain basic terms of this Lease which is
intended for the convenience and reference of the parties. In addition, some of
the following items or terms are incorporated into this Lease by reference to
the item or term or to this "Summary of Basic Terms".
1. Landlord: BHX, LLC, a Massachusetts limited liability company, as Trustee
of 205 Broadway Realty Trust under Declaration of Trust dated March 24,
1998 and recorded with the Middlesex South Registry of Deeds on March 24,
1998 as Instrument No. 1185.
2. Tenant: Variagenics, Inc., a Delaware corporation.
3A. Premises: The building (the "Building") situated on Landlord's Property
and depicted on the Site Plan (the "Site Plan") attached as Exhibit B to
this Lease.
3B. Landlord's Property: The real property with the Building and any other
improvements now or hereafter thereon, now commonly known as 205 Broadway,
Cambridge, Massachusetts ("Landlord's Property'), as described on Exhibit
A to this Lease.
4A. Tenant's Work: As set forth in Section 2.5 and on Exhibit C.
4B. Tenant Improvement Allowance: Subject to the terms of Section 2.5, an
allowance of up to $273,098.00 will be available to Tenant to reimburse it
for remodeling and improvements to the interior of the Building subject to
the terms of this Lease.
5A. Lease Term: From the Commencement Date until the last day of the tenth
(10th) Lease Year (expected to be May 31, 2008), subject to the terms of
this Lease.
5B. Commencement Date: June 1,1998.
<PAGE>
5C. Rights of Extension: One (1), five (5) year option pursuant to Section
2.3.
6. Use: For only those uses permitted by Section 5.1.
7. Tenant's Trade Style (d/b/a): Not Applicable.
8. Security Deposit: $2,000,000 to be made available to Landlord as of the
date of this Lease, subject to the terms of Section 11.9, under the terms
of an irrevocable letter of credit which Tenant causes to be issued to
Landlord as beneficiary substantially in the form of Exhibit F attached to
this Lease (the "Letter of Credit").
9. Tenant's Parking Allocation: [84]. The rate to be changed for the parking
spaces is as set forth in Section 1.3.
10. Fixed Minimum Rent
ANNUAL MONTHLY
PERIOD RATE RATE
--------------------------------------------------------------------------
A. Fixed Minimum Rent for the Initial Term (as defined in Section 1.1) is as
follows:
From the Commencement Date
Through the Last Day of the Tenth Lease Year $975,350.00 $81,279.17
Notwithstanding the foregoing, the Fixed Minimum Rent for July 1998 shall
be equal to one-half of the Monthly Rate.
B. To the extent this Lease is extended pursuant to its terms, the Fixed
Minimum Rent shall be as follows: for the Extension Term (as defined in
Section 1.1) the annual Fixed Minimum Rent for the Premises shall be equal
to the greater of (a) 95% of the then applicable Fair Market Rent as
determined by the method set forth in Section 12.13 or (b) $975,350.00.
11A. Additional Rent: Tenant shall pay (i) all Taxes, Insurance Costs, and
Operating Costs, and (ii) Other Additional Rent.
11B. Taxes: Payable monthly (for the Fiscal Year ending June 30, 1998, in the
estimated amount of $8,817.80 per month).
11C. Insurance Costs: Payable monthly (for calendar year 1998, in the estimated
amount of $221.67 per month).
11D. Operating Costs: Payable monthly (for calendar year 1998, in the estimated
amount of $15,267.51 per month).
2
<PAGE>
11E. Tenant's Direct Payment of Utilities: Tenant shall promptly pay prior to
the date when due all charges related to its use of gas, electric, water,
and sewer service to the appropriate public utility.
11F. Other Additional Rent: Includes all fees, charges, expenses, fines,
assessments, indemnities, or other sums other than Fixed Minimum Rent and
Taxes, Insurance Costs, and Operating Costs due under this Lease.
12. First Payment: First month's Fixed Minimum Rent in the amount of
$81,279.17, plus the first month's installment of Taxes in the amount of
$8,817.80, plus the first month's installment of Insurance Costs in the
amount of $221.67, plus the first month's installment of Operating Costs
in the amount of $15,267.51 plus the first month's parking charges in the
amount of $7,140.00, totaling $112,726.15 have been paid upon execution of
this Lease.
13. Broker: Davis & DeMarco, having an office at 27 Christina Street, Newton,
Massachusetts 02161; and Equis Corporation, having an office at 160
Federal Street, 13th Floor, Boston, Massachusetts 02110
14A. Tenant's Address For Notices, Telephone Number Fax Number and Taxpayer
Identification No.:
1. Before the Commencement Date:
One Kendall Square
Cambridge, MA 02139
Attn: Eleonora Brown
Telephone: (617) 588-5302; Fax: (617) 588-5399
2. After the Commencement Date:
205 Broadway (or such other address as may be assigned to the Premises by
Landlord pursuant to Section 7.2)
Cambridge, MA 02139
Attn: Eleonora Brown
Telephone: (617) 588-5302; Fax: (617) 588-5399
3. Tenant F.I.D.#04-3182077 with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attn: Joel R. Bloom, Esq.
Telephone: 617-542-6000
Facsimile: 617-542-2241
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Provided, that (1) notice given to Tenant's counsel is not deemed notice
to Tenant and (2) Landlords failure to deliver any notice to Tenant's
counsel will not affect the validity or effectiveness of any notice or
notification received by Tenant.
14B. Landlord's Address for Notices:
205 Broadway Realty Trust
BHX, LLC, Trustee
First Needham Place
250 First Avenue, Suite 200
Needham, Massachusetts 02194-2805
Attention: Robert A. Schiager
Tel: (781) 707-4000; Fax: (781) 707-4001
with a copy to:
Vorys, Sater, Seymour and Pease LLP
Suite 2100, Atrium Two
221 E. Fourth Street
Cincinnati, OH 45202-0236
Attn: Charles C. Bissinger, Jr., Esq.
Telephone: 513-723-4000
Facsimile: 513-723-4056
Provided, that (1) notice given to Landlord's counsel is not deemed notice
to Landlord and (2) Tenant's failure to deliver any notice to Landlord's
counsel will not affect the validity or effectiveness of any notice or
notification received by Landlord.
14C. Guarantor: None; accordingly, the terms of this Lease which apply
expressly to the capitalized term "Guarantor" are of no effect until there
is made a Guarantor of Lease by a written amendment executed by Landlord
and Tenant.
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LEASE
THIS LEASE made as of the 15th day of May, 1998, between BHX, LLC, a
Massachusetts limited liability company, as Trustee of 205 Broadway Realty Trust
under Declaration of Trust dated March 24, 1998 and recorded with the Middlesex
South Registry of Deeds on March 24, 1998 as Instrument No. 1185 (hereinafter
called "Landlord"), and Variagenics, Inc., a Delaware corporation, having a
place of business at One Kendall Square, Cambridge, Massachusetts 02139
(hereinafter called "Tenant").
W I T N E S S E T H:
ARTICLE I
Section 1.1 Certain Definitions. In addition to the words and terms
defined elsewhere in this Lease, the following words and terms shall have in
this Lease the meanings set forth in this Section:
"Alternative Parking Facilities" means any combination of substitute
outdoor, surface parking or indoor garage parking that Landlord from time to
time arranges to be available to Tenant either at the property known as 210
Broadway and/or at other locations in the Kendall Square area. Landlord shall
have the right to change, from time to time, the Alternative Parking Facility or
Facilities then available to Tenant and may use any combinations of Alternative
Parking Facilities as Landlord may select from time to time.
"Applicable Interest Rate" means the lesser of (a) a rate per annum
equal 3% plus the prime rate charged by Fleet National Bank, Boston,
Massachusetts (or any successor), in effect on the day the payment became due
and subject to change thereafter or (b) the maximum rate permitted by applicable
law.
"Building" means the one-story building, with a mezzanine area
located on the Land as depicted on the Site Plan.
"Cambridge Zoning Ordinance" means the Zoning Ordinance of the City
of Cambridge, Massachusetts, as amended by Ordinances 1187, 1189, 1192, 1193,
1194, 1195, 1196 and 1197. Any reference to a specific provision of the
Cambridge Zoning Ordinance will be construed to include any comparable provision
of the Cambridge Zoning Ordinance as amended or superseded after the date of
this Lease.
"Common Areas" means (i) those areas designated on the Site Plan as
common areas as of the date of this Lease and any future areas on Landlord's
Property which Landlord designates by notice to Tenant from time to time as
"common areas", less (ii) those areas which Landlord eliminates from time to
time by notice to Tenant from Landlord's previous designation as a common area.
"Common Facilities" means those facilities, if any, located on the
Land which Landlord designates from time to time as "common facilities".
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"Extension Term" means the period of time beginning at the end of
the Initial Term and ending on the last day of the fifteenth (15th) Lease Year.
"Future Building" means any and all buildings constructed on the
Land excluding the Building.
"Future Building Lease Notice" means a notice to Tenant from
Landlord that leasable square footage of a Future Building has been occupied by
another tenant.
"Future Improvements" means any and all Future Buildings and any and
all other improvements constructed on the Land after the date of this Lease.
"Initial Term" means the period beginning at 12:01 A.M. on the
Commencement Date and ending at 11:59 P.M. on the last day of the tenth (10th)
Lease Year.
"Land" means the land described in Exhibit A attached hereto and
incorporated by reference herein as depicted on the Site Plan.
"Landlord's Property" means the Land, the Building and all present
or future appurtenances and/or improvements to the Land and/or the Building.
"Leasable Square Footage of the Future Buildings" means, as of any
date of determination, the aggregate number of square feet of Landlord's
leasable floor area in all Future Buildings less the square footage of Common
Areas, Common Facilities, and parking areas located within such buildings.
Notwithstanding anything to the contrary in the immediately preceding sentence,
until Landlord gives a Future Building Lease Notice to Tenant with respect to a
Future Building, the leasable square footage of such Future Building will be
excluded for purposes of determining aggregate leasable floor area in all Future
Buildings.
"Leasable Square Footage of the Premises" means an agreed-on 39,014
square feet.
"Lease Term" means the Initial Term and, if the Tenant timely and
properly exercises its right to extend pursuant to Section 2.3 of this Lease,
the Extension Term.
"Lease Year" means the twelve (12) month period beginning on the
Commencement Date and on each anniversary of the Commencement Date throughout
the Lease Term; provided, however, that if the Commencement Date occurs on a
date other than the first day of a month, the first Lease Year shall consist of
the portion of the calendar month in which the Commencement Date occurs and the
next subsequent 12 calendar months, and the first day of each Lease Year
thereafter shall be the first day of the month after the month in which the
Commencement Date occurs.
"Minimum Number of Parking Spaces" means 40 parking spaces.
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"Parking Area" means that portion of Landlord's Property which is
used as of the date of this Lease as a parking lot as depicted on the Site Plan.
"Parking Space Shortfall" means the excess, if any, at any time of
(i) the Minimum Number of Parking Spaces over (ii) the number of parking spaces
then available for use by Tenant on Landlord's Property.
"Premises" means the Building.
"Site Plan" means the site plan attached hereto as Exhibit B which
depicts the approximate size and layout of the Land, the Building and the
Parking Area.
"Tenant's Share" means, as of any date of determination, an amount
(expressed as a percentage) equal to (i) the Leasable Square Footage of the
Premises divided by (ii) the Total Leasable Square Footage of All Buildings. The
percentage determined by the preceding sentence will rounded upward to the
nearest hundredth of one percent. Except as set forth in the following sentence,
prior to the date of a Future Building Lease Notice, Tenant's Share shall be one
hundred percent (100%). Notwithstanding anything to the contrary contained
herein, except for Tenant's Share of Taxes, Insurance Costs and Operating Costs
attributable to any future parking garage, Tenant shall have no obligation for
any Taxes, Insurance Costs or Operating Costs attributable to any Future
Buildings until the date of the Future Building Lease Notice.
"Total Leasable Square Footage of All Buildings" means, as of any
date of determination, the sum of the Leasable Square Footage of the Premises
and the Leasable Square Footage of all Future Buildings.
Section 1.2 Lease of the Premises. Landlord does hereby lease the Premises
to Tenant, and Tenant hereby leases the Premises from Landlord, upon and subject
to the terms and provisions of this Lease and all zoning ordinances, and
easements, restrictions, and conditions of record.
Section 1.3 Parking.
(a) Except as hereinafter set forth, during the Lease Term Tenant
shall be allocated approximately eighty-four (84) parking spaces in the Parking
Area. Tenant shall pay (i) eighty-five dollars ($85.00) per month for each such
allocated space during the Initial Term and (ii) during the Extension Term, if
any, the greater of (A) $85.00 per space or (B) 95% of the Fair Market Parking
Charge as determined in accordance with Section 12.13.
(b) Landlord shall have the unrestricted and unconditional right to
restrict and/or terminate Tenant's rights to use all and/or any portions of the
Parking Area on a temporary and/or permanent basis from time to time in
connection with (i) the proposed or actual construction of Future Improvements
and/or (ii) the performance of such soil tests, environmental tests, remediation
activities and other testing and/or monitoring as Landlord determines to
undertake thereon. Except as provided in Sections 1.3(c) and 1.3(d) hereof,
Landlord shall have no obligation to provide alternative or replacement parking
spaces due to
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any such restrictions and/or termination. Further, there shall be no reduction,
diminution or offset against Fixed Minimum Rent or Additional Rent under this
Lease by reason of any such restrictions and/or termination; provided, however,
that the amounts due under Section 1.3(a) shall be abated proportionately based
upon the number of spaces which are not available for Tenant's use and the time
period during which such spaces are not available.
(c) In the event that, due to restrictions placed on all or any
portions of the Parking Area by Landlord, and/or the termination of Tenant's
rights therein, the number of parking spaces available to Tenant on Landlord's
Property is reduced to less than the Minimum Number of Parking Spaces, then
Landlord shall make available to Tenant, at one or more Alternative Parking
Facilities, a sufficient number of Parking Spaces to eliminate the Parking Space
Shortfall until such time as the Parking Space Shortfall is eliminated. The
monthly parking charge for each space made available to Tenant in Alternative
Parking Facilities shall be equal to (i) the rate per month that otherwise would
have been in effect under Section 1.3(a) if the parking spaces are outdoor,
surface parking and (ii) the rate per month that otherwise would have been in
effect under Section 1.3(d) if the parking spaces are in a parking garage.
Tenant shall comply, and shall cause its employees, visitors, guests, licensees
and invitees to comply, with all rules, regulations and requirements imposed by
the operator(s) of any Alternative Parking Facilities.
(d) In the event that any Future Improvements include a parking
garage, then, at such time as parking spaces in such parking garage are made
available for use, Tenant shall be allocated a sufficient number of spaces in
such parking garage to eliminate any Parking Space Shortfall; provided, however,
that Landlord may, at its option, reduce the number of spaces in the parking
garage which are allocated to Tenant to not less than fifteen (15) spaces in the
parking garage, in which event, Landlord shall make available to Tenant, at one
or more Alternative Parking Facilities (which Alternative Parking Facility will
be located at 210 Broadway if permitted by applicable law), a sufficient number
of parking spaces to eliminate any resulting Parking Space Shortfall). The
monthly rate to be paid by Tenant for spaces in such parking garage shall be as
follows:
Period After Garage Opening Monthly Rate
--------------------------- ------------
First 12 months $ 95.00 per space
Second 12 months $105.00 per space
Balance of Initial Term $125.00 per space
Extension Term Greater of (i) $125.00 per
space or (ii) 95% of the Fair
Market Parking Charge as
determined by the method set
forth in Section 12.13.
Tenant shall comply, and shall cause it employees, visitors, guests, licensees
and invitees to comply, with all rules and regulations promulgated by Landlord
from time to time regarding access to, and/or use of, any such parking garage.
Tenant acknowledges that Landlord may restrict and/or control access to such
parking garage and/or may assign reserved spaces in such parking garage to
others.
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(e) All parking charges payable by Tenant pursuant to this Section
1.3 shall be paid without offset or deduction for any reason, in advance, on the
first day of each calendar month during the Lease Term following the
Commencement Date and also on the Commencement Date all or a proportionate
amount of such parking charges shall be paid for the month in which the
Commencement Date occurs. Any prorations or other adjustments due to (i) changes
in the number of parking spaces available or (ii) changes in availability of
spaces in a parking garage on Landlord's Property shall be adjusted not later
than the first day of the following calendar month.
Section 1.4 Common Areas and Facilities. The Premises are leased subject
to, and with the benefit of, the non-exclusive right to use in common with
others at any time entitled thereto the Common Areas and Common Facilities for
all such purposes as such areas and/or facilities may be designated by Landlord,
but only in connection with business in the Building. Landlord shall have the
right from time to time to (i) designate or change the locations, size or
configuration of the Building, including, without limitation the Common Areas
and/or Common Facilities, (ii) modify or replace Common Facilities, and (iii)
construct Future Improvements on Landlord's Property which may include
excavating around the walls of the Building.
ARTICLE II
Section 2.1 Lease Term. The Lease Term shall be the Initial Term unless
Tenant timely and properly exercises its right to extend under Section 2.3
hereof.
Section 2.2 Commencement Date. The "Commencement Date" of the Lease Term
shall be as set forth in the Summary of Basic Terms.
Section 2.3 Right to Extend. Provided (x) Tenant is not in default beyond
any applicable grace period provided for herein before exercising Tenant's right
to extend the Lease and at the time the extended term is to be effective and (y)
Tenant delivers to Landlord on or prior to the date the extended term is to be
effective, a Letter of Credit which meets all of the requirements of Section
11.9, Tenant shall have the right to extend the Lease Term for one (1)
successive period of five (5) years for, and during, the Extension Term, by
giving Landlord written notice specifying such extension, which notice must be
received by Landlord at least one year prior to the expiration date of the
Initial Term. If such extension becomes effective, the Lease Term shall be
automatically extended upon the same terms and conditions except that (i) Fixed
Minimum Rent shall be payable for such extended term as set forth in Item 10 of
the Summary of Basic Terms, (ii) the amounts payable by Tenant for parking
charges will be subject to increase in accordance with Section 1.3 hereof, and
(iii) there shall be no further right to extend or renew beyond the period
expressly set forth in this Section 2.3. The right of extension is personal to
Tenant and is not exercisable by any subtenant or assignee permitted hereunder.
In the event that the Lease Term is extended pursuant to this Section 2.3, if
requested in writing by Landlord or Tenant, the parties shall execute a notice
of exercise or amendment to notice of lease in recordable form and Tenant may,
at its expense, record the same in the Middlesex South District Registry of
Deeds. The rights in this Section 2.3 are personal to Variagenics, Inc. and are
not assignable or transferable, except in connection with an assignment or
sublease made pursuant to, and in compliance with, Section 7.12(b)(ii). On any
other permitted assignment (or request
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for assignment) of this Lease or on any other permitted sublease (or request for
sublease) of this Lease for all or any portion of the Premises, the rights under
this Section 2.3 will lapse and be of no further force and effect.
Section 2.4 Landlord's Work. Landlord shall have the right, but not the
obligation, to perform any improvements to the Building or other portions of
Landlord's Property which Landlord in its sole discretion deems necessary or
advisable. Tenant shall have no claim for damages against Landlord if Landlord
fails to perform any or all of Landlord's Work. Tenant acknowledges that
Landlord may (but shall not be obligated to) demolish all or any portion of the
area of the Building which is identified on the Site Plan as "Potential
Demolition Area" provided that Landlord restores any damage to the remainder of
the Building due to such demolition.
Section 2.5 Tenant's Work.
(a) Tenant agrees to perform all of "Tenant's Work" as specified
herein and on Exhibit C. All of Tenant's Work shall be done in a good and
workmanlike manner using new and high quality materials and in accordance with
the (i) provisions of all laws, rules, regulations and insurance requirements
applicable thereto and (ii) the plans and specifications that have been approved
in writing by Landlord. Tenant shall at its sole cost and expense do all work
necessary and take all other steps required in order to obtain and maintain a
Certificate of Occupancy for the Premises and Tenant's use thereof during the
Initial Term and any Extension Term. Tenant's Work will comply with all other
requirements of this Lease, including Section 7.4.
(b) Tenant will submit to Landlord not more often than once in each
month an application ("Tenant's Work Application") with respect to the total
number of square feet which has been certified by Tenant's architect as being
completed pursuant to the plans and specifications approved by Landlord during
the previous calendar month (the "Completed Space"). Tenant's Work Application
will detail the direct, out-of-pocket cost (per square foot) actually paid by
Tenant to its contractors and subcontractors to complete the Completed Space
("Actual Per Square Foot Cost") and will be accompanied by a certification from
Tenant's architect confirming the number of square feet of Completed Space, and
confirming that the Tenant's Work is in compliance with the plans and
specifications approved by Landlord and all applicable laws, rules, regulations
and governmental requirements. Within 30 days after Landlord receives Tenant's
Work Application made in compliance with this Section 2.5 (provided that there
does not then exist a default of Tenant or any fact or circumstance which, with
the passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute a default under this Lease),
Landlord will pay to Tenant an amount equal to (A) the excess, if any of, the
lesser of (1) $7.00 multiplied by the number of square feel of Completed Space
as set forth in Tenant's Work Application or (2) the Actual Per Square Foot Cost
of the Completed Space as set forth in Tenant's Work Application (the lesser
amount being the "Landlord's Contribution") over (B) all previous payments of
the Landlord's Contribution. In no event, however, will Landlord's Contribution
with respect to all of Tenant's Work exceed a total sum of $273,098.00. In no
event will any portion of Landlord's Contribution be used to pay the cost of
replacement of the roof on the Building. Tenant will receive the monthly
Landlord's Contribution in the form of a cash payment made to Tenant unless
Landlord, at its option, by written notice to Tenant elects to have all or any
portion of the Landlord's Contribution deducted
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from the immediately following payments of Fixed Minimum Rent. In support of
each Tenant's Work Application land as a precondition) to receive Landlord's
Contribution, Tenant will deliver to Landlord construction contracts, payment
applications and construction draws, lien waivers, affidavits and other
documentation, satisfactory to Landlord, demonstrating the direct, out-of-pocket
cost paid by Tenant in connection with the Completed Space (including, without
limitation, architectural services). Tenant will be solely responsible for all
costs of Tenant's Work in excess of the Landlord's Contribution and shall
provide to Landlord such evidence of payment thereof as Landlord may from lime
to time request. Landlord, may at its option, inspect the Tenant's Work and take
such other actions as Landlord deems appropriate to confirm that the same is in
compliance with the approved plans and specifications therefor and to verify the
information contained in any Tenant's Work Application and/or any certification
by Tenant's architect.
(c) In addition to Landlord's Contribution, Tenant agrees to expend
not less than One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) on Tenant's Work ("Tenant's Contribution"), of which not less
than One Million and No/00 Dollars ($1,000,000.00) shall be expended on or
before December 31, 1998, subject to extension due to delays resulting from
Interruption of utility services, breakage, strikes, inability after exercise of
reasonable diligence to obtain supplies or for any cause or causes beyond the
reasonable control of Tenant (which shall never include the lack of capital
available to Tenant). The balance of Tenant's Contribution shall be expended on
or before December 31, 1999. subject to extension due to delays resulting from
interruption of utility services, breakage, strikes, inability after exercise of
reasonable diligence to obtain supplies or for any cause or causes beyond the
reasonable control of Tenant (which shall never include the lack of capital
available to Tenant). Tenant shall provide such contracts, invoices, receipts
and other documentation as Landlord may request to confirm the amounts so
expended by Tenant. Until the termination of this Lease, Tenant will, as between
Landlord and Tenant, be entitled to any depreciation deductions attributable to
Tenant's Work.
Section 2.6 Approval of Plans and Specifications. If Tenant's Work as set
forth on Exhibit C does not refer to complete plans and specifications approved
by Landlord, then Tenant shall promptly following execution of this Lease cause
such complete plans and specifications to be prepared at Tenant's cost and
submitted to Landlord for Landlord's prior written approval before Tenant's Work
is commenced. Landlord shall not unreasonably withhold or delay such approval.
Without limiting Landlord's discretion, Landlord will not be deemed unreasonable
for withholding its consent to any alteration or addition (i) which would not be
compatible with the existing mechanical, electrical, plumbing, or HVAC systems
servicing any portion of Landlord's Property, unless such plans and
specifications include upgrades to such systems to make them compatible with
such alterations or additions, (ii) which could, in Landlord's reasonable
judgment, adversely affect Landlord's ability to construct any or all of the
Future Improvements. (iii) which involves or might affect any structural or
exterior element of the Building or the roof (except that Tenant may locate HVAC
equipment on the roof so long as such HVAC equipment is compatible with the
structural elements of the Building or such plans and specifications include
upgrades to the structural elements to make them compatible with such
alterations or additions), (iv) which would exceed any live load which the roof
or any floor was designed to carry, or (v) which involves any penetration of the
roof (except that (A) not more than a total of 5
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roof penetrations are permitted provided that such penetrations comply with all
other provisions of this Lease and are for the sole purpose of venting or HVAC
systems and (B) roof penetrations for skylights are permitted provided that such
penetrations comply with the other provisions of this Lease). Landlord's
approval of any plans and specifications pursuant to this Section or any other
provisions of this Lease shall not, and shall not be deemed to be a
certification, representation, or warranty by Landlord that the plans and
specifications are adequate, complete, or in compliance with applicable codes
and legal requirements.
Section 2.7 Sign Criteria. Except for signage (a) which complies with all
applicable laws, rules, ordinances, regulations and other governmental
requirements and (b) which is (i) located inside the Building and which is not
visible outside of the Building or (ii) expressly permitted pursuant to Exhibit
D, Tenant shall not erect, place or install any signage on Landlord's Property.
All costs of obtaining permits and approvals, creating and installing such sign
shall be paid by Tenant. Tenant shall maintain all signage in good repair and
condition. Notwithstanding anything to the contrary in this Section 2.7 or in
Exhibit D, Tenant will not erect any permitted exterior signage on or before the
date on which Tenant commences the operation of its business on the Premises.
ARTICLE III
Section 3.1 Fixed Minimum Rent. In consideration of the Lease of the
Premises pursuant to this Lease, Tenant shall pay therefor Fixed Minimum Rent in
the applicable amount set forth in the Summary of Basic Terms ("Fixed Minimum
Rent') payable in equal monthly installments of one-twelfth of the annual Fixed
Minimum Rent which shall be paid without offset or deduction for any reason, in
advance, on the first day of each calendar month during the Lease Term following
the Commencement Date, and also on the Commencement Date all or a proportionate
part of the Fixed Minimum Rent shall be paid for all or any part of a month.
Fixed Minimum Rent and Additional Rent shall be paid either (a) by an
"electronic funds transfer' system arranged by and among Tenant, Tenant's bank
and Landlord, or (b) by check sent to Landlord's office First Needham Place, 250
First Avenue, Suite 200, Needham, Massachusetts 02194 or at such other place as
Landlord shall from time to time designate in writing. If Tenant is using
checks, rent checks shall be made payable to 205 Broadway Realty Trust or to
such other entity or trade-style as Landlord may designate from time to time in
writing. The parties hereto acknowledge and agree that the obligations owing by
Tenant under this section are rent reserved under this Lease, for all purposes
hereunder, and are rent reserved within the meaning of Section 502(b)(6) of the
United States Bankruptcy Code of 1978, as amended (11 U.S.C. Section 101 et
seq.) (the "Bankruptcy Code").
Section 3.2 Certain Additional Rent. Tenant shall pay, without offset or
deduction for any reason, Additional Rent on account of Taxes, Insurance Costs,
the charges for parking spaces as set forth in Section 1.3 and Operating Costs,
the amounts more particularly set forth in Article IV hereof and Section 1.3,
and all other fees, charges, expenses, fines, assessments or other sums payable
by Tenant to Landlord hereunder. If Tenant fails to pay any Additional Rent,
Landlord shall have all the rights and remedies for failure to pay Fixed Minimum
Rent. The parties hereto acknowledge and agree that the obligations owing by
Tenant under this section are
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rent reserved under this Lease, for all purposes hereunder, and are rent
reserved within the meaning of Section 502(b)(6) of the Bankruptcy Code or any
successor provision thereto.
Section 3.3 Triple Net Lease. Landlord and Tenant intend that the rent
payable under this Lease shall be absolute triple net annual Fixed Minimum Rent
and Additional Rent to Landlord as described herein during the Lease Term.
Tenant shall pay all costs, expenses and obligations of every kind and nature
whatsoever relating to the Premises and all expenses and obligations of every
kind and nature whatsoever relating to the operation, maintenance, upkeep,
replacement or repair of Landlord's Property, without any deduction or offset
unless expressly provided otherwise herein.
ARTICLE IV
Section 4.1 Certain Definitions Applicable to Tenant's Payment of Real
Estate Taxes, Insurance, Electricity and Operating Costs. As used in this Lease,
the following definitions shall apply: (a) the term "Taxes" shall mean all
taxes, assessments, betterments, water or sewer entrance fees and charges
including general, special, ordinary and extraordinary, environmental (but
without in any way modifying the respective rights and obligations of the
parties pursuant to Section 5.1), or any other charges (including charges for
the use of municipal services if billed separately from other taxes), levied,
assessed or imposed at any time by any governmental authority upon or against
Landlord's Property exclusive of ("Excluded Taxes") any estate, inheritance,
gift, net worth, franchise, or income taxes on the net income of Landlord. This
definition of Taxes is based upon the present system of real estate taxation in
the Commonwealth of Massachusetts; if taxes upon rentals or any other basis
shall be substituted, in whole or in part, for the present ad valorem real
estate taxes, the term Taxes shall be deemed changed to the extent to which
there is such a substitution for the present ad valorem real estate taxes
(including any of the Excluded Taxes if the same constitute any of the
substituted taxes) and in such event Taxes shall be determined as though
Landlord's Property is the only property owned by Landlord; (b) the term
"Insurance" shall mean such casualty, liability, rent loss, and other insurance
as Landlord maintains with respect to Landlord's Property, including, without
limitation, any insurance referenced in Section 4.3(b) and any other insurance
Landlord is required to maintain by Landlord's lenders with respect to
Landlord's Property; (c) the term "Fiscal Year" shall mean July 1 through June
30 next following, or such other tax period as may be established by law for the
payment of Taxes; and (d) the term "Operating Costs" shall mean the items set
forth in Section 4.5 hereof.
Section 4.2 Payment of Real Estate Taxes and Other Taxes.
(a) Tenant shall pay to Landlord as Additional Rent an amount equal to
Tenant's Share of all of the Taxes. In the event that Landlord gives a Future
Building Lease Notice to Tenant, Landlord will prorate the Taxes for the Fiscal
Year in which such notice is given to account for the change in the Tenant's
Share effective on the date of such Future Building Lease Notice. Taxes shall be
estimated in good faith by Landlord at the end of each Fiscal Year (for the
following Fiscal Year), and thereafter be payable to Landlord in equal estimated
monthly installments together with the payment of Fixed Minimum Rent, subject to
readjustment when the actual amount of Tenant's Share of the Taxes is
determined. After readjustment, any shortage
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shall be due and payable by Tenant within 15 days of demand by Landlord, and any
excess shall be credited against future Additional Rent obligations (provided
that there does not then exist a default of Tenant or any fact or circumstance
which, with the passage of time, the giving of notice, or the satisfaction of
any other condition, or all of them, could constitute default of this Lease), or
refunded if the Lease Term has ended and Tenant has no further obligations to
Landlord. If the taxing authority provides an estimated tax bill, then monthly
installments of Tenant's Share of the Taxes shall be based thereon until the
final tax bill is ascertained. Landlord shall furnish to Tenant, upon Tenant's
request, but not more than once in any Fiscal Year, a copy of the tax bill or
any estimated tax bill.
(b) If, after Tenant shall have made any payment under this Section 4.2.
Landlord shall receive a refund (the "Refund") of any portion of the Tenant's
Share of the Taxes paid on account of any Fiscal Year for which such payments
shall have been made as a result of an abatement of such Taxes, by final
determination of legal proceedings, settlement or otherwise ("Proceedings"),
Landlord shall, within thirty (30) days after receiving the refund, pay to
Tenant an amount equal to Tenant's proportionate share of the Refund (provided,
however, that Landlord shall not be obligated to pay such amount to Tenant if
there then exists a default of Tenant or any fact or circumstance which, with
the passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute default of this Lease unless and
until the same is cured by Tenant), which payment to Tenant shall be
appropriately adjusted if Tenant's original payment covered a different period
than covered by the Refund, less all expenses reasonably incurred by Landlord in
connection with such proceedings (including, but not limited to, reasonable
attorneys' fees, costs and appraisers' fees). Landlord shall have sole control
of all Proceedings. From time to time as may be reasonably requested by Tenant,
Landlord shall provide to Tenant information regarding any pending Proceedings.
Until such time as Landlord commences construction of a Future Building (but not
at any time thereafter), Landlord agrees to take such actions as may be
requested in writing by Tenant and deemed by Landlord to be commercially
reasonable in connection with the initiation and prosecution of such Proceedings
provided that Tenant pays all costs and expenses in connection therewith within
thirty (30) days after demand by Landlord therefor.
(c) If the Commencement Date of this Lease is not on July 1, or the
expiration or termination of this Lease is not on June 30, Tenant's obligation
in respect of Taxes shall be prorated. If the final tax bill for the Fiscal Year
in which such expiration or termination of this Lease occurs shall not have been
received by Landlord, then within thirty (30) days after the receipt of the tax
bill for such Fiscal Year, Landlord and Tenant shall make appropriate
adjustments of estimated payments.
(d) Without limiting the generality of the foregoing, Tenant shall pay all
rent and personal property taxes attributable to its signs or any other personal
property including but not limited to its trade fixtures, equipment, the
existing or any future floor coverings, wall treatments and light fixtures in
the Premises.
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Section 4.3 Payment of Insurance Costs.
(a) Tenant shall pay to Landlord as Additional Rent an amount equal to
Tenant's Share of all of the Insurance Costs for Landlord's cost for Insurance
("Insurance Costs") in any calendar year. In the event that (i) Landlord gives a
Future Building Lease Notice to Tenant and (ii) the Insurance Costs include the
cost of insurance for the Future Buildings. Landlord will prorate the Insurance
Costs for the calendar year in which such notice is given to account for the
change in the Tenant's Share effective on the date of such Future Building Lease
Notice. In the event that the Insurance Costs do not include the cost of
insurance for the Future Buildings, Tenant's Share of the Insurance Costs shall
remain at one hundred percent (100%) and Tenant shall pay an equitable portion
of the Insurance Costs attributable to the parking garage included in any Future
Building based upon the number of parking spaces made available to Tenant
therein. The cost of any blanket insurance covering the Premises and one or more
other buildings (including any Future Buildings) shall be allocated in a manner
reasonably determined by Landlord. The Insurance Costs shall be estimated in
good faith by Landlord at the end of each calendar year (for the following
calendar year), and thereafter be payable to Landlord in equal estimated monthly
installments together with the Fixed Minimum Rent, subject to re-adjustment when
Tenant's Share of the actual Insurance Costs is determined. After readjustment,
any shortage shall be due and payable by Tenant within 15 days of demand by
Landlord, and any excess shall be credited against future Additional Rent
obligations (provided, however, that Landlord shall not be obligated to pay such
amount to Tenant if there then exists a default of Tenant or any fact or
circumstance which, with the passage of time, the giving of notice, or the
satisfaction of any other condition, or all of them, could constitute a default
of this Lease unless and until the same is cured by Tenant), or refunded to
Tenant if the Lease Term has ended and Tenant has no further obligations to
Landlord. Landlord shall furnish to Tenant, upon Tenant's request but not more
than once in any calendar year, a copy of the Insurance premium bill.
(b) Such Insurance Costs include the cost of insuring the entire
Landlord's Property, including without limitation, the Building and any Future
Improvements, and all operations conducted in connection therewith, with such
policies, coverages and companies and in such limits as may be selected by
Landlord, including, but not limited to, fire insurance with extended or with
all-risk coverage, rental and business interruption coverage, comprehensive
public liability insurance covering personal injury, rent loss, deaths and
property damage with a personal injury endorsement covering false arrest,
detention or imprisonment, malicious prosecution, libel and slander, and
wrongful entry or eviction, workers' compensation insurance, plate glass
insurance, contractual liability insurance and fidelity bonds.
Section 4.4 Payment for Utilities. Landlord shall cause the Premises to be
separately metered or submetered for gas, electric, water, and sewer service.
Tenant shall be responsible for paying the bills for all such utility services
in its name. Tenant shall promptly pay prior to the date when due all charges
related to its use of gas, electric, water, and sewer service to the appropriate
public utility, and Tenant will provide to Landlord evidence of Tenant's payment
thereof within fifteen (15) days after Landlord's request.
Section 4.5 Common Area and Other Operating Costs.
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(a) Tenant shall pay to Landlord as Additional Rent an amount equal to the
sum of:
(i) all of the Operating Costs of the Building;
(ii) Tenant's Share of the Operating Costs of the Common Areas,
Common Facilities, and other portions of Landlord's Property excluding the
Building and any Future Buildings. In the event that Landlord gives a Future
Building Lease Notice to Tenant, Landlord will prorate the Operating Costs
described in this clause (ii) of Section 4.5(a) for the calendar year in which
such notice is given to account for the change in the Tenant's Share effective
on the date of such Future Building Lease Notice; and
(iii) a prorata share of the Operating Costs of any parking garage
included as part of any Future Improvements ("Future Parking Garage") based on
the number of parking spaces then allocated to Tenant in the Future Parking
Garage in comparison to the total number of parking spaces in the Future Parking
Garage. Landlord will make from time to time a reasonable allocation of the
Operating Costs of any Future Building, of which the Future Parking Garage is a
part, to the Future Parking Garage.
(b) The Operating Costs shall be estimated in good faith by Landlord at
the end of each calendar year (for the following calendar year) and thereafter
be payable in equal estimated monthly installments, together with the Fixed
Minimum Rent, subject to readjustment when actual Operating Costs are
determined. After readjustment, any shortage shall be due and payable by Tenant
within 15 days of demand by Landlord and any excess shall be credited against
future Operating Costs obligations (provided, however, that Landlord shall not
be obligated to pay such amount to Tenant if there then exists a default of
Tenant or any fact or circumstance which, with the passage of time, the giving
of notice, or the satisfaction of any other condition, or all of them, could
constitute a default of this Lease unless and until the same is cured by
Tenant), or refunded if the Lease Term has ended and Tenant has no further
obligations to Landlord. Landlord shall provide Tenant upon request with
reasonable supporting documentation for the Operating Costs.
(c) Notwithstanding anything to the contrary in this Section 4.5, Tenant
will not be liable for the Operating Costs of any Future Buildings ("Excluded
Portions of Landlord's Property") exclusive of those Operating Costs which are
allocated to any Future Parking Garage by Landlord pursuant to Section
4.5(a)(iii) above.
(d) "Operating Costs" shall include any and all costs of operating,
managing, maintaining, repairing, replacing and insuring the Building, Common
Areas, Common Facilities, Future Parking Garage, and the remainder of Landlord's
Property exclusive of those costs allocated by Landlord to the Excluded Portions
of Landlord's Property. Such costs shall be those which Landlord deems to be
reasonable and appropriate including, but not limited to, all costs and expenses
for services provided in the Building and other costs and expenses, whether
expended or incurred in repairing (including but not limited to roof repairs and
maintenance), lighting, cleaning, painting, waterproofing, maintaining
(including, but not limited to, preventive maintenance) and improving (provided
that items required to be capitalized by Landlord's accountants including
improvements made by Landlord to comply with changes in law in
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accordance with Section 7.6 shall be amortized over their applicable tax
amortization period with interest at the rate of 10% per annum, and only the
current portion thereof shall be included within Operating Costs) the Building,
Common Areas, Common Facilities, Future Parking Garage, and the remainder of
Landlord's Property (exclusive of the Excluded Portions of Landlord's Property);
removing rubbish and debris which is not removed by the applicable tenant or
occupant; providing pest and vermin control; providing, maintaining, repairing
and replacing of paving, curbs, walkways, landscaping, planters, roof, walls,
drainage, on-site water tines, sanitary sewer lines, storm water lines,
electrical lines and other equipment serving the Premises and/or other property
on which Landlord's Property or any part thereof is constructed or is to be
constructed; all surcharges, costs and expenses that may result from any
environmental or other laws, rules, regulations, guidelines or orders (excluding
costs associated with Hazardous Substances which are present on the Landlord's
Property (x) as of the date hereof or (y) through no fault of Tenant or any
other Tenant Party); a management fee equal to three percent (3.0%) of the gross
rents payable to Landlord with respect to Landlord's Property (exclusive of the
Excluded Portions of Landlord's Property), which management fee may be payable
to an affiliate of Landlord; and an administrative charge equal to ten percent
(10%) of the total of all Operating Costs (exclusive of such administrative
charge, management fee, Taxes, Insurance Costs and charges from any public
utility). "Operating Costs" do not include payments of (i) debt service and any
other mortgage charges, (ii) brokerage commissions, (iii) legal fees
attributable to (A) individual lease and tenant matters unless the matter
involves enforcing compliance with rules and regulations or other standards or
requirements for the benefit of all tenants on Landlord's Property and (B)
financings and refinancing of Landlord's Property, (iv) salaries of executives
and owners of Landlord other than the property manager and those working under
the direct supervision of such property manager, (v) general overhead and
administrative expenses of Landlord's home office not directly attributable to
the management or operation of Landlord's Property, (vi) costs of special
services rendered to Tenant or other tenants for which a separate charge by
Landlord is made; and (vii) "Structural Repair Costs" (as defined in Section
6.2) in excess of the amounts provided in Section 6.2.
ARTICLE V
Section 5.1 Use.
(a) Subject to the terms of this Lease (including the other subparagraphs
of this Section 5.1), the Premises shall be used and occupied by Tenant solely
for the following specific uses:
(i) General office use;
(ii) Technical office for research and development, laboratory and
research facility (as defined and used in, and limited by, the
Cambridge Zoning Ordinance); and
(iii) Limited manufacturing activity as an accessory use (as defined
and used in, and limited by, the Cambridge Zoning Ordinance).
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Notwithstanding anything to the contrary contained in this Lease, under no
circumstances shall any portion of the Premises be used by any person, firm,
entity, business, enterprise or governmental authority in the business of
providing environmental engineering or environmental consulting services, nor
shall any environmental engineering or environmental consulting services be
rendered or performed on the Premises.
(b) Before Tenant may begin its use and occupancy of the Premises, Tenant
will provide to Landlord a statement ("Hazardous Substances Statement"), setting
forth in detail, and to Landlord's satisfaction, (i) all licenses and permits
that any Tenant Party is required to obtain or will obtain in connection with
any Environmental Activity at the Premises, (ii) a list of all Hazardous
Substances expected to be used as part of any Environmental Activity and a copy
of each Tenant Party's reporting documentation required to be furnished to or by
any governmental authority, including, any right to know list, material safety
data sheets, or similar such documents, and (iii) a description of all of each
Tenant Party's planned Environmental Activities at the Premises. Landlord will
have the right to select and engage one or more consultants ("Landlord's
Consultant") to review the Hazardous Substances Statement and to investigate the
Tenant Parties' planned Environmental Activities. If Landlord's Consultant
determines that (1) any Tenant Party does not possess the requisite licenses or
permits with respect to its planned Environmental Activities or (2) any Tenant
Party's planned Environmental Activities present an unusual risk of
contamination of the Building or any other portion of Landlord's Property or any
violation of any Environmental Requirements, Landlord will have the right to
prohibit all or any portion of such Tenant Party's use of the Premises until
Landlord is reasonably satisfied that the applicable licenses and permits with
respect to such Tenant Party's use of the Premises have been obtained and that
no such contamination or violation will occur. The Environmental Activities
which have been established pursuant to this Section 5.1(b) are referred to as
the "Permitted Environmental Activities." The licenses and permits which are
required for the Permitted Environmental Activities are collectively referred to
as the "Required Permits". There shall not be any changes in the Permitted
Environmental Activities unless the terms of this Section 5.1 are complied with
by Tenant as in the case of the initial review of Tenant's planned Environmental
Activities as of the date that Tenant first takes occupancy of the Premises. In
the event of any change in Tenant's planned Environmental Activities Tenant
shall pay the costs of Landlord's Consultant in connection therewith. Landlord's
consent to the Permitted Environmental Activities after the review or
completion, to Landlord's reasonable satisfaction, of any inspection of Tenant
shall not, and shall not be deemed to, be a certification, representation or
warranty by Landlord that (A) Tenant is in compliance with applicable
Environmental Requirements, (B) the Required Permits are all of the licenses,
permits, and approvals required under applicable law, (C) no damage to the
Building (including any contamination) may occur by virtue of any Environmental
Activities by a Tenant Party, or (D) any Environmental Activities by a Tenant
Party pose acceptable risks to human and animal health and the environment.
(c) Landlord will have the further right to (i) change the consultants
from time to time who are Landlord's Consultants and (ii) have Landlord's
Consultant inspect, from time to time (including on the termination of this
Lease), the Premises to determine whether (A) the use of the Premises by all
Tenant Parties complies with the Permitted Environmental Activities, (B) the
Required Permits are still in full force and effect, (C) any additional permits
or licenses or
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approvals may be necessary or required, (D) any Tenant Party may be in violation
of any Environmental Laws, and/or (E) any portion of Landlord's Property or the
surrounding environment has been contaminated as a result of the Environmental
Activities of any Tenant Party. If Landlord's Consultant determines through its
inspection that any Tenant Party is not in compliance with the requirements of
this Section 5.1, Tenant will reimburse Landlord immediately on Landlord's
request for the cost to Landlord of Landlord's Consultant to conduct the
inspection. On each anniversary of the Commencement Date during the Lease Term
(and more often as requested by Landlord with reasonable advance notice) and on
any termination of this Lease, Tenant will certify to Landlord (a "Tenant
Environmental Certification") that, except as previously disclosed in writing to
Landlord pursuant to Section 5.1(i): (1) the Hazardous Substances Statement
remains true and correct (or if any permitted changes have occurred, an
explanation of those changes to Landlord's reasonable satisfaction), (2) there
have occurred no Environmental Activities other than the Permitted Environmental
Activities since the last anniversary date, (3) all Tenant Parties are in
compliance with all Environmental Requirements; applicable use regulations in
Section 4 of the Cambridge Zoning Ordinance; and all RDNA Requirements. (4) all
Required Permits are valid and in full force and effect and that those Required
Permits are the only licenses and permits required with respect to the
Environmental Activities of all Tenant Parties under any Environmental
Requirements, and (5) no Hazardous Substances contamination of the Premises, any
other portion of Landlord's Property, or the surrounding environment has
occurred from any Environmental Activity by a Tenant Party.
(d) Subject to any rights of cure contained in this Lease, Tenant's right
to use the Premises is conditioned on all Tenant Parties obtaining and keeping
in full force and effect all necessary licenses and permits, in addition to the
Required Permits, required with respect to use and occupancy of the Premises by
the Tenant Parties and the Environmental Activities from the City of Cambridge,
the Commonwealth of Massachusetts and any other government authority.
(e) In addition to the other terms defined in this Lease, as used in this
Lease (whether or not underscored):
(i) "Environmental Activity" means any actual, proposed (by Tenant
or any other Tenant Party) or threatened use, storage, holding, existence,
Release, emission, discharge, generation, manufacturing, producing, refining,
creating, processing, abatement, removal, disposition, handling, transportation
or disposal of any Hazardous Substance from, under, into or on the Premises or
any other portion of Landlord's Property or otherwise relating to any Use of any
of Landlord's Property, which is regulated, or for which standards of conduct or
liability are imposed, by any Environmental Requirements, by any Tenant Party or
which presents an unusual risk to human or animal health or to the environment.
(ii) "Environmental Law" means the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C.ss.9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C.ss.6901 et seq. the
Hazardous Materials Transportation Act, 49 U.S.C.ss.1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss.2601 et seq., the Federal Water Pollution
Control Act, 33 U.S.C.ss.1251 et seq., the Clean Water Act, 33 U.S.C.ss.1321 et
seq., the Clean Air Act, 42 U.S.C.ss.7401 et seq., the Massachusetts Oil and
Hazardous Material Release Prevention and Response Act, Chapter 21E of the
Massachusetts General Laws,
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all regulations promulgated thereunder, and any other federal, state, county,
municipal, local or other statute, law, ordinance or regulation (including, any
state or local board of health rules, regulation, or code), or any common law
(including common law that may impose strict liability or liability based on
negligence), which may relate to or deal with human health, the environment,
natural resources, or Hazardous Substances, all as may be from time to time
amended or modified.
(iii) "Environmental Liability" means any liability, obligation,
indebtedness, or duty of, any claim or demand against, any requirement imposed
on, or any amount owed by or payable from, Tenant or Landlord, which is based
on, results from, is in connection with, arises out of, or otherwise is related
to any Environmental Activity by a Tenant Party, whether the foregoing described
liability is contingent or absolute, primary or secondary, liquidated or
unliquidated. due or to become due, and however created, incurred, acquired,
owing or arising. Notwithstanding the foregoing in this definition of
Environmental Liability, the term "Environmental Liability"' will not include,
and Tenant will not be liable to Landlord under this Lease for, any liability
for any contamination, claim of contamination, loss or damage arising in
connection with Hazardous Substances to the extent the same is the result of (A)
Hazardous Substances existing in the Building and Landlord's Property prior to
the Commencement Date, (B) migration of Hazardous Substances from any site onto
Landlord's Property not caused directly or indirectly by any Tenant Party, or
(C) the generation, manufacture, production, handling, release, storage, use or
disposal of any Hazardous Substances at the Building or Landlord's Property by
(1) Landlord or by its employees, agents, or independent contractors, or (2) any
tenants of Landlord's Property other than Tenant, its subtenants and assignees
and any other Tenant Parties.
(iv) "Environmental Requirements" means all applicable present and
future laws, including Environmental Laws, authorizations, approvals, judgments,
injunctions, decrees, concessions, grants, orders, franchises, agreements and
other restrictions and requirements (whether or not arising under statutes or
regulations), including the RDNA Requirements, relating to any Hazardous
Substances or Environmental Activity.
(v) "Hazardous Substances" means, at any time, (A) any "hazardous
substance" as defined in ss.101(14) of CERCLA (42 U.S.C. ss.9601(14)) or
regulations promulgated thereunder; (B) any "hazardous waste," or "infectious
waste," as such terms are defined in any Environmental Law at such time; (C)
asbestos, ureaformaldehyde, polychlorinated biphenyls ("PCBs"), bio-medical
materials or waste, nuclear fuel or material, chemical waste, radioactive
material, explosives, known carcinogens, petroleum products and by-products and
other dangerous, toxic or hazardous pollutants, contaminants, chemicals,
materials or substances which may be hazardous to human or animal health or the
environment or which are listed or identified in, or regulated by, any
Environmental Law; (D) materials or substances which are subject to control
under the RDNA Requirements, and (E) any additional substances or materials
which at such time are classified or considered to be hazardous or toxic under
any Environmental Law.
(vi) "RDNA Requirements" means, collectively. Chapter 8.20 of the
Cambridge Municipal Ordinance, Recombinant DNA Technology, and the National
Institutes of
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Health Guidelines cited therein. Any reference to a specific provision of the
applicable code or guidelines will be construed to include any comparable
provision of the applicable code or guidelines as amended or superseded after
the date of this Lease.
(vii) "Release" includes, but is not limited to, spilling, leaking,
pumping, emitting, emptying, discharging, injecting, escaping, contaminating,
teaching, disposing, releasing or dumping into the environment.
(viii) "Tenant Party" means any or all of (A) Tenant or its
affiliates, subsidiaries, owners, directors, officers, employees, agents.
invitees, licensees, independent contractors, or any other persons or entities
with respect to whose conduct Tenant is liable under applicable law (including
any successor or assign of the foregoing) or (B) any sublessee of Tenant or the
sublessee's affiliates, subsidiaries, owners, directors, officers, employees,
agents, invitees, licensees, independent contractors, or any other persons or
entities with respect to whose conduct the sublessee is liable under applicable
law (including any successor or assign of the foregoing).
(ix) "Use" includes but is not limited to, use, ownership,
development, construction, maintenance, management, operation or occupancy.
(f) Tenant may not dump, flush or in any way Release or introduce any
Hazardous Substances into the HVAC system of the Building and/or any septic,
sewage, storm water, or other waste disposal systems serving the Premises or any
other portion of Landlord's Property except for discharges into the public
sanitary sewer system in compliance with applicable Environmental Requirements
and in accordance with the Hazardous Substances Statement.
(g) Tenant will, at its expense, (i) keep the Premises equipped with all
safety appliances required by law because of any use of the Premises other than
general office use and (ii) do any work to the Premises required by applicable
law as a result of any Environmental Activity, it being understood that the
foregoing provisions will not be construed to broaden in any way Tenant's
permitted use of the Premises.
(h) Tenant will be liable for (i) any damage to the Building or any other
portion of Landlord's Property (including any loss of use of all or any portion
of the Building or any other portion of Landlord's Property) and (ii) for all
costs and expenses of any investigation, cleanup, detoxification,
decontamination of, or other response, removal, or remedial action with respect
to, the Building or any other portion of Landlord's Property (or the environment
with respect thereto) which, in any case, arises out of any Environmental
Activity by a Tenant Party. Tenant's obligations under this Section 5.1(h) shall
survive the termination of this Lease for any reason whatsoever and shall be in
addition to any indemnification or insurance obtained, or requested to be
obtained, under this Lease. Landlord shall be responsible for all costs and
expenses of any investigation, cleanup, detoxification, decontamination of, or
other response, removal or remedial action with respect to the Building or any
other portion of Landlord's Property (or the environment with respect thereto)
which arises out of any Environmental Activity of Landlord (but not any tenants
of Landlord) other than those matters, if any, disclosed in environmental
reports previously delivered to Tenant.
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(i) Tenant will (A) promptly notify Landlord of, and deliver to Landlord
copies of, all communications between Tenant and any governmental authorities
which relate to Environmental Activities, Environmental Requirements, or
Hazardous Substances affecting Tenant, including any oral or written warnings,
notices of violation of, or any permit proceedings under, any Environmental
Requirements that are received by Tenant with respect to any Environmental
Activities by a Tenant Party; (B) notify Landlord immediately after obtaining
knowledge of the Release or alleged Release in a reportable quantity (as defined
under applicable Environmental Law) of any Hazardous Substance on, in, under or
affecting the Premises or any other portion of Landlord's Property or any
surrounding area, and any noncompliance with any Environmental Requirement; and
(C) notify Landlord immediately of any litigation, suit or administrative
proceeding against a Tenant Party with respect to any Environmental Activities.
(j) Tenant will identify Tenant's confidential information to Landlord
("Confidential Information") during the course of Landlord's investigations and
inspections of Tenant's Environmental Activities contemplated by this Section
5.1. Tenant will clearly and conspicuously mark any written information or
document as confidential and will take measures to separate all Confidential
Information from all other information provided to Landlord. If information,
that is considered by Tenant to be confidential, is provided orally, Tenant will
reduce in a writing to Landlord what portion or portions of the information
Tenant considers to be Confidential Information. Landlord will undertake
reasonable measures (in the context of the importance of the relevant
Confidential Information to Tenant) to protect against the disclosure by its
employees of Confidential Information and will include a non-disclosure
provision in its agreements with Landlord's Consultants with respect to
Confidential Information. Landlord will be authorized to disclose Confidential
Information (i) to such of its employees who have a need to know, (ii) to
Landlord's Consultants, (iii) to Landlord's attorneys, (iv) to Landlord's
mortgagees and ground lessors to the extent required by the applicable financing
or lease documents, or (v) pursuant to any order or requirement of any
governmental authority or otherwise having the force of law. Notwithstanding
anything to the contrary in this Section 5.1(j), Landlord will have the right to
disclose Confidential Information (A) to any applicable governmental authority
if Landlord and Landlord's Consultant reasonably believe that an imminent and
substantial endangerment to human or animal health or the environment exists or
(B) which Landlord can demonstrate has become part of the public domain by
proper and lawful means through the publication or communication by others at
the time of disclosure by Tenant to Landlord or, after this disclosure to
Landlord by Tenant, has become a part of the public domain by proper and lawful
means through the publication or communication by persons, entities or
authorities (other than Landlord) who have been authorized by Tenant to make the
publication and disclosure.
Section 5.2 Prohibited and Required Uses. In addition to its obligations
under Section 5.1 and elsewhere under the terms of this Lease, Tenant will
procure and maintain in full force and effect all licenses and permits which are
required for any use made of the Premises. Tenant shall cause any fire lanes in
the front, sides and rear of the Premises to be kept free of all parking
associated with its business or occupancy and in compliance with all applicable
regulations. Tenant shall conduct its business at all times so as not to create
any nuisance and so as to not interfere with the business of other tenants and
occupants of Landlord's Property. Tenant shall at
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its own cost install such extra sound-proofing, noise control systems and odor
control systems as may be needed to eliminate noise, vibrations and odors, if
any, emanating from the Premises being heard, felt or smelled outside the
Premises. Tenant will not permit in the Premises or any other portion of
Landlord's Property (a) any nuisance or (b) any Release of any Hazardous
Substances except as otherwise permitted under the terms of this Lease.
Section 5.3 Compliance with Laws: Additional Restrictions. In its use of
the Premises, Tenant shall comply with any and all applicable laws, statutes,
ordinances, rules, regulations, codes and requirements of governmental
authorities. Tenant in its use of the Premises will not do any act which is in
contravention of, nor omit to do any act required of it by, any law, order or
regulation of any federal, state, county or municipal authority or by any lawful
order of any public official including, without limitation, all legal
requirements related to Environmental Activities.
ARTICLE VI
Section 6.1 Landlord's Common Area and Common Facilities Services. The
enumeration of items in Section 4.5 as being subject to Additional Rent for
Operating Costs shall not impose any obligation upon Landlord to provide such
services except to the extent required in the opinion of Landlord and to the
extent practical in relation to the then existing conditions but in no event
shall the failure of Landlord to perform any such work or service constitute a
breach of Landlord's obligations hereunder.
Section 6.2 Repair Services. Within 30 days or longer if reasonably
required following receipt of notice of the need therefor, during the Lease
Term, Landlord will make necessary structural repairs in or to the Building in
which the Premises are located with regard to: the roof; load bearing walls;
structural columns; foundations; and structural elements of the floors (but not
floor coverings). Provided, however: (a) the cost for any such repairs made
necessary by any act, default or negligence of Tenant, its invitees, employees,
agents, licensees, or contractors may be charged entirely to Tenant who shall
pay for the same as Additional Rent promptly upon billing therefor; (b) Tenant
shall be responsible for the cost of said repairs and obligations under Section
7.4 with respect to the Premises; (c) Tenant shall in all circumstances, be
responsible for one hundred percent (100%) of all costs and/or expenses related
to the roof; and (d) damage from fire or other casualty, or taking by eminent
domain shall be governed by ARTICLES IX and X of this Lease. The cost of
structural repairs to structural elements of the Building (other than the roof)
other than those repairs which are (i) the responsibility of Tenant pursuant to
clauses (a), (b) or (c) of this Section 6.2 or other provisions of this Lease or
(ii) governed by Articles IX or X of this Lease (the "Structural Repair Costs")
shall be paid by Landlord. Structural Repair Costs so paid by Landlord shall be
amortized over the remaining useful life of the repaired structural element (as
determined by Landlord's accountants) with interest at the rate of 10% per annum
and only the current portion thereof shall be included in Operating Costs.
Section 6.3 Interruption: Delay. Landlord shall have no responsibility or
liability for failure or interruption of any such repairs or services referred
to in this Article VI, or for any interruption in utility services, caused by
breakage, accident, strikes, repairs, inability after exercise of reasonable
diligence to obtain supplies or otherwise furnish services, or for any cause
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or causes beyond the reasonable control of Landlord (which will never include
the lack of capital available to Landlord), nor in any event for any indirect or
consequential damages; and failure or omission on the part of Landlord to
furnish such service or make such repair shall not be construed as an eviction
of Tenant, nor render Landlord liable in damages, nor entitle Tenant to an
abatement of Fixed Minimum Rent or Additional Rent, nor release Tenant from the
obligation to fulfill any of its covenants under this Lease, except as provided
in Articles IX and X hereof with respect to eminent domain and damage by fire or
other casualty. Subject to Section 7.13, in the event that the Landlord shall at
any time fail to make or perform any material act on its part to be performed as
in this Lease provided, and either (a) Landlord has failed to cure such default
within thirty (30) days after notice from Tenant to Landlord (or such longer
time, not to exceed sixty (60) additional days, as may be reasonably required to
cure such default) or (b) there exists a substantial, imminent threat to persons
or property and Tenant has either (i) made good faith efforts to contact
Landlord without success or (ii) contacted Landlord but Landlord is unable or
unwilling to take actions sufficient to rectify the situation, then, and only
then, Tenant may take such actions as Tenant reasonably deems necessary to cure
such failure by Landlord to so act. Landlord shall reimburse Tenant for all
amounts so incurred by Tenant to cure such failure by Landlord within thirty
(30) days after Landlord receives written demand therefor from Tenant,
accompanied by evidence reasonably satisfactory to Landlord of the amounts so
incurred, but Tenant shall not have any right of set off with respect thereto
and shall in no event deduct any such amounts from payments of Fixed Minimum
Rent or Additional Rent.
Section 6.4 Notice to Tenant of Certain Releases of Hazardous Substances.
Landlord shall provide prompt written notice to Tenant of any Release of
Hazardous Substances on Landlord's Property after the date hereof (other than a
Release by a Tenant Party) of which Landlord has actual knowledge and which
presents an unusual risk to the health of occupants of the Building or has a
material and adverse affect on Tenant's use of the Building.
ARTICLE VII
Section 7.1 Rent. Tenant will promptly pay the Fixed Minimum Rent and
Additional Rent, including without limitation any and all fees, charges,
expenses, fines, assessments or other sums payable by Tenant to Landlord (or to
the applicable provider of utilities) at the time and in the manner provided for
in this Lease, all of which shall be deemed to be obligations to pay Fixed
Minimum Rent or Additional Rent.
Section 7.2 Address Change. Landlord reserves the right to change the
address of the Building from 205 Broadway to another address selected by
Landlord. Landlord will provide reasonable advance notice to Tenant of the
address change of the Building. In the event that such a change of address
occurs after September 1, 1998, Landlord shall pay all of Tenant's reasonable
costs associated therewith.
Section 7.3 No Waste. Tenant shall not overload, damage or deface
Landlord's Property nor shall it suffer or permit the same to be done, nor shall
it commit any waste with respect to Landlord's Property. Tenant shall initiate
and carry out a program of regular maintenance and repair of the Premises so as
to impede, to the extent possible, deterioration by ordinary wear and tear or by
its use of the Premises. Without limiting the foregoing, Tenant shall not
overload the
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electrical distribution system serving the Premises or use equipment which would
exceed the capacity of any of the electrical conductors or equipment serving the
Premises.
Section 7.4 Maintenance, Repairs, and Yield-Up.
(a) Tenant agrees that from the Commencement Date until the end of
the Lease Term and during any holdover, it will keep the Building neat and clean
and maintain the same in good repair and condition, reasonable wear and tear,
and damage by "Casualty"' (hereinafter defined) excepted. Tenant's obligation to
so maintain and repair the Building shall apply to all of the Building,
including, without limitation, all doors, glass, fixtures, interior walls,
floors, ceilings, and any other systems. There is excepted from Tenant's
obligations under this Section 7.4 only (i) damage caused by those hazards which
are covered by the policies of insurance carried by Landlord with respect to
Landlord's Property ("Casualty"') and (ii) repairs and work which are otherwise
the specific responsibility of Landlord hereunder (however, in no event will
Landlord have any responsibility for any damage (including any contamination)
which arises out of any Environmental Activity by a Tenant Party). Without
limiting the foregoing or anything else in this Section 7.4 or Section 6.2,
Tenant and not Landlord shall be solely responsible for the maintenance and
repair of the Building and all the pipes, wires, conduits, utilities and other
installations serving the Building.
(b) At the end of the Lease Term or sooner termination of this
Lease, Tenant will:
(i) peaceably surrender or deliver up the Building to
Landlord;
(ii) at Landlord's sole option:
(A) except as set forth in Section 7.4(d), remove, at
Tenant's sole cost and expense, all erections, alterations and additions made to
or upon the Building, in which event, Tenant shall, at its sole cost and
expense, repair, restore and readapt the Building to the same condition as
existing upon execution of this Lease,
(B) except as set forth in Section 7.4(d), remove, at
Tenant's sole cost and expense, those erections, alterations and additions made
to or upon the Building as may be designated by Landlord, in which event (1)
Tenant shall, at its sole cost, repair and restore any damages resulting from
such removal and (2) Tenant shall leave all other erections, alterations and
additions in good repair and condition, in which event all such other erections,
alterations and additions shall become the property of Landlord without payment
to the Tenant of any nature; or
(C) leave all erections, alterations and additions in
good repair and condition in which event such erections, alterations, and
additions shall become the property of Landlord without payment to Tenant of any
nature;
(iii) leave the Premises, broom clean, with all utilities
safely capped, and in good repair and condition, reasonable wear and tear, and
damage by Casualty excepted; and
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(iv) remove all signs and lettering and all personal property,
goods and effects belonging to Tenant or anyone claiming through or under
Tenant.
(c) Tenant will not make any structural change in, or addition to,
the Building or make any roof penetration without first obtaining, on each
occasion, Landlord's consent in writing (which consent will not be unreasonably
delayed), and then only at Tenant's expense, and in a lawful manner and upon
such terms and conditions as Landlord, by such writing, shall approve, which
shall include without implied limitation maintenance of insurance in form and
substance reasonably satisfactory to Landlord. Any such alteration or addition
shall be consistent in appearance with the rest of the Building and Landlord's
Property and shall be made only after duly obtaining all required permits and
licenses from all governmental authorities. Tenant will deliver to Landlord in
writing a schedule setting forth the details and location of all such
alterations or additions. Notwithstanding anything to the contrary in this
Section 7.4(c). Tenant may undertake separate, minor alterations to the interior
of the Premises which cost less than $25,000 each (each a "Minor Alteration")
without Landlord's prior written consent so long as: (i) the Minor Alteration
complies with Section 2.6, (ii) the Minor Alteration does not require a building
permit from the City of Cambridge, in which case Landlord's prior consent shall
be required (which consent will not be unreasonably delayed), and (iii) on the
termination of this Lease (for whatever cause), Tenant shall, unless directed
otherwise in writing by Landlord or as otherwise provided in this Section 7.4,
readapt, repair and restore the Premises to the condition the same were in prior
to each such Minor Alteration, regardless of whether Landlord's consent was
required or obtained with respect thereto.
(d) With respect to Tenant's Work and any other alterations or
additions made by Tenant (whether or not a Minor Alternation), Tenant may, at
anytime, request that Landlord agree in writing that such work, alteration or
addition remain part of the Premises in accordance with Section 7.4(b)(ii)(B)(2)
at the end of the Lease Term or sooner termination of this Lease. With respect
to each request made by Tenant pursuant to the preceding sentence, (i) if such
work, alteration or addition is consistent with standard office and/or
laboratory use, Landlord will not unreasonably withhold its agreement that such
work, alteration or addition remain a part of the Premises upon the expiration
of this Lease at the end of the Lease Term in accordance with Section
7.4(b)(ii)(B)(2) of this Lease (but such agreement shall not apply in the event
of a termination of this Lease due to a default by Tenant) and (ii) in all other
instances, Landlord may, in its sole discretion withhold its agreement that such
work, alteration or addition remain a part of the Premises. Tenant shall not be
required to remove any work, alteration or addition which Landlord has so agreed
need not be removed so long as (1) Tenant complies with Section 7.4(b)(ii)(B)
and (2) the Lease has not been terminated due to a default by Tenant.
Section 7.5 Trade Fixtures and Equipment. Any trade fixtures installed by
Tenant in, or attached or affixed by it to, the Building shall be removed by
Tenant from the Building on the termination of this Lease (for whatever cause).
Any removal by Tenant shall be without damage to, or destruction of, any part of
the Building. Tenant shall have the right, at any time and from time to time
during the Lease Term, to remove any of its movable equipment which is not
affixed, attached to, or a part of, the Building. In addition, at the expiration
of this Lease, Tenant shall remove all of Tenant's movable equipment, unless
Landlord gives Tenant a written waiver
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for same. At any time that Tenant removes its movable equipment. Tenant shall
promptly repair the Building as a result of any damage to, or destruction of,
the Building caused by the removal of its movable equipment.
Section 7.6 Compliance with Laws and Insurance Requirements. In addition
to its other obligations under this Lease, Tenant, in its use of the Premises
and at its sole expense, shall comply with all laws, orders and regulations of
Federal, State, County and City authorities, and with any direction of any
public officer or officers, pursuant to law, including, without limitation, (a)
City of Cambridge ordinances with respect to animal experiments and insect and
rodent control and (b) all legal requirements related to the use, storage,
discharge, release, removal or existence of Hazardous Substances, which shall
impose any violation, order or duty upon Landlord or Tenant with respect to the
use of the Premises. Tenant agrees that the Premises shall be kept in a sanitary
and safe condition in accordance with all applicable Federal and State laws and
the by-laws, rules, regulations and ordinances of the City of Cambridge, and in
accordance with all directions, rules and regulations of the Health Officer,
Fire Marshall, Building Inspector and other proper officers of the governmental
agencies having jurisdiction thereover. Tenant shall not do or permit to be done
any act or thing upon the Premises which will invalidate, or be in conflict
with, the insurance policies covering Landlord's Property, or the Premises, and
fixtures and property therein. Tenant, at its sole expense, shall comply with
all rules, orders, regulations or requirements of the Board of Fire
Underwriters, or any other similar body relating to Tenant's use of the
Premises, and shall not do or permit anything to be done, in or upon the
Premises, or bring or keep anything therein, except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Bureau, or other authority having jurisdiction and then only in such
quantity and manner of storage as not to increase the rate for the insurance
applicable to Landlord's Property, or the Premises, or use the Premises in a
manner which shall increase the rate of insurance on Landlord's Property, or on
property located therein over the rate in effect at the commencement of this
Lease. If by reason of the failure of Tenant to comply with the provisions of
this section including, but not limited to, the use to which Tenant puts the
Premises, the insurance rate shall at the beginning of this Lease or any time
thereafter be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as Additional Rent hereunder, for that part of all insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure or use by Tenant, and shall make such reimbursement within fifteen (15)
days after billing therefor by Landlord. In the event of a change in law
occurring after the date of this Lease which requires alterations to be made to
the Building, the following shall apply:
(i) if the alterations (A) are required in whole or in part because the
Building or any portion thereof is being used for any purpose other than general
office use, because of the number of employees or others present in the
Building, because of any reason related to any special use of the Building by
any Tenant Party or because the Tenant has subleased all or a portion of the
Building, or (B) would not be required if the Building were leased to a person
or entity other than Tenant for general office use, then, in any such event, the
cost of such alterations shall be paid by Tenant; and
(ii) in all other cases, the cost of such alterations shall be paid for by
Landlord and such alterations shall be treated as a capital improvement to be
amortized over the applicable tax
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amortization period with interest at the rate of 10% per annum, and only the
current portion thereof shall be included within Operating Costs.
Section 7.7 Contents at Tenant's Risk. All inventory, equipment, goods,
merchandise, furniture, fixtures and property of every kind which may be on or
about Landlord's Property shall be at the sole risk and hazard of Tenant; and if
the whole or any part thereof shall be destroyed or damaged by fire, water or
otherwise, or by the use or abuse of water or by the leaking or bursting of
water pipes, or by rising water, or by roof or other structural leak, or in any
other way or manner, no part of such loss or damage shall be charged to or borne
by Landlord in any case whatsoever, except that to the extent required by
applicable Massachusetts law, the foregoing shall not exculpate Landlord from
its own negligent acts or omissions. Tenant agrees to maintain full and adequate
insurance coverage on all of its property at the Premises and in Landlord's
Property, including physical damage, theft and business interruption insurance.
Such insurance on Tenant's property shall, subject to Section 12.4, contain a
waiver of subrogation clause in favor of Landlord, or shall name Landlord as an
additional insured for the sole purpose of preventing a subrogation claim
against Landlord.
Section 7.8 Exoneration and Indemnification. Tenant will exonerate,
indemnify, defend, save and hold harmless Landlord (and any and all persons
claiming by, through or under Landlord) from and against all claims, damages,
proceedings, defenses thereof, liabilities, costs, and expenses of any kind and
nature, including legal fees, arising from any or all of the following: (i) any
breach of this Lease by Tenant or those for whom Tenant is responsible; (ii) any
Environmental Activity (whether or not it is a Permitted Environmental Activity)
by a Tenant Party; or (iii) any act, omission or negligence of Tenant, or
Tenant's contractors or licensees, or of the agents, servants, employees or
business invitees of Tenant, or Tenant's contractors or licensees, or persons
coming onto Landlord's Property for the purpose of visiting or dealing with any
one or one or more of the foregoing, or arising from any accident, injury or
damage occurring outside of the Premises but, in, on or about Landlord's
Property, which such accident, damage or injury results or is claimed to have
resulted from the negligence or misconduct on the part of Tenant or Tenant's
contractors or licensees, or of the agents, servants, employees or business
invitees of Tenant, or Tenant's contractors or licensees, except that to the
extent required by applicable Massachusetts law, the foregoing shall not apply
to Landlord's negligent acts and omissions. This exoneration, indemnification
and hold harmless agreement shall survive the termination of this Lease for any
reason whatsoever and shall be in addition to any insurance obtained, or
requested to be obtained, under this Lease.
During the Lease Term and any period of holding over, Tenant shall
maintain in full force and effect a policy of comprehensive public liability and
property damage insurance under which Landlord (and any person in privity of
estate with Landlord), Landlord's mortgagee(s), and Tenant are named as
insureds. Each such policy shall be non-cancelable with respect to Landlord
without thirty (30) days' prior written notice to Landlord and Tenant shall
deliver to Landlord prior to the Commencement Date and thereafter at least
thirty (30) days prior to the expiration of any then effective coverage a
satisfactory written certificate of insurance coverages or the renewal or
replacement of such coverages. The minimum limits of liability of such liability
insurance shall be Two Million Dollars ($2,000,000.00) for injury (or death) to
any one person, and Two Million Dollars ($2,000,000.00) for injury (or death) to
more than one person,
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and Two Million Dollars ($2,000,000.00) with respect to damage to property,
together with an overall umbrella coverage of an additional Four Million Dollars
($4,000,000.00). Tenant shall not permit any contractor to do any work at or
furnish any materials to be incorporated into the Premises, whether or not
included in Tenant's Work, without first delivering to Landlord satisfactory
evidence of the contractor's comprehensive liability insurance, workers'
compensation insurance and statutory lien bonds (for all alterations other than
Minor Alteration, as defined in Section 7.4), each reasonably acceptable to
Landlord and complying with any insurance specifications provided by Landlord.
Tenant shall also provide and pay for window and plate glass insurance with
respect to the Premises in amounts and with companies satisfactory to Landlord,
and Tenant shall provide Landlord with a certificate evidencing such insurance
and containing a provision that the same may not be canceled without thirty (30)
days' prior written notice to Landlord and Tenant shall provide Landlord with
such a certificate prior to the Commencement Date and thereafter at least thirty
(30) days prior to the expiration of any such coverage. All insurance
requirements imposed upon Tenant or its contractors under this Lease shall be
subject to the further requirement that the forms of coverage and the insurers
providing the insurance be licensed in the Commonwealth of Massachusetts, be in
sound financial condition, carry an A+ or better Best's rating, and be
reasonably acceptable to Landlord. Tenant agrees that Landlord shall not be
responsible or liable to Tenant, or to those claiming by, through or under
Tenant, for any loss or damage that may be occasioned by or through the acts or
omissions of persons occupying or using adjoining premises or any part of
Landlord's Property, or otherwise, or for any loss or damage resulting to Tenant
or those claiming by, through or under Tenant, or its or their property, except
that to the extent required by applicable Massachusetts law, the foregoing shall
not exculpate Landlord from its negligent acts and omissions.
Section 7.9 Landlord's Access. In addition to its rights under Section S.1
of this Lease, Landlord or its representatives shall have the right without
charge to it and without reduction in Fixed Minimum Rent or Additional Rent, at
reasonable times and on reasonable advance notice and in such manner as shall
not unreasonably interfere with Tenant's business (subject, in non-emergency
situations, to Landlord's compliance with the security protocols of Tenant which
Landlord has approved in writing prior to the implementation thereof; provided,
however, that Tenant shall modify and/or waive provisions of said security
protocols to the extent reasonably necessary to accommodate such entry by
Landlord or its representatives while preserving the confidentiality rights of
Tenant recognized under this Lease), to enter to view the Premises for any
reasonable purpose (including, without limitation, showing the Premises to
prospective purchasers, tenants and lenders) and, if Landlord so elects, to make
entry for the purpose of investigating repair or maintenance problems and to
make such repairs or changes as Landlord deems advisable, and to maintain, use,
repair, replace, relocate or introduce pipes, ducts, wires, meters and any other
Landlord's fixtures serving or to serve the Premises or other parts of
Landlord's Property, or to maintain or repair any portion of Landlord's
Property, and, in case of an emergency, whether resulting from circumstances in
the Premises or elsewhere in or on Landlord's Property, Landlord or its
representatives may enter the Premises at any time to take such measures as may
be needed to address such emergency. Such access shall include, but not be
limited to, the right to open floors, walls, ceilings, and building systems for
the foregoing purposes. Landlord may, during the twelve (12) months next
preceding the expiration of the
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Lease Term, show the Premises to parties wishing to lease or purchase the same
and to place a "For Lease", "For Rent" or "For Sale" sign in the window or on
the Premises.
Section 7.10 No Liens. Tenant shall not permit any mechanics', laborers'
or materialmen's liens to stand against Landlord's Property or Tenant's
interests in the Premises or lease estate, for any labor or materials furnished
to Tenant or claimed to have been furnished to Tenant in connection with work of
any character performed or claimed to have been performed in or on the Premises
by or at the direction or sufferance of Tenant. Landlord may condition the right
of Tenant to do Tenant's Work or to do any other work which could result in a
lien upon Landlord's Property or Tenant's interests in the Premises or lease
estate on the delivery and recording of statutory lien bonds (for all
alterations other than a Minor Alteration, as defined in Section 7.4) or
indemnities satisfactory to Landlord.
Section 7.11 Compliance with Regulations. Tenant covenants that Tenant,
its agents, employees, servants, licensees, invitees, and visitors will comply
with all such reasonable rules and regulations as Landlord may from time to time
hereafter promulgate to regulate the conduct generally of all the tenants of
Landlord's Property. Landlord, however, shall have the reasonable right to
change said rules and regulations and to waive any one or more of them in the
case of any one or more tenants.
Section 7.12 Subletting and Assignment.
(a) Tenant shall not assign, mortgage, pledge or encumber this Lease
nor underlet all or any part of the Premises, nor permit or allow the use of all
or any part of the Premises by third party users, such as concessionaires,
without, on each occasion, obtaining Landlord's written consent thereto. As used
herein, the term "assign" or "assignment" shall be deemed to include, without
limitation: (i) any transfer of Tenant's interest in this Lease by operation of
law, the merger or consolidation of Tenant with or into any other firm or
corporation; or (ii) the transfer or sale of a controlling interest in Tenant
whether by sale of its capital stock or otherwise.
(b) (i) Notwithstanding anything to the contrary in Section 7.12(a),
Landlord will not unreasonably withhold or delay its consent to any sublease of
all or any portion of the Premises, so long as (A) the sublease of space in the
Building to such subtenant will not, in Landlord's sole discretion, violate the
terms of (1) any lease affecting the Landlord's Property, (2) any lease
affecting the property located at 210 Broadway or (3) any agreement, instrument,
law, rule, regulation or requirement which is binding upon Landlord and/or
Landlord's Property; provided, however, that, for purposes of clauses (1), (2)
and (3) above, the use of the subleased portion of the Premises for a
biotechnology use will not, in and of itself, be a violation of any such lease,
or any agreement or instrument voluntarily entered into by Landlord; (B) the
subtenant and its proposed use is of a character consistent with the operation
of a first class research and development and/or office building; (C) each of
Landlord's mortgagees have consented in writing to the sublease if such
mortgagee's consent is required pursuant to the terms of the applicable
financing documents; (D) the subtenant's proposed use of the Premises is
permitted under the terms of this Lease; (E) the subtenant does not intend to
engage in any Environmental Activities or, if such subtenant intends to engage
in any Environmental Activities,
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the Tenant and the proposed subtenant have fully complied with Section 5.1 with
respect to such Environmental Activities and such Environmental Activities are
Permitted Environmental Activities; (F) the Letter of Credit will remain in full
force and effect and continue to be available to Landlord under the terms of
this Lease; (G) the subtenant is qualified to do business in the Commonwealth of
Massachusetts and has all applicable permits and licenses to do business from
the Premises; (H) Tenant pays to Landlord all of Landlord's reasonable expenses
arising out of such sublease up to a maximum, for each sublease request, of
$5,000.00 plus the fees and expenses of Landlord's Consultant; (I) there does
not then exist a default of Tenant or any fact or circumstance which, with the
passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute a default under this Lease and no
default will be created as a result of the proposed sublease or the proposed use
by the subtenant; (J) there are not more than a total of two (2) subtenants,
including the proposed subtenant under the proposed sublease, in occupancy of
the Premises or portions thereof; (K) the proposed subtenant is not in the
business of providing environmental engineering or environmental consulting
services; and (L) the proposed sublease prohibits any assignment of the sublease
or any sub-sublease of any portion of the Premises without the prior written
consent of Landlord, which consent may be granted or denied in Landlord's sole
discretion.
(ii) Notwithstanding anything to the contrary in Section 7.12(a),
provided that Landlord receives not less than thirty (30) days prior written
notice thereof, Landlord's consent shall not be required for an assignment or a
sublease of all (but not less than all) of the Premises to (A) any entity which
controls the legal and beneficial ownership of Tenant, (B) any entity controlled
by, or under common control with. Tenant, (C) any corporation resulting from the
merger or consolidation with Tenant or (D) an entity acquiring alt or
substantially all of Tenant's assets so long as, in each instance, (1) there is
no change in the use of the Premises; (2) Tenant is the surviving corporation in
any merger or consolidation or, if Tenant is not the surviving corporation, the
surviving corporation assumes all of the obligations of Tenant under this Lease
by executing an assignment and assumption agreement with respect to this Lease
in form and substance satisfactory to Landlord; (3) the assignee or subleasee
has a net worth, as determined by generally accepted accounting principles, on
the date of such sublease or assignment equal to or greater than Tenant's net
worth, determined in accordance with generally accepted accounting principles,
as of the date of this Lease; (4) the Letter of Credit will remain in full force
and effect and continue to be available to Landlord under the terms of this
Lease; (5) the subtenant or assignee is qualified to do business in the
Commonwealth of Massachusetts and has all applicable permits and licenses to do
business from the Premises; (6) Tenant pays to Landlord all of Landlord's
reasonable expenses arising out of such sublease or assignment; (7) there does
not then exist a default of Tenant or any fact or circumstance which, with the
passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute a default under this Lease and no
default wilt be created as a result of the proposed sublease or assignment or
the proposed use by the subtenant or assignee; (8) the proposed assignee or
subtenant is not in the business of providing environmental engineering or
environmental consulting services; and (9) in the case of a sublease, the
proposed sublease prohibits any assignment of the sublease or any sub-sublease
of any portion of the Premises without the prior written consent of Landlord,
which consent may be granted or denied in Landlord's sole discretion. In the
event that the giving of the thirty (30) day notice required under this Section
would be a violation of applicable securities laws, such thirty (30) day notice
requirement shall
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not apply so long as Tenant provides such notice at the earliest time at which
such notice may be given without being such a violation and Tenant complies with
all of the other provisions of this Section.
(c) In the event of the assignment or subletting by Tenant, Tenant
shall remain primarily liable jointly and severally with the assignee or
sub-tenant for the payment of any and all Fixed Minimum Rent and Additional Rent
which may become due by the terms of this Lease and for the performance of all
covenants, agreements and conditions on the part of Tenant to be performed
hereunder. Tenant shall also pay to Landlord fifty percent (50%) of any rent
received as a result of the assignment or sublet which exceeds all of the rental
payable or reserved hereunder for the same time period on a per square foot
basis after deducting the actual direct out-of-pocket third-party costs which
are (i) incurred by Tenant for (A) leasing commissions and additional tenant
improvements (excluding Tenant's Work and other amounts incurred by Tenant in
meeting its obligations under Section 2.5) paid in connection with such
assignment or sublease or (B) additional services actually provided by Tenant to
such assignee or subtenant to the extent that Tenant is not otherwise paid
amounts in connection with such services, and (ii) documented to Landlord's
reasonable satisfaction by invoices, contracts, canceled checks and the like. No
such assignment or sublease shall be valid or effective unless it is approved in
advance in writing by Landlord, and the assignee, or sublessee, by a document
satisfactory to Landlord, shall covenant in writing at Landlord's option, to be
bound directly to the Landlord. No modification of the terms of this Lease or
any course of dealing between Landlord and any assignee or sublessee of Tenant's
interest herein shall operate to release or impair Tenant's obligations
hereunder or the obligation of any Guarantor (as defined in Section 11.1).
(d) Notwithstanding anything to the contrary contained in this
Section 7.12 or other provisions of this Lease, in the event that Tenant seeks
Landlord's consent to an assignment of this Lease or a sublease of all of the
Premises (exclusive of any permitted assignment or sublease set forth in Section
7.12(b)(ii)), Landlord at its option may terminate this Lease. In such an event,
(i) Landlord may enter into a new lease with the proposed assignee or sublessee
or any other party on any terms and provisions acceptable to Landlord in
Landlord's sole discretion for the Premises and (ii) unless there are less than
twenty-four (24) months then remaining in the Lease Term, Landlord shall pay to
Tenant the unamortized portion of the costs incurred by Tenant for tenant
improvements (such costs to be amortized over the initial ten year Lease Term on
a straight line basis) as documented to the reasonable satisfaction of Landlord
(such documentation to be provided promptly upon request).
(e) Tenant shall not enter into any arrangements with any sub-tenant
or assignee to circumvent, or which has the effect of circumventing. (i) its
obligation to share rents received from a sublease or assignment, or (ii) any of
the other provisions of this Section 7.12.
Section 7.13 Construction of Future Improvements on Landlord's Property.
Tenant acknowledges that Landlord has plans to construct an additional building
and other improvements on Landlord's Property, including, without limitation, on
the Parking Area. Tenant agrees to cooperate with Landlord in connection with
Landlord's plans to construct such additional building and improvements on
Landlord's Property and the construction of such
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building and improvements and that neither Tenant nor any Tenant Party shall
take any action which will interfere with such plans or construction. Landlord
will plan such construction and related staging in a manner which it considers
reasonable under the circumstances to minimize (to the extent consistent with
the efficient performance of such construction) any material interference with
Tenant's access to and/or use of the Premises during the performance of such
construction. Tenant acknowledges that from time to time that dust, noise,
vibrations, water leakage, and interruptions to power and other utilities
(including water and sewer) may, among other construction related interference
occur in connection with Landlord's construction activities on Landlord's
Property. Tenant is responsible to safeguard, insure, and protect adequately its
property (including any sensitive electronic equipment and computers) during the
construction process and Landlord will not be liable to Tenant for any direct or
indirect damage or loss suffered by Tenant as a result of Landlord's
construction activities. Tenant will notify Landlord if any such construction
related interference should occur. Upon receipt of written notice from Tenant,
Landlord will undertake those measures which it considers reasonable under the
circumstances to minimize (to the extent consistent with the efficient
performance of Landlord's construction) any material interference with Tenant's
access and/or use of the Premises during the performance of any such
construction by Landlord. Tenant shall not be entitled to any abatement of rent
or to claim any constructive eviction as a result of Landlord's construction
activities; provided, however, that for each business day for which Tenant is
denied access to the Building due to Landlord's construction activities blocking
physical access to and from the Building for more than four (4) hours between
8:00 a.m. and 5:00 p.m.. Tenant shall be entitled to the abatement of the Fixed
Minimum Rent, Taxes, Insurance Costs and Operating Costs attributable to that
day.
Section 7.14 Relocation of Premises. In the event that, as a result of (1)
a change in zoning of all or any portion of Landlord's Property, (2) any
petition to change the zoning of all or any portion of Landlord's Property
and/or (3) an agreement entered into by Landlord or which binds all or any
portion of Landlord's Property which, in any case, restricts Landlord's Property
so that, in Landlord's reasonable judgment, (x) Landlord cannot construct more
than 180,000 square feet of new office space on Landlord's Property (said space
being in addition to the space located in the Building) or (y) Landlord will not
be able to obtain a building permit (which is not issued as an "at risk" permit)
to construct more than 180,000 square feet of new office space on Landlord's
Property (said space being in addition to the space located in the Building)
with not less than 220 parking spaces on Landlord's Property without obtaining a
special permit or variance, then, in either or both of such events, Landlord
shall have the unrestricted and unconditional right, at Landlord's sole option,
one time only during the Lease Term (including during any Extension Term), to
relocate the Premises to space suitable for biotechnology use, on one or more
contiguous floors (and which is not basement space) at a building which Landlord
or one or more of its affiliates may construct (I) on any other portions of
Landlord's Property, including, without limitation, the Parking Area (the "New
205 Broadway Building") or (II) on the property located across Broadway from the
Building and known as 210 Broadway, Cambridge, Massachusetts ("210 Broadway").
Landlord will give Tenant written notice of Landlord's intention to relocate the
Premises (a "Relocation Notice"), and Tenant will complete such relocation
within one hundred eighty (180) days after receipt of such written notice. If
Tenant is relocated to the New 205 Broadway Building or 210 Broadway as provided
in this Section 7.14, effective on the date of such relocation, this Lease will
be amended by (a) deleting
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the description of the original Premises and substituting for it a description
of the new space, (b) including appropriate provisions regarding Tenant's
obligations for Taxes, Insurance and Operating Costs with respect to the new
space, and (c) if the Premises are relocated to 210 Broadway, any or all of the
parking spaces provided to Tenant under this Lease may also be relocated to 210
Broadway (provided that, in such event, not less than 15 of such parking spaces
shall be located on 210 Broadway) Landlord agrees to (i) pay the costs of tenant
improvements reasonably required to build-out a portion of the new space
equivalent in size to the portion of the Premises built-out by Tenant at the
time of the Relocation Notice so as to make the new space comparable to (or, at
Landlord's option, better than) the Premises in terms of (A) quality of
materials, finishes, construction and levels of improvement, and (B) amounts of
office space and laboratory space, (ii) pay up to $25,000.00 of the "soft costs"
incurred by Tenant in connection with such relocation for fees of architects,
engineers and project managers, and (iii) reimburse Tenant for its actual moving
costs to such new space, to the extent such costs are reasonable. Tenant shall
not be obligated to relocate to new space which does not comply with the
provisions of this Section 7.14 provided that Tenant specifies in writing to
Landlord, within three (3) days after demand, the specific reasons why such new
space does not so comply and Landlord fails to cure such noncompliance. If
Tenant fails to relocate to the new premises designated by Landlord within the
time period set forth in this Section 7.14, Tenant will be in default of this
Lease, time being of the essence.
ARTICLE VIII
Section 8.1 Subordination to Mortgages. Tenant agrees that this Lease is
and shall be and remain subordinate to the lien of any present or future
mortgage or mortgages, or ground lease, upon all or any portion of Landlord's
Property, irrespective of the time of execution or time of recording of any such
mortgage or mortgages, or ground lease, and to all renewals, extensions, and
modifications therefor or amendments thereto. Tenant agrees that it will, upon
ten (10) days' advance written request from Landlord or any holder of a mortgage
on all or a portion of Landlord's Property or the ground lessor thereof,
execute, acknowledge. and deliver any and all instruments reasonably deemed
necessary or desirable by Landlord, or such holder to give effect to, or notice
of, such subordination so long as such mortgagee provides Tenant with the
benefit of such mortgagee's standard non-disturbance agreement reasonably
acceptable to Tenant (without limiting the generality of the foregoing, Tenant
agrees that the form of Subordination, Non-Disturbance and Attornment Agreement
attached hereto as Exhibit H is acceptable to Tenant). Upon ten (10) days'
advance written request from Landlord, any holder of a mortgage or ground lease
on Landlord's Property or any successor in interest to Landlord, whether by
purchase, foreclosure, deed in lieu of foreclosure or otherwise, Tenant shall
enter into an attornment agreement, in the form requested by such party, with
such party.
Section 8.2 Lease Superior at Mortgagee's Election. At the request in
writing of any mortgagee or any or ground lessor of Landlord's Property, this
Lease shall be deemed superior to such mortgage, or ground lease, whether this
Lease was executed before or after such mortgage, or ground lease, and Tenant
shall execute such documents in recordable form as such mortgagee, or ground
lessor, shall request.
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Section 8.3 Notice to Mortgagee. Upon receipt of a written request from
Landlord or any holder of a mortgage on all or any part of Landlord's Property,
or the ground lessor thereof, Tenant will thereafter send any such holder copies
of all notices of default or termination or both given by Tenant to Landlord in
accordance with any provision of this Lease. In the event of any failure by
Landlord to perform, fulfill or observe any agreement by Landlord herein or any
breach by Landlord of any representation or warranty of Landlord herein, any
such holder or ground lessor may at its election cure such failure or breach for
and on behalf of Landlord within twenty (20) business days after the time
provided herein for Landlord to cure the same or such longer period as may be
reasonably necessary to cure the default.
Section 8.4 Estoppel Certificate By Tenant and Other Documents. Tenant
agrees, at any time and from time to time, upon not less than ten (10) days'
prior written request by Landlord or any holder of a mortgage on all or a
portion of Landlord's Property or the ground lessor thereof, (1) to execute,
acknowledge and deliver to Landlord a statement in writing certifying that
(except as may be otherwise specified by Tenant): (a) this Lease is presently in
full force and effect and unmodified; (b) Tenant has accepted possession of the
Premises; (c) any improvements required by the terms of this Lease to be made by
Landlord have been completed to the satisfaction of Tenant; (d) no rent under
this Lease has been paid more than 30 days in advance of its due date; (e) the
addresses for notices to be sent to Tenant is as set forth in this Lease or as
specified in such certificate; (f) Tenant as of the date of executing the
certificate has no charge, lien or claim of offset under this Lease, or
otherwise, against rents or other charges due or to become due thereunder; and
(g) such other information as Landlord, such holder or ground lessor may
reasonably request about this Lease or Tenant's occupancy; and (2) to deliver
information in form satisfactory to Landlord and such holder or ground lessor
concerning Tenant's operations, including but not limited to historic and
current financial statements of Tenant and information relative to any
Environmental Activities by a Tenant Party. In addition, Tenant agrees that the
holder of a mortgage or ground lease on Landlord's Property or such successor in
interest shall not be: (i) bound by any payment of an installment of Fixed
Minimum Rent or Additional Rent which may have been made more than 30 days
before the due date of such installment; (ii) bound by any amendment or
modification to this Lease made without the consent of such holder of a mortgage
or ground lease on Landlord's Property or such successor in interest; (iii)
liable for any previous act or omission of Landlord (or its predecessors in
interest); (iv) responsible for any monies owing by Landlord to the credit of
Tenant or subject to any credits, offsets, claims, counterclaims, demands or
defenses which Tenant may have against Landlord (or any of their predecessors in
interest); (v) bound by any covenant to undertake or complete any construction
of the Premises or any portion thereof except that, during the first two (2)
years of the Lease Term, such holder or successor may be liable for the unpaid
balance, if any, of the Landlord's Contribution pursuant to Section 2.5; or (vi)
obligated to make any payment to Tenant other than any security deposit actually
delivered to holder of a mortgage or ground lease on Landlord's Property or such
successor in interest. Further, the Tenant agrees that it will not seek to
terminate this Lease by reason of any act or omission of Landlord until Tenant
shall have given written notice of such act or omission to the holder of such
mortgage or ground lease (at such holders last address furnished to Tenant) and
following the giving of such notice such holder shall have the right, but shall
not be obligated, to remedy such act or omission within twenty (20) business
days after the time period provided for in this Lease for Landlord to cure the
same or such longer period as may be reasonably necessary to cure the same.
Tenant shall enter into a
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written agreement confirming the foregoing from time to time upon written
request from Landlord and/or the holder of a mortgage or ground lease on
Landlord's Property.
ARTICLE IX
Section 9.1 Eminent Domain: Right to Terminate and Abatement in Rent, If
the Premises or more than fifty percent (50%) of the leasable floor area
thereof, shall be taken, or if a conveyance shall be made in anticipation
thereof, for any street or other public use, by action of the municipal, state,
federal or other authorities, or shall receive any substantial direct or
consequential damage for which Landlord or Tenant shall be entitled to
compensation by reason of anything lawfully done in pursuance of any public
authority, after the execution hereof and before the expiration of the Lease
Term, then this Lease and the Lease Term shall terminate at the election of
Landlord or Tenant (given by written notice by one party to the other within 60
days of the taking or within 60 days of notice of the taking to Landlord), and
such election may be made in case of any such taking notwithstanding the entire
interest of Landlord may have been divested by such taking; and if neither
Tenant nor Landlord does so elect, then in case of any such taking or
destruction of, or damage to, the Premises, rendering the same or any part
thereof unfit for use and occupation, a just proportion of the Fixed Minimum
Rent hereinbefore reserved according to the nature and extent of the injury
sustained by the Premises, shall be suspended or abated until the Premises or,
in case of such taking, what may remain thereof, shall have been put in proper
condition for use and occupation. To the extent that the Premises, upon having
been put in proper condition for use and occupation are smaller, the Fixed
Minimum Rent hereinbefore reserved shall be reduced for the balance of the Lease
Term in the same proportion which the reduction in space bears to the original
leasable square footage of the Premises and the Additional Rent based on Taxes,
Insurance Costs and Operating Costs shall be adjusted as appropriate.
Section 9.2 Restoration. If this Lease is not terminated as provided in
Section 9.1, Landlord shall apply so much of the available proceeds of the
eminent domain award as are required to restore Landlord's Property and the
Premises to a condition, to the extent practical, substantially the same as that
immediately preceding the taking, but subject to zoning laws and building codes
then in existence. If the available proceeds of the eminent domain award are
insufficient for that purpose, Landlord shall have no obligation to expend funds
in excess of said proceeds, and Landlord shall have the right to select which
portions of Landlord's Property, if any, shall be restored, but Tenant may
terminate this Lease if Landlord elects not to restore the Premises to a useable
state. The term "available proceeds" shall mean the amount of the award paid to
Landlord, less cost of obtaining the same (including attorneys' fees and
appraisal fees) and less the amount thereof required to be paid to a mortgagee
or ground lessor.
Section 9.3 Landlord to Control Eminent Domain Action. Landlord reserves
all rights to compensation for damage to the Premises or any part thereof, or
the leasehold hereby created, heretofore accrued or hereafter to accrue, by
reason of any taking for public use of the Premises or any portion thereof, or
right appurtenant thereto, or privilege or easement in, through, under or over
the same, and, by way of confirmation of the foregoing, Tenant hereby assigns to
Landlord all rights to such damages heretofore accrued or hereafter accruing
during the Lease Term. Provided, however, nothing herein contained shall limit
Tenant's right to any separate award for
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the taking of (a) personal property, moving expenses, or other items the payment
of which shall not reduce the award payable to Landlord or (b) the cost of
improvements made to the Premises by Tenant at Tenant's cost (excluding amounts
paid for by Landlord's Contribution) based upon the lower of (i) the fair market
value of such improvements or (ii) the unamortized cost of such improvements
based upon a ten (10) year useful life.
ARTICLE X
Section 10.1 Damage From Casualty. If following the execution hereof and
prior to the expiration of the Lease Term the Premises shall be damaged or
destroyed in whole or in part by fire or other casualty, this Lease shall,
except as hereinafter provided in this Article X, remain in full force and
effect and Landlord shall, upon notice of such damage from Tenant and proceeding
with reasonable dispatch, repair or rebuild so much of the Premises as have been
damaged by fire or the elements and as were originally constructed by Landlord
(and not the responsibility of Tenant to repair, restore and/or replace under
this Lease) to substantially their condition at the time of such damage or
destruction (subject, however, to zoning laws and building codes then in
existence), but Landlord shall not be responsible for any delay which may result
by reason of adjustment of insurance claims, collection of insurance proceeds,
labor troubles, or from any cause beyond Landlord's reasonable control, nor
shall Landlord be obligated to commence repair or restoration work prior to
receipt of sufficient insurance proceeds, nor shall Landlord be required to
expend sums in excess of net recovered insurance proceeds". The term "net
recovered insurance proceeds" shall mean the amount of any insurance proceeds
actually recovered by Landlord, less the cost of obtaining the same (including
attorney's fees and appraisal fees) and less the amount thereof required to be
paid to a mortgagee or a ground lessor. Tenant shall concurrently repair or
restore so much of the Premises (1) as were constructed by Tenant, or (2) are
the responsibility of Tenant under this Lease and shall repair and restore its
fixtures, improvements, and personal property. Notwithstanding the foregoing, to
the extent that (i) the insurance coverages required to be maintained by Tenant
are inadequate to cover the cost of repairing and/or rebuilding the improvements
to the Premises made by Tenant, and (ii) the net recovered insurance proceeds
include a recovery for improvements to the Premises made by Tenant then, after
deducting from the net recovered insurance proceeds all amounts necessary to
effect the repair and/or rebuilding of the portions of the Premises which do not
constitute improvements made by Tenant, Landlord shall, at its option, (a) use
remaining net recovered insurance proceeds to repair or restore all or any
portions of the improvements made by Tenant and/or (b) make funds available to
Tenant, under procedures similar to those set forth in Section 2.5, from
remaining net recovered insurance proceeds for Tenant's repair and restoration
of the improvements made by Tenant.
Section 10.2 Abatement of Rent. In the event that the provisions of
Section 10.1 of this ARTICLE X shall become applicable, the Fixed Minimum Rent
shall be abated or reduced proportionately for so long as and only to the extent
rent loss insurance proceeds, if any, are available to Landlord during any
period in which, by reason of any such damage or destruction, there is
substantial interference with the operation of the business of Tenant in the
Premises, having regard to the extent to which Tenant may be required to
discontinue its business in the Premises, and such abatement or reduction shall
continue for the period commencing with such
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destruction or damage and ending with the substantial completion by Landlord of
such work, repair and/or reconstruction as Landlord may do.
Section 10.3 Limitation on Landlord's and Tenant's Obligations. Landlord
and Tenant shall not be obligated to do any repair or restoration work if
Landlord or Tenant elects to terminate this Lease as provided for in this
ARTICLE X.
Section 10.4 Landlord's Right to Terminate. Notwithstanding the foregoing,
Landlord may terminate this Lease following: (i) damage or destruction to the
Premises to the extent of fifty percent (50%) or more of the cost of replacement
thereof or (ii) the refusal of the applicable insurance carrier to pay funds
sufficient for the cost to repair or replace or the refusal of any applicable
mortgagee or ground lessor to release the insurance proceeds for such purposes.
Landlord may exercise the right to so terminate this Lease by written notice to
Tenant given within sixty (60) days of the date of the damage, or sixty (60)
days from the date Landlord receives written notice of such damage, whichever is
later. Such notice of termination shall be effective on the date thereof.
Section 10.5 Tenant's Right to Terminate. If the Premises are damaged by
fire or other casualty and either (a) Landlord does not elect to substantially
repair or restore the same to their former condition but only as to portions
constructed by Landlord within ninety (90) days following Tenant's written
notice of the damage to Landlord, or (b) Landlord, having made the election to
substantially repair or restore as aforesaid, fails to substantially complete
such repair or restoration within one (1) year following Tenant's written notice
of the damage to Landlord (or such longer period as may be required to
substantially complete such repair or restoration due to any cause or causes
beyond the reasonable control of Landlord (which will never include the lack of
available capital to Landlord)), then, in either such event, Tenant may
thereafter terminate this Lease upon sixty (60) days prior written notice to
Landlord unless such repair or restoration is substantially completed within
such 60-day period.
ARTICLE XI
Section 11.1 Tenant's Default. Subject to applicable provisions of law and
the provisions of Section 12.6 hereof, this Lease is upon the condition that:
(a) if Tenant shall neglect or fail to pay when first due Fixed Minimum Rent or
any installment thereof, or Additional Rent, or, as applicable, any installment
thereof, and such neglect or failure shall continue for five (5) days after
notice to it from Landlord; or (b) if Tenant shall neglect or fail to pay when
first due Fixed Minimum Rent or any installment thereof, or Additional Rent or,
as applicable, any installment thereof, and Landlord shall have sent two or more
notices to Tenant pursuant to Section 11.1(a) during the preceding twelve (12)
months; or (c) if any Environmental Liability has been incurred, exists, or is
applicable which poses an imminent and substantial endangerment to human or
animal health or the environment or has a material adverse effect on the
Premises or any other portion of Landlord's Property and such Environmental
Liability is not fully discharged and satisfied within the "Specified Cure
Period" (hereinafter defined); (d) if Tenant shall neglect or fail to perform or
observe any of the obligations, covenants or undertakings herein on its part to
be performed or observed which are not governed by clauses (a), (b) and/or (c)
above and/or any of clauses (e) through (n) below, and such neglect or failure
shall continue
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beyond the expiration of the Specified Cure Period; or (e) if any case,
petition, proceeding or other action under any existing or future bankruptcy,
insolvency, reorganization, dissolution, liquidation or arrangement or
readjustment of debt law or any similar existing or future law of any applicable
jurisdiction, or any laws amendatory thereof or supplemental thereto (the
"Bankruptcy Laws") shall be filed by Tenant or any guarantor of Tenant's
obligations ("Guarantor"); or (f) if any other proceedings are instituted by
Tenant or any Guarantor under any of the Bankruptcy Laws; or (g) if any
involuntary proceedings shall be instituted against Tenant or any Guarantor
under any of the Bankruptcy Laws and not be dismissed within sixty (60) days, or
Tenant or Guarantor shall be unable to pay its or his financial obligations when
they become due, or if there is a material adverse change from the date of this
Lease in the financial condition of either Tenant or Guarantor as reflected in
financial statements delivered to Landlord and any holder of a mortgage on all
or a portion of Landlord's Property; or (h) if Tenant or any Guarantor shall
execute an assignment of its property for the benefit of its creditors, or if at
any time the Guarantor would be financially unable to honor the obligations of
the Guaranty in the event a default were to exist at such time; (i) if any
Hazardous Substances Statement or any Tenant Environmental Certification was
false in any material respect when made or furnished or when treated as being
made or furnished; or (j) if a receiver or other similar officer for Tenant or
any Guarantor shall be appointed and not be discharged within sixty (60) days;
or (k) if the estate hereby created shall be taken by execution or by other
process of law and is not redeemed by Tenant within thirty (30) days thereafter;
or (I) if Tenant abandons (provided, however, that vacating the Premises does
not, in and of itself, constitute abandonment) or surrenders the Premises; or
(m) if Tenant is dissolved or liquidated; or (n) an Event of Default is deemed
to have occurred under Section 11.9; then, (except in the case of a default
under clause (e) or (f) above in which event this Lease (to the fullest extent
now or hereafter permitted by law) shall terminate automatically)), Landlord
may, immediately or at any time thereafter (notwithstanding any license or
waiver of any former breach or waiver of the benefit hereof, or consent in a
former instance), and without demand or notice, in person or by agent or
attorney, re-enter the Premises or any part thereof and repossess the same as of
its former estate, or terminate this Lease by written notice to Tenant, and in
either event expel Tenant and those claiming through or under it and remove
their effects without being deemed guilty of any manner of trespass and without
prejudice to any remedy which might otherwise be used for arrears of Fixed
Minimum Rent or Additional Rent or breach of covenant, and upon entry or written
notice of termination, or automatic termination, both as aforesaid, this Lease
shall terminate and the Landlord, in addition to all other remedies which it may
have at law or equity, and not in limitation thereof, shall have the remedies
provided in this ARTICLE XI. As used in clause (d) above, "Specified Cure
Period" means thirty (30) days after the date on which Tenant is sent a notice
(the "Default Notice") that Tenant has neglected or failed to perform or observe
any of the obligations, covenants or undertakings on Tenant's part to be
performed or observed under this Lease, provided, however, that (A) the Landlord
shall extend the Specified Cure Period for up to an additional sixty (60) days
upon receipt of a written request from Tenant for such extension within thirty
(30) days after the date of the Default Notice if and only if, all of the
following conditions are satisfied: (1) Tenant shall have commenced to cure such
neglect or failure within ten (10) days after the date of the Default Notice and
shall thereafter diligently and continuously pursue such cure to completion, (2)
such neglect or failure is such that it cannot be cured within thirty (30) days
after the date of the Default Notice in spite of Tenant's best efforts to do so,
but is capable of being cured within the Specified Cure Period as extended by
Landlord under the
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terms of this Section 11.1, as demonstrated by a written plan of cure provided
by Tenant to Landlord which plan has been approved by Landlord (such approval
not to be unreasonably withheld), and (3) the continuing existence of such
neglect or failure shall not have a material adverse effect the Premises or any
other portion of Landlord's Property; (B) in the event that Landlord has
extended the Specified Cure Period pursuant to the foregoing clause (A), then
Landlord shall extend the Specified Cure Period for up to ninety (90) additional
days (i.e. for a total of 180 days after the Default Notice) upon receipt of a
written request for such extension from Tenant within seventy-five (75) days
after the Default Notice if, and only if, all of the following conditions are
satisfied: (1) such request for extension is accompanied by a $500,000.00
increase (the "First Increase") in the amount of the Security Deposit (either in
cash or by a letter of credit obtained at the sole cost of Tenant which meets
all of the requirements of Section 11.9 and is otherwise acceptable to
Landlord), and (2) Tenant shall have commenced to cure such neglect or failure
within ten (10) days after the Default Notice and shall have thereafter
diligently and continuously pursued such cure in compliance with the plan of
cure previously approved by Landlord, and (3) Tenant shall, during such
extension period, diligently and continuously pursue such cure to completion and
in compliance with the plan of cure previously approved by Landlord; and (C) in
the event that Landlord has extended the Specified Cure Period pursuant to the
foregoing clause (B), then Landlord shall extend the Specified Cure Period for
up to one hundred eighty-five (185) additional days (i.e., for a total of 365
days after the Default Notice) upon receipt of a written request for such
extension from Tenant within one hundred sixty-five (165) days after the Default
Notice if, and only if, all of the following conditions are satisfied: (1) such
request for extension is accompanied by a second $500,000.00 increase (the
"Second Increase") in the amount of the Security Deposit (either in cash or by a
letter of credit obtained at the sole cost of Tenant which meets all of the
requirements of Section 11.9 and is otherwise acceptable to Landlord), (2)
Tenant shall have commenced to cure such neglect or failure within ten (10) days
after the Default Notice and shall have thereafter diligently and continuously
pursued such cure in compliance with the plan of cure previously approved by
Landlord, and (3) Tenant shall, during such extension period, diligently and
continuously pursue such cure to completion and in compliance with the plan of
cure previously approved by Landlord. Notwithstanding anything to the contrary
in this Section 11.1, if, during a Specified Cure Period, there occurs an
additional instance in which Tenant has neglected or failed to perform or
observe any of the obligations, covenants or undertakings on Tenant's part to be
performed or observed under this Lease, the maximum cure period, with respect to
such additional failure of Tenant, will be the shorter of (X) the cure period
otherwise available under this Lease with respect to such additional failure of
Tenant or (Y) the remainder of such Specified Cure Period plus thirty (30)
additional days. In the event that Tenant is not diligently and continuously
pursuing such cure to completion in compliance with the plan of cure previously
approved by Landlord, then, in addition to Landlord's other rights and remedies
at law, in equity and/or under this Lease, Landlord may, at its option (I)
terminate the Specified Cure Period effective immediately upon notice to Tenant
and/or (II) apply the First Increase, the Second Increase and/or any other
portion of the Security Deposit toward efforts to effect such cure. The First
Increase (if previously delivered to Landlord) and the Second Increase (if
previously delivered to Landlord), reduced by all costs and expenses incurred by
Landlord in connection with any extension of the Specified Cure Period and/or
the existence and/or cure of any neglect or failure of Tenant to perform or
observe any Tenant's obligations, undertakings or agreements under this Lease
shall be returned to Tenant upon completion of the cure of such
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neglect or failure within the Specified Cure Period in accordance with the plan
of cure previously approved by Landlord; provided, however, that such amount
shall not be returned to Tenant if there exists a default, or any circumstance
or fact which, with the passage of time, the giving of notice, or the
satisfaction of any other condition, or all of them, could constitute a default
of this Lease unless and until all of the same have been cured by Tenant. Except
as set forth in the preceding two (2) sentences, the First Increase and Second
Increase shall be added to, and become a part of, the Security Deposit and the
use thereof governed by Section 11.9 and other provisions of this Lease
applicable to the Security Deposit. As used herein, "Event of Default" shall
mean a default under this Lease which has not been cured within any applicable
cure period. Notwithstanding anything to the contrary in this Section 11.1,
Tenant's lack of capital or funds is not a permitted excuse to justify why a
default cannot be cured within the applicable cure period.
Section 11.2 Landlord's Remedies.
(a) If this Lease is terminated or if Landlord shall re-enter the
Premises as set forth in Section 11.1, or in the event of the termination of
this Lease, or of re-entry, by or under any proceeding or action or any
provision of law by reason of a default under this Lease on the part of Tenant.
Tenant covenants and agrees forthwith to pay and be liable for, on the days
originally fixed herein for the payment thereof, amounts equal to the several
installments of Fixed Minimum Rent, all Additional Rent and other charges
reserved as they would, under the terms of this Lease, become due if this Lease
had not been terminated or if Landlord had not entered or reentered, as set
forth in Section 11.1, and whether the Premises be re-let or remain vacant, in
whole or in part, or for a period less than the remainder of the Lease Term, or
for the whole thereof, but, in the event the Premises be re-let by Landlord,
Tenant shall be entitled to a credit in the net amount of rent and other charges
received by Landlord in re-letting, after deduction of all reasonable expenses
incurred in re-letting the Premises (including, without limitation, remodeling
costs, brokerage fees and the like) and in obtaining possession of the Premises,
together with interest thereon at the Applicable Interest Rate, and in
collecting the rent in connection therewith, in the following manner: amounts
received by Landlord after re-letting shall first be applied against such
Landlord's expenses, together with interest thereon at the Applicable Interest
Rate, until the same are recovered, and until such recovery, Tenant shall pay,
as of each day when a payment would fall due under this Lease, the amount which
Tenant is obligated to pay under the terms of this Lease (Tenant's liability
prior to any such re-letting and such recovery not in any way to be diminished
as a result of the fact that such re-letting might be for a rent higher than the
rent provided for in the Lease); when and if such expenses have been completely
recovered, the amounts received from re-letting by Landlord as have not
previously been applied shall be credited against Tenant's obligations as of
each day when a payment would fall due under this Lease, and only the net amount
thereof shall be payable by Tenant. Further, Tenant shall not be entitled to any
credit of any kind for any period after the date when the term of this Lease is
scheduled to expire according to its terms. Tenant agrees that Landlord may,
without terminating this Lease, re-let the Premises or any part or parts
thereof, either in the name of Landlord or otherwise for a term or terms which
may, at Landlord's option, be less than or exceed the period which would
otherwise have constituted the balance of the Lease Term and may grant
concessions or free rent consistent with market conditions for similar
properties in Cambridge, Massachusetts at the time. The good faith failure of
Landlord to re-let the Premises
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or any part or parts thereof, or, if the Premises are re-let, for the good faith
failure to collect the rents due under such re-letting, shall not release or
affect Tenant's liability for damage so long as Landlord does not act
arbitrarily or capriciously. Any suit brought to collect the amount of
deficiency for any month or other period shall not prejudice in any way the
right of Landlord to collect the deficiency for any subsequent month or period
by a similar proceeding. Landlord, at Landlord's option may make such
alterations, repairs, replacements and decorations on the Premises as Landlord
in Landlord's sole judgment considers advisable and necessary for the purpose of
re-letting the Premises, and the making of such alterations or decorations shall
not operate or be construed to release Tenant from liability hereunder.
(b) Landlord may elect, in lieu of its continuing remedies under
Section 11.2(a) above, to have Tenant pay liquidated damages, which election may
be made by notice to Tenant at any time after termination of this Lease under
Section 11.1 and whether Landlord has collected any amounts as provided in
Section 11.2(a) or 11.2(c) before giving such liquidated damage notice to
Tenant. On the giving of such liquidated damage notice to Tenant by Landlord,
Tenant shall forthwith pay to Landlord as damages, in addition to all sums which
were due prior to the date of such termination and any amounts owing under
Section 11.2(c), a sum equal to the amount by which the Fixed Minimum Rent and
Additional Rent for the remainder of the Lease Term (discounted to the then
present value using a discount rate of eight percent (8.0%)) exceeds the fair
rental value of the Premises for the remainder of the Lease Term (discounted to
the then present value using a discount rate of eight percent (8.0%)). For the
purposes of computing damages payable pursuant to this Section 11.2(b), it is
agreed that there shall be payable to Landlord as part of such damages at the
time of such termination the product of the Additional Rent due with respect to
Taxes, Insurance Costs and Operating Costs for the most recently ended fiscal,
calendar or Lease Year, as the case may be, times the number of years remaining
of the Lease Term, it being assumed that the amount of such Additional Rent
payments so payable for the most recently ended fiscal, calendar year or Lease
Year would have remained constant for each subsequent year of the full Lease
Term.
(c) In addition to Tenant's obligations under Sections 11.2(a) and
11.2(b), Tenant also will indemnify and save Landlord harmless from and against
(i) all reasonable expenses which Landlord may incur, including, without
limitation, legal expenses, attorneys' fees, brokerage fees, and the cost of
putting the Premises in good order or preparing the same for rental, (ii) any
damage to the Building or any other portion of Landlord's Property (including
any loss of use of all or any portion of the Building or any other portion of
Landlord's Property) and (iii) for all costs and expenses of any investigation,
cleanup, detoxification, decontamination of, or other response, removal, or
remedial action with respect to, the Building or any other portion of Landlord's
Property (or the environment with respect thereto) which, in any case, arises
out of any Environmental Activity by a Tenant Party.
Section 11.3 Reimbursement of Landlord. In the event of any default by
Tenant in the payment of any Fixed Minimum Rent or Additional Rent, Tenant will,
in addition to paying Landlord all amounts due under the terms and provisions of
this Lease, including without limitation Section 11.10, reimburse Landlord for
all reasonable expenses incurred by Landlord in collecting such rent or in
obtaining possession of, or in re-letting the Premises, or in defending any
action, including expenses for reasonable counsel fees and commissions. Tenant
further
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agrees that, if on termination of this Lease by expiration or otherwise, Tenant
shall fail to remove any of its property from the Premises as provided for
herein, Landlord shall be authorized, in its sole option, and in Tenant's name
and on its behalf, either (i) to cause such property to be removed and placed in
storage for the account and at the expense of Tenant; or (ii) to sell such
property at public or private sale, with or without notice, and to apply the
proceeds thereof, after the payment of all expenses of removal, storage and
sale, to the indebtedness, if any, of Tenant to Landlord, the surplus, if any,
to be paid to Tenant; prior to the removal of such property Landlord may charge
Tenant a fair rental amount for the storage of such property. All sums payable
by Tenant under this ARTICLE XI shall be deemed Additional Rent.
Section 11.4 Landlord's Right to Perform Tenant's Covenants. Tenant
covenants and agrees that, if it shall at any time fail to make any payment or
perform any other act on its part to be made or performed as in this Lease
provided, Landlord, in its sole discretion may after due notice to, or demand
upon, Tenant, make any payment or perform any other act on the part of Tenant to
be made and performed as in this Lease provided, in such manner and to such
extent as Landlord may reasonably deem desirable, and in exercising any such
rights, Landlord may pay necessary and incidental costs and expenses, employ
counsel, and incur and pay reasonable attorneys' fees. The making of any such
payment or the performing of any other act by Landlord pursuant to this Article
shall not waive, or release Tenant from, any obligations of Tenant in this Lease
contained. All sums so paid by Landlord and all reasonably necessary and
incidental costs and expenses in connection with the performance of any such act
by Landlord shall, except as otherwise in this Lease expressly provided, be
payable to Landlord on demand, and Tenant covenants to pay any such sum or sums
promptly, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the non-payment thereof
by Tenant as in the case of default by Tenant in the payment of the Fixed
Minimum Rent. Whenever practicable, Landlord, before proceeding as provided in
this Section 11.4, shall give Tenant notice in writing of the failure of Tenant
which Landlord proposes to remedy, and shall allow Tenant such length of time as
may be reasonable in the circumstances, consistent with any grace periods
contained herein, but not exceeding 15 days from the giving of notice, to remedy
the failure itself and, if Tenant shall not remedy the failure in the time so
allowed, Landlord shall be deemed to have given "due notice" and may proceed as
provided in this Section 11.4; provided, however, that nothing in this section
shall prevent Landlord from acting without notice to Tenant in case of any
emergency wherein there is danger to property or person or where there may exist
any violation of legal requirements including but not limited to Hazardous
Substances, in which event no notice shall be required.
Section 11.5 Cumulative Remedies. The specified remedies to which Landlord
may resort under the terms of this Lease, or under the provisions of applicable
law, are cumulative and not intended to be exclusive of any other remedies or
means of redress to which Landlord may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provisions of this Lease. The
failure of Landlord to insist in any one or more cases upon the strict
performance of any of the covenants of this Lease or to exercise any option
contained herein shall not be construed as a waiver or a relinquishment for the
future of such covenant or option. Receipt by Landlord of any Fixed Minimum Rent
or Additional Rent payment with knowledge of the breach of any covenants hereof
shall not be deemed a waiver of such breach. No waiver by Landlord of any
provision of this Lease shall be deemed to have been made unless expressed in
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writing and signed by it. In addition to the other remedies provided in this
Lease, Landlord shall be entitled to restraint by injunction of any violation or
attempted or threatened violation of any of the covenants, conditions or
provisions of this Lease.
Section 11.6 Expenses of Enforcement. Tenant agrees to pay all reasonable
expenses and reasonable attorneys' fees incurred by Landlord in enforcing any
obligation or any remedies hereunder including without limitation in connection
with collection of Fixed Minimum Rent or Additional Rent, recovery by Landlord
of the Premises, or in any litigation in which Landlord shall become involved by
reason of any act or negligence of Tenant or any breach of this Lease by Tenant.
Landlord agrees to pay all reasonable expenses and reasonable attorneys' fees
incurred by Tenant in enforcing any obligation of Landlord or any remedies of
Tenant hereunder or in any litigation in which Tenant shall become involved by
reason of any act or negligence of Landlord or any breach of this Lease by
Landlord.
Section 11.7 Landlord's Default. Landlord shall not be deemed to be in
default hereunder unless such default shall remain uncured for more than thirty
(30) days following written notice from Tenant specifying the nature of such
default, or such longer period as may be reasonably required to correct such
default. Landlord's liability to keep, maintain, and repair shall always be
limited to the cost of making such repair or accomplishing such maintenance or
repair. In no event whatsoever shall Landlord be liable for consequential,
punitive damages, special damages or any indirect damages (including lost
profits). Notwithstanding anything to the contrary contained herein, so long as
Tenant shall be in default under any term or provision of this Lease, Tenant
shall not be entitled to enforce any obligation from Landlord or seek any cure
of Landlord's defaults under this Lease. The provisions of this Section 11.7 are
further subject to the provisions of ARTICLES IX and X dealing with eminent
domain and fire and other casualty.
Section 11.8 Limitation of Landlord's Liability. The obligations of
Landlord hereunder shall be binding upon Landlord and each succeeding owner of
the Landlord's interest hereunder only during the period of such ownership and
Landlord and each succeeding owner shall have no liability whatsoever except for
its obligations during each such respective period. Tenant hereby agrees for
itself and each succeeding holder of Tenant's interest, or any portion thereof,
hereunder, that any judgment, decree or award obtained against Landlord or any
succeeding owner of the Landlord's interest, which is in any manner related to
this Lease, the Premises or Tenant's use and occupancy of the Premises, the
Common Areas or Common Facilities of Landlord's Property, whether at law or in
equity, shall be satisfied out of the Landlord's equity in the Building to the
extent of Landlord's interests in the Building and such succeeding owner, and
further agrees to look only to such assets and to no other assets of the
Landlord, or such succeeding owner, for satisfaction. Neither Landlord nor any
party executing this Lease on behalf of Landlord, nor any partner, limited or
general, or any officer, director, employee, member, trustee or beneficiary of
Landlord, nor any subsequent Landlord, or any partner, limited or general, or
any officer, director, employee, member, trustee or beneficiary of any
subsequent Landlord shall have any personal liability hereunder. The remedies
provided to Tenant in this Lease are exclusive, and Landlord will not be liable
under any theory of recovery, whether based on contract, tort or otherwise.
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Section 11.9 Security Deposit.
(a) The Security Deposit, in the form of the Letter of Credit described
below and as provided in the Summary of Basic Terms, is 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, Landlord
may use, apply or retain the whole or any part of the Security Deposit to the
extent required for payment of any Fixed Minimum Rent, Additional Rent, or any
other sum as to which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this Lease, including but not
limited to (i) any damage or deficiency accrued before or after summary
proceedings or other re-entry by Landlord, including the costs of such
proceeding or re-entry, (ii) any amounts Landlord is required to pay arising
from, or in connection with, any Environmental Activities by a Tenant Party
(including, for example, any fines, penalties, or other costs imposed by the
City of Cambridge as a result of any alleged violation of the Cambridge Zoning
Ordinance or the RDNA ordinance, (Chapter 8.20 of the Cambridge Municipal
Code)), and (iii) reasonable attorney's fees. It is agreed that Landlord shall
always have the right to apply the Security Deposit, or any part thereof, as
aforesaid, without notice and without prejudice to any other remedy or remedies
which Landlord may have, or Landlord may pursue any other such remedy or
remedies in lieu of applying the Security Deposit or any part thereof. If the
Security Deposit is in the form of cash, no interest shall be payable on the
Security Deposit, Landlord shall hold the Security Deposit in escrow and
Landlord shall not commingle the Security Deposit with other funds of Landlord
(other than other security deposits). If Landlord shall apply the Security
Deposit in whole or in part in accordance with this Section 11.9, Tenant shall
upon demand pay to Landlord the amount so applied to restore the Security
Deposit to its original amount. Because Taxes, Insurance Costs, Operating
Expenses and other Additional Rent are subject to annual reconciliation based on
actual amounts (collectively "Final Amounts Due") determined to be due, in
addition to the other rights provided herein to Landlord regarding the Security
Deposit, Landlord shall have the right, in its discretion, upon the end of this
Lease and delivery of the Premises in accordance with the terms hereof to hold
all or a portion of the Security Deposit (or whatever amount remains after
Landlord exercises Its other rights hereunder) until ninety (90) days alter the
determination of Final Amounts Due at which time Landlord has the right to
deduct the Final Amounts Due from the remaining Security Deposit and return any
balance of the Security Deposit to Tenant. If the remaining Security Deposit, if
any, is not sufficient to pay Tenant's obligations hereunder, Tenant shall pay
the same within ten (10) days of billing from Landlord. In the event of a sale
or other transfer of Landlord's Property, or leasing of the entire Landlord's
Property Including the Premises subject to Tenant's tenancy hereunder, Landlord
shall transfer the Security Deposit then remaining to the vendee or lessee and
Landlord shall thereupon be released from all liability for the return of such
Security Deposit to Tenant; and Tenant agrees to look solely to the new landlord
for the return of the Security Deposit then remaining. The holder of any
mortgage upon Landlord's Property shall never be responsible to Tenant for the
Security Deposit or its application or return unless the Security Deposit shall
actually have been received in hand by such holder. Tenant further covenants
that it will not assign or encumber or attempt to assign or encumber the
Security Deposit and that neither Landlord not its successors or assigns shall
be bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
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(b) The Letter of Credit (as defined in the Summary of Basic Terms) must
meet the following conditions as of the dale of execution of this Lease: it must
be (i) a clean, unconditional, and irrevocable letter of credit which is duly
issued naming Landlord as beneficiary; (ii) initially expiring on June 1,1999;
however, Tenant will (A) cause the Letter of Credit to renew automatically
annually as of each June 1 so that the Letter of Credit remains in full force
and effect until twelve (12) months following the end of the Lease Term or (B)
provide a replacement Letter of Credit in the amount and form required by this
Section 11.9 at least 90 days before the applicable expiry date; (iii) in the
amount of $2,000,000 (USD) as may be reduced as provided in Section 11.9(e)
below; (iv) issued by a U.S. domestic bank acceptable to Landlord; (v) which may
be drawn on by Landlord in accordance with the terms of the Letter of Credit for
all of the payments required to be made from time to time by Tenant to Landlord
under this Lease and/or as otherwise provided in this Lease; and (vi)
substantially in the form of Exhibit F attached hereto and/or on terms and in
form otherwise satisfactory to Landlord. If at any time during the Lease Term,
the issuer of the Letter of Credit gives notice of its election not to renew,
extend and/or reissue the Letter of Credit, then the Tenant shall, on or before
the date forty-five (45) days prior to the expiration of the term of the
existing Letter of Credit held by Landlord, deliver to Landlord a new Letter of
Credit satisfying the conditions hereof in replacement of such expiring Letter
of Credit or cash in the full amount of the Security Deposit. In addition, if at
any time during the Lease Term, the issuer of the Letter of Credit fails to
cause the transfer of the Letter of Credit in accordance with Landlord's
instructions and Tenant timely fails to deliver to Landlord a new Letter of
Credit satisfying the conditions hereof naming Landlord's proposed transferee as
beneficiary, then such failure shall be deemed an Event of Default under Section
11.1(n) of this Lease and Landlord shall have the right, at any time after such
event, without giving further notice to Tenant, to draw down the entire amount
of the Letter of Credit and to hold proceeds thereof as the Security Deposit
hereunder. In the event that Tenant timely fails to deliver to Landlord a
replacement Letter of Credit or cash in the full amount of the Security Deposit,
then such failure shall be deemed an Event of Default under Section 11.1(n) of
this Lease and Landlord shall have the right. at any time after such event,
without giving further notice to Tenant, to draw down the entire amount of the
Letter of Credit and to hold the proceeds thereof as the Security Deposit
hereunder. From time to time, within ten (10) days after requested by Landlord
or the holder of a first mortgage on the Premises. Tenant shall execute any and
all documents and take any and all actions as may be requested by Landlord or
such holder to effect a change in the beneficiary of the Letter of Credit to a
person or entity specified by Landlord or such holder.
(c) On or before the first day of each Lease Year, Tenant will notify
Landlord of the amount of the letter of credit fee (expressed as a per annum
percentage of the undrawn face amount of the Letter of Credit) charged by the
issuer of the Letter of Credit (the "`Letter of Credit Fee") for the applicable
Lease Year. Subject to the next following sentence, Landlord will reimburse
Tenant an amount each Lease Year equal to 50% of the Letter of Credit Fee for
that Lease Year (the "L/C Fee Reimbursement"); however, in no event may the L/C
Fee Reimbursement exceed an amount equal to 50% of a Letter of Credit Fee based
on 1.5% per annum of the undrawn face amount of the Letter of Credit. Tenant
will receive the L/C Fee Reimbursement in the form of a cash payment made to
Tenant within 30 days after Tenant has made payment of the applicable Letter of
Credit Fee directly to the issuer of the Letter of Credit; provided, however,
that Landlord shall not be obligated to make such payment to Tenant if there
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then exists a default of Tenant or any fact or circumstance which, with the
passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute a default under this Lease, unless
and until the same is cured by Tenant. In support of its application to receive
the L/C Fee Reimbursement, Tenant will deliver to Landlord all documentation,
satisfactory to Landlord, demonstrating the direct, out-of-pocket cost paid by
Tenant for the Letter of Credit Fee. Tenant will be solely responsible for all
of the Letter of Credit Fee (and all other expense and charges of the issuer of
the Letter of Credit) in excess of the L/C Fee Reimbursement.
(d) If (i) Landlord shall reasonably feel insecure with the financial
creditworthiness of the financial institution issuing the Letter of Credit and
Tenant shall fail, within twenty (20) days alter Landlord's notice, to either
(A) provide a replacement Letter of Credit in the full amount of the Security
Deposit in the form attached as Exhibit F or on terms and/or in form otherwise
satisfactory to Landlord from a financial Institution that is federally insured
and has offices in Boston and is reasonably approved by Landlord, or (B) provide
Landlord with cash in the full amount of the Security Deposit; or (ii) Tenant
fails to provide Landlord with a cash security deposit or a replacement Letter
of Credit satisfying the conditions of this Section 11.9 In the full amount of
the Security Deposit within seven (7) days alter (1) any proceedings under the
Bankruptcy Laws or any insolvency law are instituted by or against the financial
institution issuing the Letter of Credit, or (2) the financial Institution
Issuing the Letter of Credit is taken over by the Federal Deposit Insurance
Corporation, the Resolution Trust Corporation or a similar entity, then any such
failure shall be deemed an Event of Default under Section 11.1(n) and Landlord
shall have all rights and remedies provided hereunder (including, but not
limited to, the right to draw upon the Letter of Credit) without any further
notice. Subject to the provisions of this Section 11.9, Landlord shall return
the Security Deposit within 30 days after the end of tile Lease Term.
(e) Subject to the other terms of this Section 11.9, upon receipt of a
written request from Tenant at any time after the second Lease Year, Landlord
will agree to a reduction in the amount of the Letter of Credit by a total sum
equal to $500,000.00 so long as all of the following conditions are met as of
the date on which such reduction occurs (the "First Reduction Date"): (i) there
does not exist a default under this Lease or any fact, event, or circumstance
which, with the passage of time, the giving of notice, the satisfaction of any
other condition, or all of them, could constitute a default, (ii) Tenant has
consummated a public offering of stock and is listed on a national securities
exchange (as defined in the Securities Exchange Act of 1933), (iii) Tenant's
tangible net worth, as of the First Reduction Date, is greater than or equal to
$75,000,000 as determined In accordance with generally accepted accounting
principles ("GAAP") consistently applied ("tangible net worth" meaning Tenant's
book net worth less all intangible assets as determined by GAAP), (iv) Tenant's
cash and cash equivalents, as of the First Reduction Date, are greater than or
equal to $10,000,000 as determined in accordance with GAAP consistently applied,
and (v) Tenant shall have expended in excess of $1,500,00000 (excluding
Landlord's Contribution) on Tenant's Work and other improvements to the Premises
approved by the Landlord (such expenditures to be evidenced by invoices,
receipts, contracts and other documentation as may be reasonably required by
Tenant).
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(f) Subject to the other terms of this Section 11.9, upon receipt of a
written request from Tenant at any time after the fifth Lease Year, Landlord
will agree to a reduction in the amount of the Letter of Credit by a total sum
equal to $500,000.00 so long as alt of the following conditions are met as of
the date on which such reduction occurs (the "Second Reduction Date"): (i) there
does not exist a default under this Lease or any fact, event, or circumstance
which, with the passage of time, the giving of notice, the satisfaction of any
other condition, or all of them, could constitute a default, (ii) Tenant has
consummated a public offering of stock and is listed on a national securities
exchange (as defined in the Securities Exchange Act of 1933), (iii) Tenant's
tangible net worth, as of the Second Reduction Date, is greater than or equal to
$75,000,000 as determined in accordance with GAAP consistently applied
("tangible net worth" meaning Tenant's book net worth less all intangible assets
as determined by GAAP), (iv) Tenant's cash and cash equivalents, as of the
Second Reduction Date, are greater than or equal to $10,000,000 as determined in
accordance with GAAP consistently applied, and (v) Tenant shall have expended in
excess of $3,000,000.00 (excluding Landlord's Contribution) on Tenant's Work and
other improvements to the Premises approved by the Landlord (such expenditures
to be evidenced by invoices, receipts, contracts and other documentation as may
be reasonably required by Tenant).
Section 11.10 Late Payment and Administrative Expense. If Tenant shall
fail to pay Fixed Minimum Rent, Additional Rent or other charges after the same
become due and payable under this Lease, such unpaid amounts shall bear interest
from the due date thereof to the date of payment at the Applicable interest Rate
("Interest Payment"). In addition, if Landlord is required to redeposit any
check which is returned for insufficient funds or if Tenant shall fail to pay
Fixed Minimum Rent, Additional Rent or other charges after the same become due
and payable, then Tenant shall also pay to Landlord an administrative expense
charge ("Administrative Expense") of five percent (5.0%) of the amount thereof
for each calendar month or part thereof after the due date of such payment until
such payment is received by Landlord. The provisions herein for Interest Payment
and Administrative Expense shall not be construed to relieve Tenant of the
obligation to pay Fixed Minimum Rent, Additional Rent and all other charges when
due under this Lease and shall be in addition to and not in limitation of
Landlord's other remedies as provided for in this Lease.
Section 11.11 Tenant's Request for Landlord's Action. In the event that at
Tenant's request Landlord is required to take any action pursuant to this Lease,
Tenant shall pay as Additional Rent Landlord's reasonable attorneys' fees,
expenses and disbursements in connection with such action, with payment to be
made by Tenant within fifteen (15) days after billing therefor by Landlord.
ARTICLE XII
Miscellaneous Provisions
Section 12.1 Broker.
(a) Tenant represents that it has not dealt with any person in
connection with the Premises or the negotiation or execution of this Lease other
than officers or employees of
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Landlord and the Broker, if any, designated in the Summary of Basic Terms.
Tenant shall indemnify and save harmless Landlord from and against all claims,
liabilities, costs and expenses incurred as a result of any breach of the
foregoing representation by Tenant. The broker's fee payable to Broker for this
Lease shall be payable by Landlord subject to and in accordance with the terms
of a separate written agreement between Landlord and Broker.
(b) Landlord represents that it has not dealt with any person in
connection with the Premises or the negotiation or execution of this Lease other
than officers or employees of Landlord and the Broker, if any, designated in the
Summary of Basic Terms. Landlord shall indemnify and save harmless Tenant from
and against all claims, liabilities, costs and expenses incurred as a result of
any breach of the foregoing representation by Landlord.
Section 12.2 Quiet Enjoyment. Tenant shall, upon paying all Fixed Minimum
Rent and Additional Rent due hereunder and observing and performing all of the
terms, covenants and conditions on Tenant's part to be observed and performed,
peaceably and quietly have and hold the Premises without hindrance or
molestation by any person or persons lawfully claiming by, through or under,
Landlord, subject, however, to the terms of this Lease.
Section 12.3 Notices. All notice, demand, request or statement required or
intended to be given or delivered under the terms of Lease shall be in writing
and be delivered and shall be deemed to have been given or delivered if by
delivered in hand, by overnight courier service, electronic facsimile
reproduction or by U.S. certified mail, return receipt requested, or by
facsimile as long as a confirming copy is simultaneously sent by overnight
courier or U.S. certified mail as set forth above to the address or addresses
set forth in the Summary of Basic Terms or to such other place as may be
designated from time to time by written notice to the other party.
Section 12.4 Waiver of Subrogation. Landlord and Tenant hereby release
each other, to the extent of their respective insurance coverages, from any and
all liability for any loss or damage caused by fire, any of the extended
coverage casualties, or other casualties insured against, even if such fire or
other casualty shall be brought about by the fault or negligence of the party
benefited by the release or its agents, Landlord and Tenant each agree that
their respective fire, extended coverage, and other insurance policies will
include a waiver of subrogation clause so long as the same is obtainable.
Section 12.5 Entire Agreement: Execution and Headnotes. This Lease
together with all Exhibits referred to herein and the Summary of Basic Terms,
sets forth the entire agreement between the parties hereto and cannot be
modified or amended, except in a writing duly executed by the respective
parties. This Lease supersedes all previous written and oral negotiations,
understandings and agreements regarding the subject matter of this Lease.
Landlord has made no representations to Tenant on which Tenant has relied in
entering into this Lease except any representations expressly stated in this
Lease. This Lease is executed as a sealed instrument and in multiple
counterparts, all copies of which are identical, and any one of which is to be
deemed to be complete in itself and may be introduced in evidence or used for
any purpose without the production of any other copy. Time is of the essence of
the obligations of the parties to be performed within a specific time frame in
this Lease. The headnotes throughout this Lease are
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for convenience of reference only, and shall in no way be held or deemed to
define, limit, explain, describe, modify or add to the interpretation,
construction or meaning of any provision of this Lease.
Section 12.6 Partial Invalidity. The invalidity of one or more phrases,
sentences, clauses, Sections or Articles contained in this Lease shall not
affect the remaining portions of this Lease or any part thereof, and if any one
or more of the phrases, clauses, sentences, Sections or Articles contained in
this Lease should be declared invalid by the final order, decree or judgment of
a court of competent jurisdiction, including all appeals therefrom, this Lease
shall be construed as if such invalid phrases, clauses, sentences, Sections or
Articles had not been inserted in this Lease.
Section 12.7 No Waiver.
No assent, express or implied, by Landlord to any breach of any agreement
or condition herein contained on the part of Tenant to be performed or observed,
and no waiver, express or implied, of any such agreement or condition shall be
deemed to be a waiver of or an assent to any succeeding breach of the same or
any other agreement or condition; the acceptance by Landlord of Fixed Minimum
Rent or Additional Rent due hereunder (whether such payment is made by Tenant or
another party or entity), or silence by Landlord as to any breach, shall not be
construed as waiving any of the Landlord's rights hereunder unless such waiver
shall be in writing. No payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due Landlord from Tenant shall be deemed to be anything but
payment on account, and the acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon, or upon a letter accompanying
said check, that said lesser amount is payment in full shall not be deemed an
accord and satisfaction, and Landlord may accept said check without prejudice to
recover the balance due or pursue any other remedy.
Section 12.8 Holdover. If Tenant remains in the Premises beyond the
expiration of this Lease at the end of the Lease Term, or sooner following an
early termination as provided for herein, such holding over shall not be deemed
to create any tenancy, but Tenant shall be a daily Tenant at sufferance only
subject to all of Tenant's obligations set forth herein, but at a daily rate
equal to one and one-half (1.5) times the Fixed Minimum Rent, then in effect,
and Additional Rent and other charges provided for under this Lease. The
acceptance of a purported rent check following termination shall not constitute
the creation of a tenancy at will, it being agreed that Tenant's status shall
remain that of a daily Tenant at sufferance, at the aforesaid daily rate. Tenant
shall also pay to Landlord all damages, if any, sustained by reason of any such
holding over. Otherwise, such holding over shall be on the terms and conditions
set forth in this Lease as far as applicable.
Section 12.9 Summary of Basic Terms. The Summary of Basic Terms which is
affixed to this Lease sets forth certain basic terms and information which is
thereafter referred to in the main text of this Lease. Every reference to the
Summary of Basic Terms, or to a particular item thereon, shall have the effect
of incorporating the Summary, or the particular item thereof, into the main text
of this Lease.
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Section 12.10 When Lease Becomes Binding. The submission of this document
for examination and negotiation does not constitute an offer to lease or a
reservation or an option for the Premises, and this document shall become
effective and binding only upon the execution and delivery hereof by both
Landlord and Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein and may be
modified or altered only by agreement in writing between Landlord and Tenant,
and no act or omission of any employee or agent of Landlord shall alter, change
or modify any of the provisions hereof.
Section 12.11 As-Is. Tenant represents to Landlord that it has leased the
Premises after a full and complete examination of the same and accepts the
Premises in "AS IS" condition, including the condition and adequacy of the
heating, air conditioning, electrical, plumbing and other systems. Tenant,
acknowledges that neither Landlord, nor Landlord's agents, has made any
representation or promises with respect to the Premises, the Building, or the
land upon which it stands, and no rights, easements or licenses are acquired by
Tenant, by implication or otherwise, except as may be set forth expressly in
this Lease. The execution and delivery of this Lease by Tenant shall be
conclusive evidence, as against Tenant, that Tenant accepts the Premises "AS
IS", with all faults.
Section 12.12 No Recordation: Notice of Lease. Tenant shall not record
this Lease with any registry of deeds or with the land court. Tenant may, at its
expense, record a notice of lease in form and substance satisfactory to Landlord
executed by Landlord and Tenant with the Middlesex South District Registry of
Deeds. At the end of the Lease Term or sooner termination of this Lease, the
parties agree to execute a notice of termination of lease in recordable form and
Landlord may, at its expense, record the same in the Middlesex South District
Registry of Deeds.
Section 12.13 Fair Market Rent and Fair Market Parking Charge.
(a) Within thirty (30) days after Tenant gives to Landlord written notice
of exercise of the extension option pursuant to Section 2.3, hereof, Landlord
and Tenant shall simultaneously exchange proposals setting forth their opinions
as to the Fair Market Rent and the fair market parking charge for parking spaces
during any Extension Term ("Fair Market Parking Charge"). Landlord and Tenant
shall negotiate in good faith for not less than fifteen (15) business days after
the exchange of proposals (such fifteen (15) business day period being herein
called the "Negotiation Period") to attempt to agree upon the Fair Market Rent
and the Fair Market Parking Charge, and, in the course of such negotiations,
each party may from time to time submit modified proposals to the other. If the
parties agree upon the Fair Market Rent and the Fair Market Parking Charge prior
to the determination of the arbitrator pursuant to section 12.13(b) hereof,
whether such agreement is reached during or after the Negotiation Period, the
Fair Market Rent and the Fair Market Parking Charge shall be so agreed.
(b) If the parties are unable to agree upon the Fair Market Rent and the
Fair Market Parking Charge within the Negotiation Period then each party shall,
upon selection of an arbitrator pursuant to Section 12.13(c) hereof,
simultaneously exchange and submit to the arbitrator for binding arbitration a
proposal as to which of Fair Market Rent, the Fair Market Parking Charge, or
both, on which they cannot agree (the amount or amounts on which they cannot
agree is collectively referred to as the "Disputed Rate"). Within thirty (30)
days after both
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parties have submitted such proposals to the arbitrator, the arbitrator shall
select one of the proposals as more closely approximating the Disputed Rate
appropriate for the Extension Term and, unless the parties have then agreed upon
the Disputed Rate, the proposed Disputed Rate forth in such proposal selected by
the arbitrator shall be deemed to be the Disputed Rate.
(c) If the parties are unable to agree upon the Disputed Rate within the
Negotiation Period, then the parties shall within fifteen (15) days after the
end of the Negotiation Period (such fifteen (15) day period being herein called
the "Selection Period"), attempt to agree upon an arbitrator to whom to submit
the determination of the Disputed Rate for binding arbitration pursuant to
Section 12.13(b) hereof. If the parties are unable to agree upon an arbitrator
within the Selection Period, then at the end of the Selection Period, each party
shall select an arbitrator and, within fifteen (15) days after the end of the
Selection Period, the arbitrators shall agree upon an arbitrator to whom the
determination of the Disputed Rate shall be submitted for binding arbitration
pursuant to Section 12.13(b) hereof. If such arbitrators are unable to agree
promptly upon an arbitrator, an arbitrator shall be selected by the American
Arbitration Association. Any arbitrator selected by either party, by the
arbitrators selected by the parties or by the American Arbitration Association
shall be independent of both parties and shall have at least 10 years
experience, either as a licensed real estate broker or salesperson or as an
appraiser. Such arbitrator shall determine the Disputed Rate within thirty (30)
days of selection. The parties shall share equally the fees and expenses of the
arbitrator to whom the determination of the Disputed Rate is submitted. Landlord
and Tenant shall each pay the fee of the arbitrator selected by it.
Section 12.14 Confidentiality. Tenant acknowledges that the terms under
which Landlord has leased the Premises to Tenant, (including without limitation,
the rental rate(s), term and other financial and business terms, constitute
confidential information of Landlord ("Confidential Information"). Tenant
covenants and agrees to keep the Confidential Information completely
confidential; provided, however, that (i) such Confidential Information may be
disclosed by Tenant to those of its officers, employees, attorneys, accountants,
lenders and financial advisors who need to know such information in connection
with Tenant's use and occupancy of the Premises and for financial reporting and
credit related activities (it being understood that Tenant shall inform its
representatives of the confidential nature of such Confidential Information and
that such representatives shall be directed by Tenant, and shall each expressly
agree, to treat such Confidential information confidentially in accordance with
the terms of this Section), and (ii) unless required by applicable law, any
other disclosure of such information may only be made if Landlord consents in
writing prior to any such disclosure. In furtherance of and not in limitation of
the foregoing, Tenant understands and agrees that during the period of any
negotiation of the terms of this Lease, the disclosure of Tenant's possible
interest in leasing the Premises and the terms thereof could have a material
adverse effect on Landlord's business. BY ITS RECEIPT OF A DRAFT OF THIS LEASE.
TENANT ACKNOWLEDGES AND AGREES THAT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LANDLORD, EXCEPT AS PROVIDED IN CLAUSES (i) AND (ii) OF THIS SECTION 12.14,
TENANT WILL NOT, AND TENANT WILL DIRECT ITS REPRESENTATIVES NOT TO, PRIOR TO THE
EXECUTION OF THIS LEASE, DISCLOSE TO ANY PERSON EITHER THE FACT THAT DISCUSSIONS
OR NEGOTIATIONS ARE TAKING PLACE CONCERNING THE POSSIBLE LEASE TRANSACTION
BETWEEN TENANT AND LANDLORD OR ANY OF THE TERMS, CONDITIONS OR OTHER FACTS WITH
RESPECT TO SUCH POSSIBLE LEASE
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TRANSACTION, INCLUDING THE STATUS THEREOF. THE TERM "PERSON" AS USED HEREIN
SHALL BE BROADLY INTERPRETED TO INCLUDE, WITHOUT LIMITATION, ANY CORPORATION,
LIMITED LIABILITY COMPANY, GOVERNMENTAL AGENCY OR BODY, PARTNERSHIP. ASSOCIATION
OR INDIVIDUAL.
Section 12.15 Tenant's Execution of Documents. In the event that Tenant
fails to execute and deliver to Landlord or Landlord's mortgagee or any other
third party documents required to be executed and delivered by Tenant hereunder,
including without limitation documents required to be delivered under Sections
8.1 and 8.4 of this Lease, within the time frames provided herein, Tenant hereby
appoints Landlord as Tenant's attorney-in-fact coupled with an interest to
execute, acknowledge (if applicable) and deliver any such documents for and on
behalf of Tenant without any liability to Tenant in relation thereto.
Section 12.16 Tenant's Financial Statements. From time to time as
requested by Landlord, Tenant shall provide to Landlord, any actual or potential
mortgagee and any actual or potential ground lessor or any representative of any
of the foregoing, copies of Tenant's annual financial statements (audited or
reviewed, if available) and quarterly financial statements, all certified as
true and correct by the president or chief financial officer of Tenant, and such
other information regarding Tenant's financial condition as Landlord may
reasonably request.
ARTICLE XIII
Section 13.1 Right of First Opportunity.
(a) Grant of Right. In the event that Landlord sends a Notice of
Relocation to Tenant in accordance with Section 7.14 hereof, Tenant shall have
the right, subject to the rights of any "Major Tenant" (hereinafter defined),
for a period of sixty (60) days thereafter to lease any Additional Space
(hereinafter defined) which is then available for lease on and subject to the
terms and conditions set forth in this Section 13.1. As used herein, "Additional
Space" means leaseable space which is then available in the building in which
Tenant is to be relocated. As used herein. "Major Tenant" means any person or
entity which has executed a lease for 39,000 or more square feet in the
buildings located and/or to be located on Landlord's Property 210 Broadway or
both, excluding Tenant. During the "Option Period" (as hereinafter defined),
Landlord will not enter into any lease of any Additional Space to a third party
(a "Third-Party Lease") other than a Major Tenant unless and until Landlord has
given to Tenant a Notice of Availability (as defined in Paragraph (b) of this
Section 13.1) with respect to such Additional Space and Tenant has failed to
exercise its right to lease such Additional Space pursuant to Paragraph (c) of
this Section 13.1 and any Third Party Lease of such Additional Space (other than
a lease to a Major Tenant) shall be at an effective rent and on other terms
which, in the aggregate, are not substantially more favorable to the tenant than
those specified in the Notice of Availability.
(b) Notices of Availability. Simultaneously with the delivery of the
Notice of Relocation to Tenant, Landlord shall give written notice to Tenant
specifying any Additional Space which is available for lease. Any such notice (a
"Notice of Availability) shall specify, in addition to the Additional Space
which is available for lease, the date on or about which the
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Additional Space is to become available for lease (if it is not then available),
the effective rent (including Fixed Minimum Rent and Additional Rent, if
applicable) at which Landlord is willing to lease the Additional Space, and such
other terms which Landlord desires to specify. If, with respect to any
Additional Space as to which Landlord has given a Notice of Availability and as
to which Tenant has failed to exercise its right to lease pursuant to Paragraph
(c) of this Section 13.1, Landlord desires to enter into a Third-Party Lease at
an effective rent or on other terms which are, in the aggregate, substantially
more favorable to the tenant than those set forth in the Notice of Availability,
Landlord shall, before entering into such Third-Party Lease, give another Notice
of Availability (a "Follow-up Notice") to Tenant, specifying the proposed terms
which are more favorable to the tenant than those set forth in the prior Notice
of Availability. Tenant shall not disclose to third parties, other than Tenant's
employees, consultants and other agents who have a need to know, the contents of
any Notice of Availability.
(c) Exercise of Right. Provided that, on the date of exercise, there does
not exist a default of Tenant or any fact or circumstance which, with the
passage of time, the giving of notice, or the satisfaction of any other
condition, or all of them, could constitute a default under this Lease, Tenant
shall have the right, exercisable by written notice given by Tenant and received
by Landlord within the Option Period (as defined below), and subject to the
limitation set forth in Paragraph (f) of this Section 13.1, to lease all or any
part of the Additional Space specified in a Notice of Availability up to a
maximum of 20,000 square feet. Tenant's notice of exercise Shall specify the
portion of the Additional Space as to which Tenant is exercising its right to
lease. As used herein, "Option Period" shall mean the period of thirty (30) days
after Landlord gives the subject Notice of Availability to Tenant; provided,
however, that the Option Period with respect to any Notice of Availability which
is a Follow-up Notice shall be the period of five (5) days after Landlord gives
such Notice of Availability to Tenant.
(d) Addition of Space to Lease. If Tenant exercises its right to lease any
Additional Space pursuant to Paragraph (c) of this Section 13.1, then, as of the
date which is the later of (i) ten (10) days after Landlord's receipt of
Tenant's notice of exercise of its right to lease the Additional Space or (ii)
the date on which the Additional Space becomes available, such Additional Space
shall be added to and become a part of the Premises and subject to the terms and
conditions of this Lease, provided that the terms and conditions of this Lease
with respect to such Additional Space shall be modified by the terms specified
in the subject Notice of Availability. Promptly after Tenant exercises its right
to lease any Additional Space pursuant to Paragraph (c) of this Section 13.1,
Landlord and Tenant shall enter into an amendment of this Lease incorporating
such Additional Space as part of the Premises and incorporating the terms
specified in the subject Notice of Availability with respect to such Additional
Space.
(e) Lapse of Right. With respect to any Additional Space as to which
Landlord gives Tenant a Notice of Availability, if Landlord does not receive
Tenant's notice of exercise pursuant to Paragraph (c) of this Section 13.1
within the Option Period, Tenant's right of first opportunity provided for in
this Article 13 shall lapse and Landlord shall be free to lease the Additional
Space to third parties on terms which are, in the aggregate, not substantially
more favorable to the tenant than those specified in the Notice of Availability.
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(f) Limitation. Tenant's right of first opportunity provided for in this
Section 13.1 is subject to the limitation that the configuration, size and
location of any Additional Space leased by Tenant pursuant to the terms thereof
shall be established in a manner to assure that the Additional Space leased by
Tenant, as well as any residual space, in the subject building is functional and
marketable, as determined by Landlord in its reasonable discretion.
(g) Rights Personal to Party Executing this Lease. The rights in this
Article 13 are personal to Variagenics, Inc. and are not assignable or
transferable, except in connection with an assignment or sublease made pursuant
to, and in compliance with, Section 7.12(b)(ii). On any other permitted
assignment (or request for assignment) of this Lease or on any other permitted
sublease (or request for sublease) of this Lease for a portion of the Premises,
the rights Under this Article 13 will lapse and be of no further force and
effect.
TENANT:
VARIAGENICS, INC.
By: /s/ Fred D. Ledley, M.D.
----------------------------
Name: Fred D. Ledley, M.D.
-----------------------
Title: President and CEO
-------------------
Duly Authorized
LANDLORD:
205 BROADWAY REALTY TRUST
BY: BHX, LLC, its Trustee and not
for itself
By: /s/ Robert A. Schlager
----------------------------
Name: Robert A. Schlager
Title: Treasurer
Duly Authorized
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EXHIBIT A
A certain parcel of land with the buildings thereon situated in Cambridge,
Middlesex County, Massachusetts, being bounded and described as follows:
NORTHEASTERLY by Hampshire Street, three hundred seventy-one and
72/100 (371.72) feet;
SOUTHEASTERLY by land now or formerly of East Coast Realty Co.
by two lines measuring one hundred thirty-six and
29/100 (136.29) feet and seventy-one and 61/100
(71.61) feet, respectively;
SOUTHWESTERLY by Broadway, forty-two and 05/100 (42.05) feet;
SOUTHWESTERLY again by Markes Street three hundred fifty-two and
70/100 (352.70) feet, more or less; and,
NORTHWESTERLY by Clark Street, two hundred forty-six and 50/100
(246.50) feet.
Said parcel contains approximately 87,063.16 square feet of land and is a
portion of the premises shown on a plan entitled "Plan of Land in Cambridge"
dated December 3, 1946 by Edward Smith, C.E., being Plan 1919 of 1946, recorded
with Middlesex South District Registry of Deeds in Book 7058, Page 174.
Or however otherwise the said premises may be bounded, measured and
described, meaning and intending to describe and meaning and intending to convey
and hereby conveying the entire premises described in the deed to Morningstar
Limited Partnership described below.
Certain portions of the above described parcel are also shown on the
following plans:
1. Plan of land in Cambridge owned by Barbour Stockwell Company,
recorded with said Deeds, Book 5894, Page 113.
2. Plan of land in Cambridge owned by Barbour Stockwell Company,
recorded with said Deeds in Book 5894, Page 115.
3. Plan of land in Cambridge owned by Barbour Stockwell Company,
recorded with said Deed sin Book 5894, Page 117.
<PAGE>
EXHIBIT B
SITE PLAN
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EXHIBIT C
TENANT'S WORK
1. Tenant will perform all work necessary to equip and open its office and
laboratory facilities in accordance with all applicable building codes and
other laws. In addition, Tenant shall install a new roof membrane on the
Building together with related flashings, accessories and all else
necessary and customary in reroofing (but specifically excluding any
repairs or structural defects in the framing system to support such roof,
which structural repairs, if any, shall remain and be the responsibility
of Landlord), on or before November 1, 1998 subject to extension due to
delays resulting from interruption of utility services, breakage, strikes,
inability after exercise of reasonable diligence to obtain supplies or for
any cause or causes beyond the reasonable control of Tenant (which shall
never include the lack of capital available to Tenant). Work shall be
performed as provided in Section 2.5 of this Lease.
2. Tenant will provide scaled, complete working drawings and specifications
to the Landlord prepared by an architect registered in the Commonwealth of
Massachusetts prior to commencing any major construction or remodeling
work. All work to be performed must be in compliance with Federal, State,
and local building codes and regulations. Tenant will obtain any and all
permits necessary to complete its work, including, without limitation,
building, electrical and plumbing permits associated with its work to be
performed hereunder. Copies of all permits must be submitted to the
Landlord, together with certificates of insurance for Tenant's
contractors, prior to commencement of the related work. At the completion
of each phase of Tenant's Work, Tenant will obtain and maintain a
certificate of occupancy for the applicable portion of the Building and
provide a copy of same to the Landlord.
3. Tenant will use only contractors reasonably approved by Landlord to
perform Tenant's Work. Notwithstanding anything to the contrary herein,
should Tenant elect to utilize (i) Siena Construction, (ii) C.E. Floyd, or
(iii) Ellenzweig Associates, each of such contractors shall be deemed to
satisfy the requirements of this paragraph, provided that Tenant gives
Landlord at least ten (10) days prior written notice of such proposed
contractor. When Tenant knows the identity of such contractor's major
subcontractor (i.e. those whose contracts exceed $50,000) Tenant shall
identify them in writing to Landlord.
4. Tenant's Work will consist primarily of tenant fit out and repairs to the
Building for office and laboratory use generally in accordance with the
drawing attached hereto as Exhibit C-1 and the installation of a new roof
(as described in paragraph 1 above of this Exhibit C) on the Building.
Tenant's Work, and the plans and specifications therefor, will be subject
to Landlord's prior written approval, which approval will not be
unreasonably withheld.
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EXHIBIT D
SIGN CRITERIA
Capitalized words and terms used in this Exhibit which are not defined
elsewhere in this Lease shall have the meanings provided in Articles 2
(Definitions) and 7 (Signs and Illumination) of the Cambridge Zoning Ordinance.
Tenant may erect, place or install, or have erected, placed or installed, up to
three (3) stationary Wall Signs, only in the locations and of a size no larger
than that shown on the attached sketch, provided that such Signs also are in
full conformance with the following restrictions and requirements:
1. No individual Wall Sign may exceed twenty-five (25) square feet in area.
The area of Tenant's Wall Signs shall be calculated as provided for in
Section 7.14 of the Cambridge Zoning Ordinance.
2. Tenant's Wall Sign(s) shall display the name of the Tenant and no other
name.
3. All Signs must comply with all applicable design, placement, permit,
certification and other requirements of the Cambridge Zoning Ordinance.
Tenant shall simultaneously give Landlord copies of all applications and
other materials submitted to the City of Cambridge and also shall promptly
give Landlord copies of any permits, certifications, or notices of
violation issued by the City of Cambridge with respect to Signs.
4. All Signs shall be subject to Landlord's prior written approval, which
shall not be unreasonably withheld or delayed. Tenant shall provide to
Landlord, before the erection, placement or installation of any Wall
Sign(s), a scaled drawing illustrating the proposed Tenant signage,
proposed structural supports, actual commutations, certification and
registration stamp of a structural engineer attesting to the design of the
structural support and such other materials and documentation as Landlord
may require. Tenants shall provide Landlord with color chips of actual
color(s) proposed.
5. The Wall Sign(s) shall be illuminated only by Natural Illumination or as
allowed under Section 7.16.22.C of the Cambridge Zoning Ordinance. Any
illumninated Sign shall be provided with a time clock to regulate the
hours of Sign illumination, at the expense of the Tenant, which shall be
operable from within the Building. Tenant shall pay the cost of any
electricity consumed for such Sign or time clock.
6. All fastenings shall be concealed where possible. All electrical devices,
wiring and the like shall be contained within the horizontal electrical
raceway behind the Sign lettering, which raceway shall not extend beyond
the most extreme lettering locations. Raceway wiring shall interface with
a junction box and wiring furnished installed and connected by the Tenant
at the proposed general location of the Tenant signage.
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7. Tenants shall furnish and install all required cutting, patching,
blocking, cleaning, bolsters, scaffolding, ladders, staging, protection
boards, and the like to support and install the signage. Protection shall
be provided during the erection, placement, installation or maintenance of
any Sign(s) for the existing roofing membrane and attendant flashings to
preclude any cutting, puncturing, scraping, marring or the like. A
Landlord-approved roofing contractor shall repair any accidental
penetration of roofing membrane or other damage resulting from tenant
signage installation or maintenance, at the expense of the Tenant.
5
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EXECUTED as a sealed instrument as of the day and year first above
written.
WITNESS: LENDER:
KEYBANK NATIONAL ASSOCIATION
_______________________________ By:________________________________
Name: Joseph B. Bator, Vice President
Hereunto duly authorized
LANDLORD:
205 BROADWAY REALTY TRUST
By: BHX, LLC, AS TRUSTEE
Name:____________________________ By:___________________________
Name: Eric D. Schlager
Title: Member
Hereunto duly authorized
TENANT:
VARIAGENICS, INC.
Name:____________________________ By:___________________________
Name: Fred Ledley
Title: President and CEO
Hereunto duly authorized
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COMMONWEALTH OF MASSACHUSETTS
_________________________, ss. ___________________, 1998
Then personally appeared the above-named Joseph B. Bator, Vice President
of KeyBank National Association, and acknowledged the foregoing instrument to be
his first act and deed on behalf of said corporation, before me
[AFFIX SEAL] _________________________________
Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
_________________________, ss. ___________________, 1998
Then personally appeared the above-named Eric D. Schlager, Member of the
BHX, LLC, Trustee of 205 Broadway, and acknowledged the foregoing instrument to
be his first act and deed on behalf of said corporation, before me
[AFFIX SEAL] _________________________________
Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
_________________________, ss. ___________________, 1998
Then personally appeared the above-named Fred Ledley, President and CEO of
Variagenics, Inc., and acknowledged the foregoing instrument to be his first act
and deed on behalf of said corporation, before me
[AFFIX SEAL] _________________________________
Notary Public
My Commission Expires:
7
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EXHIBIT E
VARIAGENICS, INC.
SECRETARY'S CERTIFICATE
The undersigned, Fred D. Ledley, Secretary of Variagenics, Inc. (the
"Corporation"), does hereby certify as follows:
1. I am the duly elected, qualified and acting Secretary of the
Corporation and I am authorized to execute this certificate on behalf of the
Corporation.
2. Attached hereto as Exhibit A are true, correct and complete copies of
resolutions duly adopted by the consent of the Board of Directors of the
Corporation on May __, 1998, which resolutions have not been amended, modified
or rescinded since the date of adoption thereof.
3. The following persons are the duly qualified and acting officers of the
Corporation, duly elected to the respective offices set forth opposite such
name, and the signature appearing opposite the name of such officer is such
officer's genuine and authentic signature:
NAME OFFICE SIGNATURE
---- ------ ---------
Fred D. Ledley President & Secretary ________________________
IN WITNESS WHEREOF, I have hereunto set my hand on behalf of the
Corporation this ___ day of May 1998.
----------------------------------
Fred D. Ledley, Secretary
8
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VARIAGENICS INC.
EXHIBIT A
RESOLVED: That the Corporation enter into a lease agreement with BHX, LLC as
trustee of 205 Broadway Realty Trust for a period of ten (10) years
with a five (5) year option to extend, in the form approved by the
President in his sole discretion (the "Lease"); and that the
President of this Corporation be, and he hereby is, authorized,
empowered and directed in the name and on behalf of this Corporation
and under its seal, if so desired, to negotiate, execute and deliver
the Lease for such space and to negotiate, execute and deliver such
further instruments, documents, certificates and filings as may be
necessary or convenient in connection with the leasing of such
space, such lease and such additional documents and instruments to
have such terms and provisions as the officer executing the same
shall judge advisable, and to do and perform such acts and deeds as
such officer deems necessary or appropriate in order to effectuate
the purposes and intents of this resolution.
RESOLVED: That any officer of the Corporation be, and each of them hereby is,
authorized and directed to do or cause to be done any and all such
other acts and things and to execute and deliver any and all such
further documents, instrument and certificates, in the name and on
behalf of the Corporation, as they or any of them may deem necessary
or appropriate to carry into effect the full intent and purpose of
the foregoing resolution, the taking of any such actions or the
execution or delivery of any such documents, instruments or
certificates by such officer or officers to be conclusive evidence
that the same were authorized by this resolution.
9
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EXHIBIT F
NAME OF FINANCIAL INSTITUTION
IRREVOCABLE LETTER OF CREDIT FORM
Date: __________
19____ Amount: $2,000,000 USD
Credit No. ________________________________
Beneficiary; BHX, LLC, a Massachusetts limited liability company,
as Trustee of 205 Broadway Realty Trust
First Needham Place
250 First Avenue, Suite 200
Needham, MA 02194-2505
Gentlemen:
We hereby establish our unconditional, irrevocable Letter of Credit No.
________in your favor and for the account of Variagenics, Inc. whereby we
irrevocably authorize you to draw on us from time to time at sight prior to the
expiration hereof, and in the manner provided herein, up to $2,000,000 USD. Such
drawing(s) will be unconditionally available to you upon your presentation of
your draft(s) (which draft(s) shall have been signed by one purporting to be a
duly authorized representative of the Beneficiary) on which shall be indicated
"Drawn under [Name of Financial Institution] Letter of Credit No ._______,"
together with your certification to us that either (i) a default has occurred
under a certain Lease between BHX, LLC, as Trustee of 205 Broadway Realty Trust
and Variagenics, Inc. beyond any applicable notice and cure periods or (ii) you
are otherwise entitled to draw upon this Letter of Credit under the terms of
said Lease. Multiple partial drawings are permitted.
Each draft is to be accompanied by a copy of this Letter of Credit and
shall be honored when presented between 9:00 am. and 5:00 p.m. on any Business
Day (by which is meant any day other than Saturday, Sunday or any day [Name of
Financial Institution] is prohibited from conducting commercial banking
transactions] at [Name of Financial Institution] office at [Address of Financial
Institution].
This Letter of Credit may be transferred, in whole, but not in part,
without charge one or more times upon receipt of Beneficiary's written
instructions. This Letter of Credit shall remain in full force and effect until
5:00 p.m. Eastern Standard Time on _______________,_______. This Irrevocable
Letter of Credit shall be automatically renewed, extended and/or reissued after
____________________, for successive one (1) year periods unless the Bank
provides Beneficiary with not less than forty-five (45) days prior written
notice to the attention of Robert A. Schlager at the above listed address (or
any other address and/or to the attention of any other party of which new
address and/or such new party the Beneficiary notifies the Bank) that Bank
elects not to renew, extend and/or reissue this Irrevocable Letter of Credit.
10
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This Irrevocable Letter Of Credit is subject to the Uniform Customs and
Practices for Documentary Credits (1993 revision), I.C.C. Publication No. 500.
------------------------------------
By:
Duly Authorized
11
<PAGE>
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made and
entered into as of this ____ day of ________, 1998, by and among KEYBANK
NATIONAL ASSOCIATION (the "Lender"), BHX, LLC, TRUSTEE OF 205 BROADWAY REALTY
TRUST, a Massachusetts nominee trust created under a Declaration of Trust dated
March 24, 1998, recorded with Middlesex South District Registry of Deeds (the
"Registry") on March 24, 1998, as Instrument No. 1185 (the "Landlord"), and
Variagenics, Inc. (the "Tenant").
PRELIMINARY STATEMENTS
A. The Landlord and the Tenant intend to enter into a Lease (the "Lease")
of a portion of the real property with the improvements thereon known as and
numbered 205 Broadway, Middlesex County, Massachusetts as more fully described
in the Lease (the "Demised Premises"). The Landlord is the current owner of the
Demised Premises.
B. The Lender is the holder of a Mortgage Note dated March 24, 1998, in
the original principal amount of $7,500,000.00 made by the Landlord in favor of
the Lender (the "Note"), which Note is secured, inter alia, by a Mortgage,
Security Agreement and Assignment of Leases dated of even date with the Note (as
the same may be amended, renewed, modified, consolidated, replaced, extended,
increased or restated from time to time, the "Mortgage") and recorded with the
Registry on March 24, 1998, as Instrument No. 1189 covering the premises more
particularly described in the Mortgage, including the Demised Premises (the
"Property"). In addition, the Landlord has entered into and delivered that
certain Assignment of Rents and Leases in favor of the Lender, dated of even
date with the Note (as the same may be amended, renewed, modified, consolidated,
replaced, extended, increased or restated from time to time, the "Assignment")
covering the Property, which Assignment was recorded with the Registry on March
24, 1998, as Instrument No. 1190.
C. The parties hereto desire to enter into this Subordination,
Non-Disturbance and Attornment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Tenant, the Landlord and the Lender hereby
covenant and agree as follows:
1. Subordination. The Tenant hereby agrees with the Lender that all of its
right, title and interest as lessee under the Lease shall be subject and
subordinate to the right, title and interest of the Lender under the Mortgage
and Assignment (and any amendment, renewal, modification, consolidation,
replacement, extension, increase or restatement thereof).
2. Non-Disturbance. So long as no default on the part of Tenant exists
under the Lease and continues beyond the expiration of any applicable periods of
notice and grace, nor any other event has occurred, which has continued to exist
beyond the expiration of any applicable
12
<PAGE>
periods of notice and grace, as would entitle the Landlord to terminate the
Lease or would cause, without any further action on the part of Landlord, the
termination of the Lease or would entitle the Landlord to dispossess the Tenant
thereunder, the Lease shall not be terminated, nor shall such Tenant's use,
possession or enjoyment of the Demised Premises or rights under the Lease be
interfered with in any foreclosure or other action or proceeding in the nature
of foreclosure or by way of any deed in lieu of any such action or proceeding,
instituted under or in connection with the Mortgage, or, in case Lender takes
possession of the Property pursuant to any provisions of the Mortgage or the
Assignment of Leases, unless the Landlord under the Lease would have had such
right if the Mortgage or the Assignment of Leases had not been made. Neither the
person or entity acquiring the interest of the lessor under the Lease as a
result of any such action or proceeding or by way of any deed in lieu of any
such action or proceeding (hereinafter called the "Purchaser") nor Lender, if
Lender takes possession of the Property or otherwise succeeds to the lessor's
interest under the Lease, shall be: (a) liable for any act or omission of any
prior lessor under the Lease; or (b) liable for the return of any security
deposit which Tenant under the Lease has paid to any prior lessor under the
Lease, except to the extent that the amount thereof is turned over to the
Purchaser or the Lender, as the case may be; or (c) subject to any offsets or
defenses which the Tenant under the Lease might have against any prior lessor
under the Lease; or (d) bound by the payment of any base rent, percentage rent
or any other payments which the Tenant under the Lease might have paid for more
than the current month to any prior lessor under the Lease; or (e) bound by any
amendment or modification of the Lease made without Lender's prior written
consent and not otherwise permitted under the Mortgage and/or the Assignment; or
(f) except with respect to an assignment or sublease pursuant to Section 7.12
(b)(ii) of the Lease, bound by any consent by any lessor under the Lease to any
assignment of the lessee's interest in the Lease or sublease of all or any
portion of the Property made without Lender's prior written consent and not
otherwise permitted under the Mortgage and/or the Assignment; or (g) personally
liable for any default under the Lease or any covenant or obligation on its part
to be performed thereunder as lessor, it being acknowledged that Tenant's sole
remedy in the event of such default shall be to proceed against the Purchaser's
or Lender's interest in the Property. Notwithstanding anything contained herein
to be contrary, if Lender or any Purchaser succeeds to the lessor's interests
under the Lease, such party shall have absolutely no obligation to perform any
leasehold improvements or other construction obligations in the Property on the
part of Landlord to have been performed other than (i) any ongoing maintenance
and repair obligations which are required to be performed by the Landlord under
the terms of the Lease and (ii) Landlord's Contribution, as set forth in Section
2.5 of the Lease, for a period ending two years after the Commencement Date of
the Lease.
3. Attornment. Unless the Lease is terminated in accordance with Paragraph
2, if the interests of the lessor under the Lease shall be transferred by reason
of the exercise of the power of sale contained in the Mortgage (if applicable),
or by any foreclosure or other proceeding for enforcement of the Mortgage, or by
deed in lieu of foreclosure or such other proceeding, or if the Lender takes
possession of the Property pursuant to any provisions of the Mortgage or the
Assignment, the lessee thereunder shall be bound to the Purchaser or the Lender,
as the case may be, under all of the terms, covenants and conditions of the
Lease for the balance of the term thereof and any extensions or renewals thereof
which may be effected in accordance with any option therefor in the Lease, with
the same force and effect as if the Purchaser or Lender were the lessor under
the Lease, and Tenant does hereby attorn to the Purchaser or Lender, as the same
13
<PAGE>
may be (if it takes possession of the Property), as its lessor under the Lease.
Such attornment shall be effective and self-operative without the execution of
any further instruments upon the succession by Purchaser to the interest of the
lessor under the Lease or the taking of possession of the Property by Lender.
Nevertheless, Tenant shall, from time to time, execute and deliver such
instruments evidencing such attornment as Purchaser or Lender may require. The
respective rights and obligations of Purchaser, Lender and Tenant upon such
attornment. to the extent of the then remaining balance of the term of the Lease
and any extensions and renewals, shall be and are the same as now set forth in
the Lease except as otherwise expressly provided in Paragraph 2.
4. Assignment of Leases. Tenant hereby acknowledges that all of the
Landlord's right, title and interest as lessor under the Lease is being duly
assigned to Lender pursuant to the terms of the Assignment, and that pursuant to
the terms thereof all rental payments under the Lease shall continue to be paid
to Landlord in accordance with the terms of the Lease unless and until Tenant is
otherwise notified in writing by Lender. Upon receipt of any such written notice
from Lender, Tenant covenants and agrees to make payment of all rental payments
then due or to become due under the Lease directly to Lender or to Lender's
agent designated in such notice and to continue to do so until otherwise
notified in writing by Lender. Landlord hereby irrevocably directs and
authorizes Tenant to make rental payments directly to Lender following receipt
of such notice without any obligation to inquire as to whether any default
exists under the Mortgage or the Assignment or the indebtedness secured thereby,
and notwithstanding any notice or claim of Landlord to the contrary, and that
Landlord shall have no right or claim against Tenant for or by reason of any
rental payments made by Tenant to Lender following receipt of such notice.
Tenant further acknowledges and agrees: (a) that under the provisions of the
Assignment, the Lease cannot be terminated except as provided in the Lease (nor
can Landlord accept any surrender of the Lease) or modified in any of its terms,
or consent by Landlord given to the waiver or release of Tenant from the
performance or observance of any obligation under the Lease, without the prior
written consent of Lender except as otherwise provided in the Assignment, and
without such consent no rent may be collected or accepted by Landlord more than
one month in advance and (b) that the interest of Landlord as lessor under the
Lease has been assigned to Lender for the purposes specified in the Assignment,
and Lender assumes no duty, liability or obligation under the Lease by reason of
the Mortgage and/or the Assignment, except only under the circumstances, terms
and conditions specifically set forth in the Mortgage, the Assignment and
herein.
5. Notice of Default by Lessor. Tenant, as lessee under the Lease, hereby
covenants and agrees to give Lender written notice properly specifying wherein
the lessor under the Lease has failed to perform any of the covenants or
obligations of the lessor under the Lease, simultaneously with the giving of any
notice of such default to the lessor under the provisions of the Lease. Tenant
agrees that Lender shall have the right, but not the obligation, within the time
period specified in the Lease plus an additional twenty (20) business days (or,
if no time period is specified, a reasonable time, provided that the Lender is
diligently prosecuting the same) for cure by Landlord (or within such additional
time as is reasonably required to cure any such default, provided Lender shall
be diligently prosecuting the same) to correct or remedy, or cause to be
corrected or remedied, each such default before Tenant may take any action,
except for its rights of self-help under Section 6.3 of the Lease, -under the
Lease by reason of such default. Such notices to Lender shall be delivered to:
14
<PAGE>
KeyBank National Association
127 Public Square
Cleveland, Ohio 44114
Attention: Robert Bowes, Esquire
with a copy to: KeyBank National Association
70 Federal Street
Boston, MA 02110
Attention: Joseph Bator, Vice President
Commercial Real Estate Division
or to such other address as the Lender shall have designated to Tenant by giving
written notice to Tenant at the Property, Attention: Eleonora Brown, or to such
other address as may be designated by written notice from Tenant to Lender.
6. No Further Subordination. Except as expressly provided to the contrary
in Paragraph 2 hereof, Landlord and Tenant covenant and agree with Lender that
there shall be no further subordination of the interest of lessee under the
Lease to any lender or to any other party without first obtaining the prior
written consent of Lender. Any attempt to effect a further subordination of
lessee's interest under the Lease without first obtaining the prior written
consent of Lender shall be null and void.
7. As to Landlord and Tenant. As between Landlord and Tenant, Landlord and
Tenant covenant and agree that nothing herein contained nor anything done
pursuant to the provisions hereof shall be deemed or construed to modify the
Lease.
8. As to Landlord and Lender. As between Landlord and Lender, Landlord and
Lender covenant and agree that nothing herein contained nor anything done
pursuant to the provisions hereof shall be deemed or construed to modify the
Mortgage or the Assignment.
9. Title of Paragraphs. The titles of the paragraphs of this Agreement are
for convenience and reference only, and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
11. Binding Agreement. The terms "Lender," "Landlord" and "Tenant" shall
be construed to include the heirs, executors, administrators, successors and
assigns of the respective parties hereto, including, in the case of Lender, an
assignee(s) of the Lender and anyone who succeeds to title to the Property after
foreclosure or a deed in lieu thereof, and this Agreement shall inure to their
benefit and be binding on them.
15
<PAGE>
12. No Modification Unless in Writing, Etc. No modification, amendment,
waiver or release of any provision of this Agreement or of any right,
obligation, claim or cause of action arising hereunder shall be valid or
effective unless in writing and signed by the party against whom the same is
sought to be asserted.
13. Severability. In the event that any provision or provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable by the
final ruling of a court of competent jurisdiction, the remaining provisions of
this Agreement shall not be affected thereby, and in the place of such invalid,
illegal or unenforceable provision there shall be substituted a like, but valid,
legal and enforceable provision which most nearly accomplishes the original
intention of the parties, as evidenced by this Agreement.
14. Further Assurances. The Landlord and the Tenant from time to time
shall execute and deliver at the Lender's request all instruments that may be
reasonably necessary or appropriate to evidence their agreements hereunder.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all such
counterparts shall constitute one and the same instrument.
16
<PAGE>
Exhibit 10.3
AMENDMENT
TO
LOAN DOCUMENTS
This Amendment to Loan Documents is entered into as of June 24, 1999
(the "Amendment"), by and between IMPERIAL BANK ("Bank") and VARIAGENICS, INC.
("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan Agreement dated as of July
10, 1998, as amended (thc "Loan Agreement"), to that certain General Security
Agreement dated as of June 10, 1998, as amended (the "Security Agreement"), to
that certain Promissory Note (Equipment Loans) and that certain Promissory Note
(Bridge Loan), both executed in connection with the Loan Agreement and dared as
of July 10, 1.998 (collectively, the "Notes"). The parties desire to amend the
Loan Agreement, the Security Agreement, and the Notes in accordance with the
terms of this Amendment
NOW, THEREFORE, the parties agree as follows:
A. Sections 1a, 1b and 1c of the Loan Agreement are amended in their entirety to
read as follows:
1. Equipment Loans.
a OUTSTANDING EQUIPMENT LOANS. Subject to the terms and
conditions of this Agreement, Bank has made advances in an aggregate outstanding
principal amount equal to Three Hundred Thousand Dollars ($300,000) ("the
Equipment Loans"). Borrower may not request or receive any further Equipment
Loans. Equipment Loans, once repaid, may not be reborrowed.
b. [Intentionally omitted.]
c. PAYMENT OF EQUIPMENT LOANS. Borrower shall pay the
aggregate amount of the Equipment Loans in thirty-three (33) equal monthly
installments of principal, plus all accrued interest, beginning on March 31,
1999 and continuing on the last day of each month through the Equipment Loan
Maturity Date, at which time all amounts due under this Section 1 shall be
immediately due and payable. Borrower may prepay any Equipment Loans without
penalty or premium.
Without limiting Borrower's obligations under Section
12(b)(vi) of this Agreement, if any Qualified Equipment purchased with the
proceeds of any Equipment Loan is at any lime sold, assigned or otherwise
transferred, Borrower will prepay the outstanding principal of the Equipment
Loans, on the date of such sale, assignment or transfer, in an amount equal to
the fair market value of the proceeds received by Borrower on the dare of such
sale, assignment, or transfer. Any such optional
<PAGE>
or mandatory prepayments shall reduce each of the remaining installment payments
of principal on the Equipment Loans in such mariner among Equipment Loans as
Bank shall determine.
B. The first sentence of Section 1d is hereby amended in its entirety
to read as follows: "The obligations of Borrower in respect of the Equipment
Loans and any interest accrued thereon shall be evidenced by a Promissory Note
executed and delivered to Bank on the date hereof, in the face amount of
$1,200,000, as amended from rime to time including without limitation by that
certain Amendment to Loan Documents dated as of June 24, 1999."
C. Section 2a of the Loan Agreement is hereby amended in its entirety
to read as follows:
a. COMMITMENT TO MAKE BRIDGE LOANS. Bank hereby commits,
subject to all the terms and conditions of this Agreement, and prior to the
termination of Bank's commitment to make Bridge Loans hereunder as hereinafter
provided, to make loans to Borrower from time to time ("Bridge Loans") in such
amounts up to, but not exceeding in the aggregate unpaid balance at any time,
the Bridge Loan Commitment Amount at such time. Bank's commitment to make Bridge
Loans hereunder shall terminate on the Bridge Loan Maturity Date, Bank shall
have no obligation hereunder to make any Bridge Loans to Borrower after that
date, and all amounts due under this Section 2 shall be immediately due and
payable on such date. Notwithstanding the foregoing, Bank's commitment to make
Bridge Loans hereunder may terminate at any time in accordance with Sections 13
or 14 hereof, subject to the forbearance extended under this Amendment. Bank's
commitment to make Bridge Loans hereunder shall terminate on the date on which
any mandatory prepayment shall be required pursuant to Section 4 hereof.
D. The reference to "July 9,1999" in Section 2(c) of the Loan Agreement
is hereby amended to read "the Bridge Loan Maturity Date".
E. Section 3 of the Loan Agreement is hereby deleted in its entirety.
F. Part (b) of the first sentence of Section 5 of the Loan Agreement is
hereby amended in its entirety to reed as follows: "(b) on the aggregate
outstanding principal amount of Bridge Loans at the rate of one percent (1.0%)
per annum in excess of the Bank's Prime Rate, provided that that portion of the
Bridge Loan advanced by Bank from and after June 24, 1999 through the date of
the Equity Event shall bear interest, on the average outstanding daily balance
thereof, at a rate equal to two percent (2%) per annum in excess of the Bank's
Prime Rate".
G. The last sentence of Section 5 is hereby deleted from the Loan
Agreement.
H. Section 8 of the Loan Agreement is amended by adding the following
to the end of the first paragraph thereof:
<PAGE>
Such Letter of Credit shall have a expiration date of no later than
June 30, 2000. Borrower shall pledge cash in the form of a certificate
of deposit at the Bank, on terms reasonably acceptable to Bank, in an
amount equal to fifty percent (50%) of the face amount of the Letter of
Credit at any given time as long as Bank has any obligations
thereunder.
I. Certain defined terms in Section 9 of the Loan Agreement are hereby
added or amended to read as follows:
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable Collateral audit fees;
and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.
"Bridge Loan Commitment Amount" means a credit extension of up
to Nine Hundred Thousand Dollars ($900,000), provided that Borrower
will have a right to request no more than Four Hundred Thousand Dollars
($400,000) plus the Three Hundred Thousand Dollars ($300,000) already
outstanding on June 24, 1999, until the Equity Event occurs.
"Bridge Loan Maturity Date" means July 31, 1999.
Notwithstanding the foregoing, if the Equity Event occurs on or before
July 31, 1999, "Bridge Loan Maturity Date" shall thereafter mean June
30, 2000.
"Equipment Loan Maturity Date" means November 30, 2001.
"Equity Event" means both (i) the conversion of all
convertible debt owing by Borrower into equity and (ii) the receipt by
Borrower of cash proceeds from the sale or issuance of its equity
securities in an amount of not less than Five Million Dollars
($5,000,000) after June 24, 1999, both of which must occur on or before
July 31, 1999.
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity, at the time as of which
any determination is being made, is owned by Borrower, either directly
or through an Associated Person.
J. The definition of "Equipment and Bridge Loan Commitment Amount is
hereby deleted from the Loan Agreement.
<PAGE>
K. The words "prior to the closing of a Qualified Financing" are hereby
deleted from the definition of "Quick Ratio" in Section 9 of the Loan Agreement.
L. A new Section 11j is hereby added to the Loan Agreement to read as
follows:
i. YEAR 2000. Borrower and its Subsidiaries have reviewed the
areas within their operations and business which could be adversely
affected by, and have developed or are developing a program to address
on a timely basis, the Year 2000 Problem and have made related
appropriate inquiry of material suppliers and vendors, and based on
such review and program, the Year 2000 Problem will not have a
Materially Adverse Effect upon its financial condition, operations or
business as now conducted. "Year 2000 Problem" means the possibility
that any computer applications or equipment used by Borrower may be
unable to recognize and properly perform date sensitive functions
involving certain dates prior to and any dates on or after December 31,
1999.
M. Sections 12(a)(ii)(B) and (C) arc hereby deleted from the Loan
Agreement.
N. The following new affirmative covenants are added to Section 12a of
the Loan Agreement to read as follows:
x. YEAR 2000 COMPLIANCE. Borrower shall perform all acts
reasonably necessary to ensure that Borrower and any business in which
Borrower holds a substantial interest become Year 2000 Compliant in a
timely manner. Such acts shall include, without limitation, performing
a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. Borrower shall also take
reasonably necessary steps to ensure that it will not be materially
adversely affected as a result of any customer, supplier or vendor's
failure to become Year 2000 complaint. As used in this paragraph, "Year
2000 Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, equipment, goods or systems utilized by or material
to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the
year 2000. Borrower shall immediately upon request, provide to Bank
such certifications or other evidence of Borrower's compliance with the
terms of this paragraph as Bank may from time to time require.
xi. MINIMUM REVENUE. Borrower shall have revenue of not less
than Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) for
the fiscal year ending on December 31, 1999. Borrower shall have
<PAGE>
revenue of not less than One Million Five Hundred Thousand Dollars
($1,500,000) for each fiscal quarter thereafter.
xii EQUITY EVENT. The Equity Event shall occur on or before
July 31, 1999.
O. The reference in Section 12(c)(i)(A) of the Loan Agreement to "30
days" is hereby amended to read "25 days". The reference in Section 12(c)(i)(B)
of the Loan Agreement to "30 days" is hereby amended to read "25 days". The
reference in Section 12(c)(i)(C) of the Loan Agreement to "90 days" is hereby
amended to read "120 days".
P. The reference in the first paragraph of the Security Agreement to
"the Loan Agreement, dated as of the date hereof is hereby amended to read "the
Loan Agreement, dated as of July 10".
Q. The last sentence of the paragraph on the first page of the Security
Agreement entitled "COLLATERAL", which reads "Collateral shall not include any
patents, registered trademarks, service marks or copyrights" is hereby deleted
from the Loan Agreement, but the original language shall be reinstated
automatically without the need for further amendment upon the occurrence of the
Equity Event on or before July 31, 1999.
R. The following new Sections 15 and 16 are hereby added to the
Security Agreement to read as follows;
15. The Collateral shall include any and all certificates of
deposit pledged by Obligor to Bank to secure all of Obligor's
indebtedness and obligations under the Loan Agreement, including
certificate of deposit number 4275670001 held by Bank, together with
all proceeds and substitutions thereof any interest thereon, and all
cash and noncash proceeds of the foregoing, but subject to reduction
from time to time in accordance with Section 8 hereof.
16. Prior to the maturity of any certificates of deposit
pledged as Collateral held by Bank pursuant hereto (the "CD
Collateral"), Obligor and Bank shall agree upon a security or
instrument similar in form, quality and substance in the original CD
Collateral in which the proceeds of the CD Collateral can be reinvested
on maturity. Upon maturity of the CD Collateral in accordance with its
terms, or in the event the CD Collateral otherwise becomes payable
during the term of this Agreement, such maturing CD Collateral may be
presented for payment, exchange, or otherwise marketed by Bank on
behalf of Obligor and the proceeds therefrom used to purchase the
security or instrument agreed to by Obligor and Bank in accordance with
the immediately preceding sentence. If no agreement has been made, such
proceeds shall be placed into an interest bearing account offered by
Bank in which Bank has a first priority security
<PAGE>
interest until such time as an agreement as to the security replacing
the original CD Collateral can be reached. Bank may retain any such
successor collateral and the proceeds therefrom as CD Collateral in
accordance with the terms of this Agreement Notwithstanding termination
of this Agreement, Bank's Lien on the CD Collateral shall remain in
effect for so long as any obligations of Obligor to Bank, under the
Loan Agreement or otherwise, are outstanding. This Section 16 shall be
subject to the right of the Borrower to reduce the amount of the CD
Collateral in accordance with Section 8 hereof.
S. The Compliance Certificate to be delivered after the date of this
Amendment shall be in substantially the form of EXHIBIT B hereto.
T. The Notes are amended to conform to the changes in the Loan
Agreement and the Security Agreement effected by this Amendment.
U. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Loan Agreement Except as amended, the Loan Agreement,
the Security Agreement, and the Notes remain in full force and effect.
V. Borrower acknowledges that it is in default under Sections
12(a)(ii), 12(b)(i), and 12(c)(i) of the Loan Agreement. Bank does not waive
Borrower's obligation to comply with such provisions or any other failure by
Borrower to perform its obligations under the Loan Documents. Borrower
acknowledges that Bank has not exercised many of its rights which have arisen as
a result of Borrower's failure to perform its obligations under the Loan
Documents, including without limitation the right to charge a higher interest
rate under Section 6 of the Loan Agreement, and Bank reserves all of its rights
arising from any such failure. However, Bank agrees to forbear from exercising
such rights until July 31, 1999, at which time, if the Equity Event has occurred
and if no material Event of Default has occurred which is continuing on such
date, Bank hereby agrees to waive the defaults mentioned above. Borrower
represents and warrants that the representations and warranties contained in the
Loan Agreement are true and correct as of the date of this Amendment, and that
no Event of Default, except as mentioned above, has occurred and is continuing.
W. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
X. As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower,
(b) six affirmation of subordination agreements;
<PAGE>
(c) payment of an amendment fee equal to Three Thousand
Dollars ($3,000) plus all Bank Expenses incurred through the date of this
Amendment;
(d) Corporate Resolutions to Borrow;
(e) an intellectual property security agreement;
(f) Pledge and Security Agreement;
(g) a warrant to purchase stock;
(h) four amendments to UCC filings, which will have the
collateral description on the attached EXHIBIT A;
(i) Amendment to Stock Purchase Warrant;
(j) Assignment Separate from Certificate, with stock
certificates;
(k) an audit of the Collateral, the results of which shall be
satisfactory to Bank; and
(l) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
Y. Attached hereto is a schedule of all amounts that Borrower owes on
account of any Indebtedness for Borrowed Money.
Z. Borrower shall take such actions as Bank reasonably requests to
complete its due diligence (including obtaining fully executed copies of all
documents necessary to perfect Bank's security interest in Borrower's
intellectual property) concerning Borrower's intellectual property by July 21,
1999, and to perfect its security interest in Borrower's intellectual property
an or after August 1, 1999, should such perfection be permitted under the Loan
Documents as hereby amended, and any failure by Borrower to fully cooperate with
Bank on these matters shall constitute an Event of Default under Section 13 of
the Loan Agreement. No public filing will be made to perfect Bank's security
interest in Borrower's intellectual property until August 1, 1999 and then only
if the Equity Event has not yet occurred as of that date.
AA. Bank hereby agrees that it will release all its liens on Borrower's
intellectual property if the Equity Event occurs by July 31, 1999 and if no
Event of Default has occurred and is continuing under Sections 13 (i), (ix)
(with respect to an assignment for the benefit of creditors only), (x) and (xi)
of the Loan Agreement at such time.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
VARIAGENICS, INC.
By: /s/ RICHARD P. SHEA
---------------------------------
Title: VICE PRESIDENT, FINANCE
------------------------------
IMPERIAL BANK
By: /s/ KAREN DUNN
---------------------------------
Title: VICE PRESIDENT
------------------------------
<PAGE>
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts, chattel paper, contract fights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(ii) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(iii) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(iv) all guarantees and other security therefor;
(v) all trademarks, service marks, trade names and service names and
the goodwill associated therewith;
(vi) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (d) the right (but not the obligation) to sue for past, present and
future infringements thereof, (e) all rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been issued or applied
for, and (f) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph arc sometimes
herein individually and collectively referred to as the "Patents"); and
<PAGE>
(vii) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: VARIAGENICS, INC.
The undersigned authorized officer of Variagenics, Inc. hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _________ all required covenants except as
noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the date
hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Quarterly financial statements Quarterly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R and A/Pagings Monthly within 20 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a monthly basis:
Minimum Quick Ratio 1.40:1.00 _____:1.00 Yes No
Minimum Revenue (annual/quarterly) * $ Yes No
</TABLE>
* Borrower shall have revenue of not less than $2,250,000 for the fiscal year
ending on 12/31/99. Borrower shall have revenue of not less than $1,500,000 for
each fiscal quarter thereafter.
Comments Regarding Exceptions: See Attached.
Sincerely,
SIGNATURE
--------------------------------
TITLE
------------------------------------
DATE
-------------------------------------
<PAGE>
SCHEDULE OF ALL BORROWER'S INDEBTEDNESS FOR BORROWED MONEY
Imperial Bank
Indebtedness and Uncollateralized Portion of LC
FY 1999
<TABLE>
<CAPTION>
ACCOUNT PER T/B MAY
--------------- ---
<S> <C>
Capital Lease Short-Term 166,298
Capital Lease Long-Term 279,073
Long-Term Borrowing 572,728
Encumbered Cash 1,000,000
---------
Total Indebtedness 2,018,099
=========
</TABLE>
<PAGE>
Exhibit 10.4
IMPERIAL BANK
Member FDIC
LOAN AGREEMENT
Dated as of: July 10, 1998
This Loan Agreement (as amended or supplemented from time to time, "this
Agreement"), dated as of July 10, 1998, is entered into between VARIAGENICS,
INC., a Delaware corporation (herein called "Borrower"), and IMPERIAL BANK, a
California bank (herein called "Bank").
1. EQUIPMENT LOANS.
A. COMMITMENT TO MAKE EQUIPMENT LOANS. Bank hereby commits,
subject to all the terms and conditions of this Agreement (including, without
limitation, the conditions set forth in Section 4 hereof), and prior to the
termination of Bank's commitment to make Equipment Loans hereunder as
hereinafter provided, to make loans to Borrower from time to time ("Equipment
Loans") in such amounts up to, but not exceeding, in the aggregate for all such
Equipment Loans made on or after the date hereof (and without giving effect to
any repayment or prepayment of any Equipment Loans), the Equipment and Bridge
Loan Commitment Amount. The proceeds of each Equipment Loan shall be used by
Borrower on the date of such Equipment Loan to purchase Qualified Equipment. The
amount of any Equipment Loan for any Qualified Equipment shall not exceed the
full invoice purchase price of such Qualified Equipment, less (to the extent
included in such invoice purchase price) the amount of any sales taxes and
freight charges payable in respect of the purchase of such Qualified Equipment
or the delivery thereof to the location specified by Borrower.
B. REQUESTS FOR EQUIPMENT LOANS. Requests for Equipment Loans
hereunder shall be in writing duly executed by Borrower in a form satisfactory
to Bank and shall contain a certification (i) setting forth, in reasonable
detail, (a) the amount of the requested Equipment Loan, (b) a reasonably
detailed description of the equipment to be purchased with the proceeds of such
Equipment Loan (including the serial number, model and make of such equipment,
if applicable), and the location at which the equipment will be located, and (c)
a copy of the invoice for such equipment, (ii) that, upon the purchase thereof
by Borrower, such equipment will constitute Qualified Equipment, and (iii) that
no Default or Event of Default shall be continuing on the date of such requested
Equipment Loan or after giving effect thereto and to the use of proceeds
thereof. Anything herein to the contrary notwithstanding, Bank shall not be
obligated to make any Equipment Loan to Borrower while any Default or Event of
Default shall be continuing, or if any Default or Event of Default would arise
from the making of such Equipment Loan or the use of the proceeds thereof. Bank
shall not be required to make any Equipment Loan requested by Borrower hereunder
unless the amount of such Equipment Loan is equal to at least $50,000, or, if
less, the entire unused amount of Bank's commitment to make Equipment Loans
hereunder.
<PAGE>
C. TERMINATION OF EQUIPMENT LOAN COMMITMENT; REPAYMENTS AND
PREPAYMENTS OF EQUIPMENT LOANS. Bank's commitment to make Equipment Loans
hereunder shall terminate on March 9, 1999, and Bank shall have no obligation
hereunder to make any Equipment Loans to Borrower after that date. Bank's
commitment to make Equipment Loans hereunder may terminate prior to March 9,
1999 in accordance with Section 13 or 14 hereof. Bank's commitment to make
Equipment Loans hereunder shall also terminate on the date on which any
mandatory prepayment shall be required pursuant to Section 4 hereof.
Borrower promises to pay to Bank the aggregate principal of all
Equipment Loans outstanding on March 9,1999 in thirty-three (33) equal monthly
installments on the last day of each calendar month commencing with the first
such installment payment on March 31, 1999, and with the final installment due
on the Equipment Loan Maturity Date. The outstanding principal amount of
Equipment Loans may be prepaid by Borrower at any time. Without limiting
Borrower's obligations under Section 12(b)(vi) of this Agreement, if any
Qualified Equipment purchased with the proceeds of any Equipment Loan is at any
time sold, assigned or otherwise transferred, Borrower will prepay the
outstanding principal of the Equipment Loans, on the date of such sale,
assignment or transfer, in an amount equal to the fair market value of the
proceeds received by Borrower on the date of such sale, assignment or transfer.
Any such optional or mandatory prepayments shall reduce each of the remaining
installment payments of principal on the Equipment Loans in the inverse order of
the maturities hereof, and in such manner among Equipment Loans as Bank shall
determine.
Notwithstanding anything to the contrary set forth herein, Borrower
promises to pay to Bank the aggregate unpaid principal amount of all Equipment
Loans on January 31, 2002, or such earlier date on which the outstanding
principal of the Equipment Loans shall be declared to be or shall otherwise
become due and payable pursuant to Section 4, 13 or 14 hereof (January 31, 2002
or such earlier date being called the Equipment Loan Maturity Date.)
D. EQUIPMENT NOTE. The obligations of Borrower in respect of
the Equipment Loans and any interest accrued thereon shall be evidenced by a
Promissory Note executed and delivered to Bank on the date hereof, in the face
amount of $1,200,000 ("Equipment Note"). Borrower hereby irrevocably authorizes
Bank to make appropriate notations on any Schedule attached to the Equipment
Note, which notations, if made, shall evidence the date of, the outstanding
principal of, and payments on the Equipment Loans evidenced thereby. Bank's
notations on any Schedule attached to the Equipment Note shall constitute
rebuttable presumptive evidence of the principal amount of Equipment Loans
outstanding, but any failure to record any information on any such Schedule
shall not limit or affect the obligations of Borrower hereunder or under the
Equipment Note to make payments of principal or interest on the Equipment Loans
when due.
2. BRIDGE LOAN.
A. COMMITMENT TO MAKE BRIDGE LOANS. Bank hereby commits,
subject to all the terms and conditions of this Agreement (including, without
limitation, the conditions set forth in Section 3 hereof), and prior to the
termination of Bank's commitment to make Bridge Loans hereunder as hereinafter
provided, to make loans to Borrower from time to time ("Bridge
2
<PAGE>
Loans") in such amounts up to, but not exceeding in the aggregate unpaid
principal balance at any time, the Equipment and Bridge Loan Commitment Amount
at such time. Bank's commitment to make Bridge Loans hereunder shall terminate
on July 9, 1999, and Bank shall have no obligation hereunder to make any Bridge
Loans to Borrower after that date. Bank's commitment to make Bridge Loans
hereunder may terminate prior to July 9, 1999 in accordance with Section 13 or
14 hereof. Bank's commitment to make Bridge Loans hereunder shall terminate on
the date on which any mandatory prepayment shall be required pursuant to Section
4 hereof.
B. REQUESTS FOR BRIDGE LOANS. Each request for a Bridge Loan
hereunder shall be in writing duly executed by Borrower in a form satisfactory
to Bank and shall contain a certification (i) setting forth, in reasonable
detail, calculations establishing to the reasonable satisfaction of Bank that
Borrower is entitled hereunder to the amount of the Bridge Loan being requested,
(ii) that on the date of such Bridge Loan, and before and after giving effect to
such Bridge Loan, all representations and warranties of Borrower set forth
herein and in the other Loan Documents will be true and correct, and (iii) that
no Default or Event of Default shall be continuing on the date of such Bridge
Loan, either before or after giving effect to such Bridge Loan or the
application by Borrower of the proceeds thereof. Anything herein to the contrary
notwithstanding, Bank shall not be obligated to make any Bridge Loan to Borrower
while any Default or Event of Default shall be continuing, or if any Default or
Event of Default would arise from the making of such Bridge Loan or the
application of the proceeds thereof.
C. REPAYMENT OF BRIDGE LOANS. Borrower promises to pay to Bank
the aggregate outstanding principal of the Bridge Loans on July 9, 1999 or such
earlier date on which the outstanding principal of the Bridge Loans shall be
declared to be or shall otherwise become due and payable pursuant to Section 4,
13 or 14 hereof. The outstanding principal amount of the Bridge Loans may be
prepaid by Borrower at any time.
D. BRIDGE NOTE. The obligations of Borrower in respect of the
Bridge Loans and any interest accrued thereon shall be evidenced by a Promissory
Note executed and delivered to Bank on the date hereof, in the face amount of
$1,200,000 ("Bridge Note"). Borrower hereby irrevocably authorizes Bank to make
appropriate notations on any Schedule attached to the Bridge Note, which
notations, if made, shall evidence the date of, the outstanding principal of,
and payments on the Bridge Loans evidenced thereby. Bank's notations on any
Schedule attached to the Bridge Note shall constitute rebuttable presumptive
evidence of the aggregate principal amount of the Bridge Loans outstanding, but
any failure to record any information on any such Schedule shall not limit or
affect the obligations of Borrower hereunder or under the Bridge Note to make
payments of principal or interest on the Bridge Loans when due.
3. LIMITATION ON OUTSTANDING OBLIGATIONS. Notwithstanding anything to
the contrary set forth herein, Bank shall not be required to make any Equipment
Loan or Bridge Loan if, after giving effect thereto, the sum of (a) the
aggregate outstanding principal amount of Equipment Loans, PLUS (b) the
aggregate outstanding principal amount of Bridge Loans would exceed the
Equipment and Bridge Loan Commitment Amount.
3
<PAGE>
4. SPECIAL PAYMENT OBLIGATION. Borrower will prepay all of its
outstanding obligations under this Agreement and the other Loan Documents on the
date that is three business days prior to the date on which Borrower shall pay
or be required to pay any dividend on, or make or be required to make any
distribution on or in respect of, any of its capital stock, or shall make or be
required to make any payment or distribution in respect of the purchase,
repurchase, redemption or other acquisition of any of its capital stock.
5. INTEREST. Borrower promises to pay to Bank interest (a) on the
aggregate outstanding principal amount of each Equipment Loan (i) at the rate of
one half of one percent (0.5%) per annum in excess of Bank's Prime Rate, or, at
Borrower's option, elected prior to the drawdown of such Equipment Loan (ii) at
a fixed interest rate of 83/4%, and (b) on the aggregate outstanding principal
amount of Bridge Loans at the rate of one quarter of one percent (0.25%) per
annum in excess of Bank's Prime Rate. Interest shall be computed at the above
rates on the basis of the actual number of days elapsed divided by 360, which
shall for interest computation purposes be considered one year. Interest accrued
on the outstanding principal of the Equipment Loans and on the outstanding
principal of the Bridge Loans, shall be payable in arrears on the first day of
each calendar month. Notwithstanding anything herein to the contrary, interest
on the aggregate outstanding principal amounts of the Equipment and Bridge Loans
will be reduced by one-quarter of one percent (0.25%) on the closing date of any
(A) Financing or (B) licensing, joint venture or other agreement, the Cash
Proceeds of which received by the Borrower on the closing date of such
transaction are not less than $8,000,000.
6. DEFAULT INTEREST. Upon the occurrence and during the continuance of
any Event of Default, the entire principal balance of the Equipment Note and the
entire unpaid principal of the Bridge Note, and, to the extent permitted by
applicable law, all interest, fees, charges and other sums that may be due and
payable under this Agreement or any other Loan Document, shall bear interest at
the rate of [five percent (5%)] per year in excess of the rate otherwise
applicable to such principal, as it may vary from time to time, and shall be
payable upon demand by Bank.
7. PAYMENTS. All payments required to be made by Borrower to Bank
hereunder or under any of the Loan Documents shall be made at the Santa Clara
Regional Office of Bank at 226 Airport Parkway, San Jose, California, on or
prior to 11:00 a.m., San Jose time, on the due date of such payment, without any
set-off or counterclaim, and in immediately available funds. Any partial
payments of the obligations of Borrower hereunder or under any of the other Loan
Documents, except where this Agreement or any other Loan Document otherwise
specifies, shall be applied FIRST, to any charges, sums or other amounts (other
than principal or interest) due and payable under the Loan Documents, SECOND, to
accrued and unpaid interest, and THIRD, to the principal of the Equipment Note
or Bridge Note in such manner as Bank shall determine.
8. LETTER OF CREDIT; SECURITY. On June 4, 1998, Bank issued a letter of
credit in favor of Borrower in the face amount of $2,000,000 ("Letter of
Credit"). The Letter of Credit and all agreements executed by Borrower therewith
constitute Loan Documents for purposes of this Agreement. Borrower's obligations
under such documents are entitled to all of the benefits of the Collateral and
Borrower's covenants set forth in this Agreement and the other Loan
4
<PAGE>
Documents shall continue until all obligations of Borrower to the Bank under the
Letter of Credit and all agreements related thereto have been satisfied.
All of the obligations of Borrower to Bank under this
Agreement, the Equipment Note, the Bridge Note, and the other Loan Documents
shall be secured by and entitled to the benefit of certain Collateral. Reference
is made to the Loan Documents for a complete description of the Collateral and
of the rights of Bank with respect thereto.
9. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Ancillary Documents" means, collectively, (i) Borrower's
Certificate of Incorporation, as amended and in effect from time to time, and
(ii) each other agreement designated by Borrower and Bank from time to time as
an "Ancillary Document" for purposes of this Agreement and the other Loan
Documents.
"Associated Person" means (i) any person that is an affiliate
of Borrower (including, without limitation, any officer or director of
Borrower), (ii) any Family Member of any individual Associated Person described
in clause (i), (iii) any corporation, partnership, limited liability company or
other entity (other than Borrower) that controls or is controlled by any
Associated Person described in clause (i) or (ii), (iv) any Investor, and (v)
any corporation, partnership, limited liability company or other entity (other
than Borrower) that controls or is controlled by any Investor.
"Cash Proceeds" means, with respect to any Financing, the
aggregate amount of cash proceeds actually received by Borrower from and upon
the completion of the issuance and sale by Borrower of securities in such
Financing.
"Change of Control" means any event or series of events
(including, without limitation, any consolidation, merger, issue or sale of
capital stock or other securities, reorganization, voting agreement or
otherwise) by which the holders of Borrower's outstanding capital stock as of
the date of this Agreement shall cease to own and control, both legally and
beneficially, with full power to vote, shares of capital stock of Borrower
having voting power equal to at least sixty percent (60%) of the voting power of
all outstanding shares of capital stock of Borrower having voting power under
ordinary circumstances to elect the Board of Directors of Borrower.
"Collateral" means any and all property of Borrower which is
or shall be assigned to Bank as security or in which Bank now has or hereafter
acquires a security interest to secure the payment and performance of any of the
obligations of Borrower to Bank under this Agreement or any of the other Loan
Documents.
"Default" means any of the events specified in Section 13(i)
through 13(xii) hereof, whether or not any requirement for the giving of notice,
the lapse of time, or both, or any other condition has been satisfied.
5
<PAGE>
"Eligible Accounts" means all of Borrower's Accounts,
excluding, however, (i) Account balances over ninety (90) days from invoice
date, (ii) all Accounts against which the account debtor or any other person
obligated to make payment thereon shall have asserted any defense, offset,
counterclaim or other right to avoid or reduce the liability represented by the
Account (but only to the extent of such claim, defense or offset), (iii) fifty
percent (50%) of otherwise Eligible Accounts with respect to which 25% or more
of the account debtor's total accounts or obligations outstanding to Borrower
are more than 90 days from invoice date, (iv) for Accounts representing more
than 25% of Borrower's total Accounts, the balance in excess of the 25%, (v)
Accounts with respect to international transactions unless insured by an
insurance company acceptable to Bank or covered by letters of credit issued or
confirmed by a bank acceptable to Bank, (vi) Accounts with respect to which the
account debtor is an officer, director, shareholder, employee, subsidiary or
affiliate of Borrower, (vii) Accounts where the account debtor is a seller to
Borrower, whereby a potential offset (contra) exists, (viii) Accounts for
consignment or guaranteed sales, (ix) bill and hold Accounts, (x) collection
Accounts, (xi) distributor sample Accounts, whereby accounts are offset by
commissions payable, (xii) government receivables, unless formally assigned to
Bank in accordance with the Federal Assignment of Claims Act or applicable state
law, (xiii) Accounts for pre-billings, (xiv) any Accounts if the account debtor
or any other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership proceedings or has made an assignment for the benefit
of creditors or whose credit standing is unacceptable to Bank and Bank has so
notified Borrower, and (xv) any other Accounts as Bank in its sole discretion
shall determine are ineligible from time to time, and Bank has so notified
Borrower.
"Equipment and Bridge Loan Commitment Amount" means
$1,200,000; PROVIDED, however, that the Equipment and Bridge Loan Commitment
Amount shall not exceed $600,000 prior to the closing date of a Qualified
Financing.
"Event of Default" is defined in Section 14 hereof.
"Family Member" means, in relation to any individual, any
spouse, parent, grandparent, aunt, uncle, child, grandchild, brother or sister
of such individual, the spouse of any of the foregoing, or any trust established
exclusively for the benefit of any of such persons.
"Financing" means any transaction or series of related
transactions involving the issuance and sale by Borrower at any time after the
date hereof of equity securities of Borrower or securities convertible into,
exercisable for or carrying any rights to purchase or acquire any equity
securities of Borrower, EXCLUDING, HOWEVER, (i) the issuance and sale of capital
stock to officers, directors or employees of, or consultants to, Borrower in
their respective capacities as such, and (ii) the issuance and sale of
securities in the form of debt instruments (such as promissory notes, debentures
or other similar debt instruments).
"Indebtedness for Borrowed Money" means, in relation to any
person at any time, (i) all indebtedness of such person for borrowed money
(including all notes payable and drafts accepted representing extensions of
credit and all obligations evidenced by bonds, debentures, notes or other
similar instruments on which interest charges are customarily paid), all
indebtedness of such person relative to the face amount of all letters of
credit, whether or not
6
<PAGE>
drawn, all indebtedness of such person constituting capitalized lease
obligations, and all other obligations of such person for the deferred purchase
price of property or services (other than in the ordinary course of business),
and (ii) all contingent obligations of such person in respect of any
indebtedness of any other persons of the kind described in clause (i) of this
definition.
"Investor" means, collectively, the holders from time to time
of Borrower's outstanding Preferred Stock.
"Loan Documents" means, collectively, (i) this Agreement, (ii)
each of the following documents or instruments executed by Borrower and
delivered to Bank in connection with the financing arrangements contemplated
hereby: the Equipment Note, the Bridge Note, the Letter of Credit and the
Security Agreement and (3) each other instrument or agreement evidencing,
guarantying or securing any of the obligations of Borrower to Bank under this
Agreement or any other Loan Document, in each case, as amended and in effect
from time to time.
"Materially Adverse Effect" means, in relation to any event,
occurrence or development, (i) a material adverse effect on the business,
property, operations or financial condition of Borrower, (ii) a material adverse
effect on the ability of Borrower to perform any of its or his obligations,
covenants or agreements under this Agreement or any other Loan Document, or
(iii) a material impairment of the validity or enforceability of any Loan
Document or Warrant, or a material impairment of the rights, remedies or
benefits available to Bank under any Loan Document or Warrant.
"Qualified Equipment" means equipment used or useful in the
ordinary course of business of Borrower that will be owned by Borrower free and
clear of any liens, security interests or other encumbrances, other than
security interests in favor of Bank, provided, however, that to the extent that
any of the Qualified Equipment consists of fixtures, such Qualified Equipment
may be subject to the interest of the owner of the property where such Qualified
Equipment is located.
"Qualified Financing" means a Financing involving exclusively
the issuance and sale by the Borrower of shares of Borrower's convertible
preferred stock for or in consideration of Cash Proceeds actually received by
Borrower at the initial closing thereof of $10,000,000 or more.
"Quick Ratio" means, at any time, the ratio equal to (i) the
sum of (A) all cash and cash equivalents of Borrower and its subsidiaries, plus
(B) the amount of all Eligible Accounts, divided by Indebtedness for Borrowed
Money; provided, however, that prior to the closing of a Qualified Financing,
"Indebtedness for Borrowed Money" for purposes hereof shall include only the
non-collateralized amount of the standby letter of credit commitment under the
Letter of Credit.
"Warrants" means, collectively, the Warrant issued by Borrower
to Bank on the date of this Agreement, and any Warrants issued upon
substitution, exchange or transfer of such initial Warrant in accordance with
the terms of the Warrants.
7
<PAGE>
10. FINANCIAL INFORMATION. All financial covenants and financial
information referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
previous years.
11. WARRANTIES. In order to induce Bank to make loans to Borrower under
this Agreement, Borrower represents and warrants to Bank that (each of which
representations will be deemed repeated as of the date of any Equipment Loan or
Bridge Loan hereunder as if made on such date):
A. ORGANIZATION; POWER AND AUTHORITY. Borrower is duly
organized and existing in the State of its incorporation; this Agreement and
each of the other Loan Documents has been duly and validly executed and
delivered by Borrower; and the execution, delivery and performance by Borrower
of this Agreement and each other Loan Document are within Borrower's corporate
powers, have been duly authorized by Borrower, and are not in conflict with any
applicable law or with the terms of Borrower's Certificate of Incorporation or
by-laws, as amended, or any indenture, material agreement or undertaking to
which Borrower is a party or by which Borrower is bound or affected. The
obligations of Borrower set forth in the Loan Documents constitute legal, valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, subject, however, to any applicable bankruptcy or
insolvency laws affecting generally the enforcement of creditors' rights against
Borrower, and to the discretion of any court with respect to the enforcement of
any equitable remedies.
The Warrant has been duly and validly executed and delivered by
Borrower; the execution, delivery and performance of the Warrant are within
Borrower's corporate powers, have been duly authorized and are not in conflict
with any applicable law or with the terms of Borrower's Certificate of
Incorporation or Bylaws, as amended, or any indenture, agreement or undertaking
to which Borrower is a party or by which Borrower is bound or affected. The
obligations of Borrower set forth in the Warrant constitute legal, valid and
binding obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, subject, however, to any applicable bankruptcy or
insolvency laws affecting generally the enforcement of creditors rights against
Borrower, and to the discretion of any court with respect to the enforcement of
any equitable remedies.
B. LITIGATION. There is no litigation or other proceeding
pending or threatened against or affecting Borrower that could reasonably be
expected to have a Materially Adverse Effect, and Borrower is not in default
with respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
C. FINANCIAL CONDITION.
i. The audited balance sheet of Borrower as of December 31, 1997,
and the related audited income statement and cash flows of Borrower, and the
unaudited balance sheet of Borrower as of April 30, 1998, and the related
unaudited income statement and cash flows of Borrower (collectively,
"Financials"), copies of which have heretofore been delivered to Bank by
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Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit, and not subsequently
supplemented, modified or amended in writing to Bank, are true and correct, and
the Financials fairly present the financial condition of Borrower as of the
dates thereof and the results of the operations of Borrower for the periods
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since December 31,
1997, there have been no events or occurrences which, individually or in the
aggregate, have had or are reasonably likely to have a Materially Adverse
Effect. Borrower has no knowledge of any liabilities, contingent or otherwise,
at such date not reflected in said balance sheet which are required under such
generally accepted accounting principles to be so reflected, and Borrower has
not entered into any special commitments or substantial contracts since the date
of such balance sheet, other than in the ordinary and normal course of its
business which could not reasonably be expected to have a Materially Adverse
Effect. Except for Borrower's obligations under the Loan Documents, and the
Indebtedness for Borrowed Money reflected in SCHEDULE 13(b)(iv) attached hereto,
Borrower has no Indebtedness for Borrowed Money or guaranties or contingent
obligations in respect of Indebtedness for Borrowed Money.
ii. The projected consolidated financial statements of Borrower and its
subsidiaries for the fiscal years ending December 31, 1998, December 31, 1999,
and December 31, 2000 ("Projections"), copies of which have heretofore been
delivered by Bank to Borrower, have been prepared on the basis of the
assumptions accompanying them and reflect the best good faith estimates by
Borrower of the performance of Borrower for the periods covered thereby, and the
financial condition of Borrower as of the dates thereof, based on such
assumptions.
D. TRADEMARKS, PATENTS, COPYRIGHTS. Borrower, as of the date
hereof, possesses all trademarks, service marks, trade names, copyrights,
patents, patent rights, and licenses that are necessary to conduct its business
as now operated, without any known conflict with any trademarks, trade names,
copyrights, patents or license rights of others. SCHEDULE 12(d) sets forth a
true and complete list and description of each (i) patent or patent application
held or filed by Borrower, (ii) registered trademark or service mark, or
trademark or service mark registration application, held or filed by Borrower,
and (iii) material copyright of Borrower, and, with respect to each such
copyright, whether such copyright has been registered by Borrower or whether
Borrower has applied for any such registration.
E. TAX STATUS. Borrower has no liability for any delinquent
state, local or federal taxes.
F. SUBSIDIARIES; CAPITALIZATION: Borrower has no subsidiaries.
SCHEDULE 12(f) sets forth a true and complete list of authorized capital stock
of Borrower of each series or class, the number of shares of capital stock of
each series or class of Borrower outstanding as of the date hereof, and the
holder of such capital stock. Except as set forth on SCHEDULE 12(f), there are
no outstanding options, warrants, subscription rights or other rights to
purchase or acquire any capital stock of Borrower, and there are no outstanding
securities convertible into or exchangeable for any capital stock of Borrower.
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G. PROPERTIES. SCHEDULE 12(g) sets forth a true and complete
list of each property owned or leased by Borrower, the address of such property
and the business conducted by Borrower at such property.
H. AFFILIATE TRANSACTIONS. Except as described in SCHEDULE
12(h) attached hereto, Borrower is not a party to or otherwise bound by any
written or oral contracts with any Associated Person. Except as described on
SCHEDULE 12(h), there is no Indebtedness for Borrowed Money owing by Borrower to
any Associated Person, and there is no Indebtedness for Borrowed Money owing by
any Associated Person to Borrower. Borrower has delivered to Bank a true and
complete copy of each contract (or, where such contract is oral, a true and
complete description thereof) described in SCHEDULE 12(h).
I. OTHER REPRESENTATIONS. Each of the representations and
warranties of Borrower in any of the other Loan Documents is true and correct.
12. COVENANTS.
A. CERTAIN AFFIRMATIVE COVENANTS. Borrower affirmatively
covenants that so long as any obligations of Borrower to Bank under this
Agreement or any other Loan Document remain outstanding or any commitment of
Bank to make loans to Borrower hereunder remains outstanding, Borrower will:
i. BANKING RELATIONSHIPS. Maintain with Bank all
of its primary banking and transaction accounts, including accounts to hold
cash or cash equivalent balances from the proceeds of the issuance of
Borrower's securities, upon terms which are reasonably similar to terms
provided to other customers of Bank similarly situated.
ii. REPORTING.
(A) Within 20 days after each month-end, deliver to Bank an
Accounts receivable aging reconciled to the general ledger of Borrower, a
detailed accounts payable aging reconciled to Borrower's general ledger, and an
inventory certification outlining both inventory composition and activity for
the month. All the foregoing will be in form satisfactory to Bank.
(B) Within 20 days after each month-end, deliver to Bank a
balance sheet of Borrower as at the end of such month, together with related
statements of operations and cash flows for such month, inform satisfactory to
Bank, all certified as to fairness of presentation by the chief financial
officer of the Borrower.
(C) Deliver to Bank, promptly upon Bank's request, all other
information relating to the affairs or business of Borrower as Bank may
reasonably request.
iii. OTHER NOTICES. Promptly upon obtaining
knowledge thereof, deliver to Bank written notice of the occurrence of any
Default or Event of Default, or of any event which has had, or is reasonably
likely to have, a Materially Adverse Effect.
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iv. COMPLIANCE CERTIFICATE. Together with the
financial statements described in paragraph (ii)(A) for any month, deliver to
Bank a certificate, prepared and signed by the chief financial officer of
Borrower, certifying as to (A) compliance by Borrower with the covenants set
forth in paragraphs 13(b)(i) and (ii) hereof for the relevant period most
recently ended, and showing, in reasonable detail, the calculations necessary
to demonstrate such compliance and (B) the absence of any Default or Event of
Default.
v. RIGHTS AND FACILITIES. Maintain and preserve
all rights, franchises, licenses and other authorities adequate for the
conduct of its business; maintain its properties, equipment and facilities in
good order and repair; conduct its business in an orderly manner without
voluntary interruption and maintain and preserve its corporate existence and
good standing.
vi. INSURANCE. Maintain public liability, property
damage and workers' compensation insurance and insurance on all its insurable
property including, but not limited to, the Collateral against fire and other
hazards with responsible insurance carriers to the extent usually maintained
by similar businesses. At the request of Bank, Borrower will provide evidence
of property and casualty and general liability insurance in amounts and types
reasonably acceptable to Bank. Bank will be named as Loss Payee and
Additional Insured on such policies.
vii. TAXES AND OTHER LIABILITIES. Pay and
discharge, before the same become delinquent and before penalties accrue
thereon, all taxes, assessments and governmental charges upon or against it
or any of its properties, and all of its indebtedness and other liabilities,
except to the extent and so long as:
(A) the same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any material adverse
effect upon its financial condition or the loss of any right of redemption from
any sale thereunder; and
(B) it shall have set aside on its books reserves segregated
(to the extent required by generally accepted accounting practice) and adequate
with respect thereto.
viii. RECORDS AND REPORTS. Maintain a system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; and permit Bank's representatives to have
access to, and to examine, its properties, books and records at all
reasonable times.
ix. FURTHER ASSURANCES. Borrower hereby agrees
that it will, upon the request of Bank from time to time at its own expense,
promptly execute and deliver all such further instruments including,
documents or agreements that Bank shall require, and take all such further
action that may be necessary or appropriate, or that Bank may reasonably
request, in order to perfect, preserve or protect any liens granted or
purported to be granted under the Loan Documents, to enable Bank to exercise
and enforce any of its rights or remedies under this Agreement or any of the
other Loan Documents or otherwise to carry out the intent of this Agreement
or any of the other Loan Documents.
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b. CERTAIN NEGATIVE COVENANTS. Borrower agrees that so long as
any obligations of Borrower to Bank under this Agreement or any of the Loan
Documents remain outstanding, or any commitment of Bank to make any loans to
Borrower remains outstanding, Borrower will not without Bank's written consent:
i. QUICK RATIO. Permit the Quick Ratio, as at the
last day of any month, to be less than 1.4:1.
ii. TYPE OF BUSINESS. Make any material change in
the character of its business.
iii. OUTSIDE INDEBTEDNESS. Create, incur, assume or
permit to exist any Indebtedness for Borrowed Money other than (A) loans from
Bank, (B) obligations existing on the date hereof set forth on SCHEDULE
12(b)(iii), or (C) Indebtedness for Borrowed Money of Borrower incurred after
the date of this Agreement in the form of capitalized lease obligations.
iv. LIENS AND ENCUMBRANCES. Create, incur, assume
or permit to exist any mortgage, pledge, encumbrance, lien (except for liens
for taxes not yet due and payable or other similar liens incurred in the
ordinary course of Borrower's business) or charge of any kind upon any asset
now owned or hereafter acquired by it, other than (A) liens in Bank's favor,
(B) existing liens set forth on SCHEDULE 12(b)(iv), (C) liens of mechanics,
warehousemen and other similar liens which are either (1) in existence less
than 120 days from the date of creation in respect of obligations not yet
due, or (2) being contested in good faith by Borrower and bonded pending the
resolution of such dispute, and (E) liens over leased equipment securing
capitalized lease obligations of Borrower permitted by Section 12(b)(iii).
v. LOANS, INVESTMENTS, SECONDARY LIABILITIES.
Except as otherwise set forth below, make any loans or advances to any person
or other entity, other than to employees for relocation, travel or other
business expenses in the normal and ordinary course of its business; or make
any investment in the securities of any person or other entity, other than
the United States Government; or guarantee or otherwise become liable upon
the obligations of any other person or entity, except by endorsement of
negotiable instruments for deposit or collection in the ordinary and normal
course of its business; or make any other investments.
vi. ACQUISITION OR SALE OF BUSINESS; MERGER OR
CONSOLIDATION. Purchase or otherwise acquire the assets or business of any
person or other entity; or liquidate, dissolve, merge or consolidate, or
commence any proceedings therefore; or, except in the ordinary and normal
course of its business, sell (including without limitation the selling of any
property or other asset accompanied by leasing back of same) any property or
assets. Upon any sale of any property or assets not permitted hereunder,
Borrower shall pay to Bank, immediately upon receipt by Borrower, all of the
net proceeds of such sale, for application by Bank to the outstanding
obligations of Borrower under the Loan Documents in such manner as Bank shall
deem appropriate.
vii. DIVIDENDS, DISTRIBUTIONS, RESTRICTED PAYMENTS.
Declare or pay any dividend or make any other distribution on or in respect
of any capital stock of Borrower or any other securities convertible or
exchangeable for any capital stock of Borrower; make any payment in
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respect of the purchase, repurchase, redemption or retirement of any of such
capital stock or other securities; or make any payment, prepayment or other
distribution on, or payment or distribution in respect of the purchase,
repurchase, retirement or other acquisition of, any Indebtedness for Borrowed
Money or other liability, of Borrower to any Associated Person. This paragraph
(viii) shall not prohibit the payment by Borrower of any salaries or bonuses to
employees, or the making by Borrower of any loans or advances to employees, in
each case in the normal and ordinary course of business of Borrower consistent
with past practices.
viii. TRANSACTIONS WITH ASSOCIATED PERSONS. Engage
in any transactions with any Associated Person, EXCEPT transactions in the
ordinary and normal course of business which (A) include only terms and
conditions that are fair and equitable to Borrower, (B) do not violate or
otherwise conflict with any of the terms and provisions of this Agreement or
any of the Loan Documents, (C) require the payment of no fees, charges or
commissions by Borrower to any Associated Person, and (D) involve terms no
less favorable to Borrower than would be the terms of a similar transaction
with any person other than an Associated Person.
ix. CHANGE OF CONTROL TRIGGERING EVENTS. Enter
into or undertake any transaction, arrangement or agreement (whether a
consolidation, merger, issue or sale of capital stock or other securities,
reorganization, voting agreement or otherwise) that will or could reasonably
be expected to result in a Change of Control.
x. FORMATION OF NEW SUBSIDIARIES. Form any new
subsidiaries.
xi. AMENDMENT OF CERTAIN DOCUMENTS. Amend, restate
or otherwise modify, or waive any of its rights under, (A) any agreements,
instruments or contracts (whether written or oral) between Borrower and any
Associated Person, or (B) any Ancillary Documents.
c. CERTAIN CONTINUING COVENANTS. Borrower agrees that, so long
as any obligations of Borrower to Bank under this Agreement or any other Loan
Document remain outstanding, or any commitment of Bank to make loans to Borrower
remains outstanding, and until such later date on which the Warrants shall have
been terminated or shall have been exercised in full, Borrower will:
i. FINANCIAL AND OTHER REPORTS.
(A) Within 30 days after each month-end, deliver to Bank a
balance sheet of Borrower as at the end of such month, together with related
statements of operations and cash flows for such month, in form satisfactory to
Bank, all certified as to fairness of presentation by the chief financial
officer of Borrower.
(B) Within 30 days after the end of each fiscal quarter of
Borrower, deliver to Bank a balance sheet of Borrower as at the end of such
fiscal quarter, together with related statements of operations and cash flows
for such fiscal quarter and for the portion of the fiscal year ended at the end
of such fiscal quarter, all certified at to fairness of presentation by the
chief financial officer of Borrower.
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(C) Within 90 days after the end of each fiscal year of
Borrower, deliver to Bank a balance sheet of Borrower as at the end of such
fiscal year, together with the related statements of operations and cash flows
for such fiscal year, and together with a Changes in Financial Position
Statement, prepared on an audited basis with an unqualified opinion by an
independent certified public accountant selected by Borrower but reasonably
acceptable to Bank.
(D) Promptly upon completion thereof, and in any event not
later than March 1 of each fiscal year, deliver to Bank a copy of the annual
business plan and budget for such fiscal year, including budgeted results for
each fiscal quarter and for the fiscal year as a whole, and upon the delivery of
any financial statements relating to any period included in such budget, a
summary comparing the actual financial performance of Borrower during such
period to that shown in the budget.
(E) Promptly upon obtaining knowledge thereof, deliver to Bank
written notice of the occurrence of any event which has had, or is reasonably
likely to have, a Materially Adverse Affect.
(F) Deliver to Bank, promptly upon Bank's request, all other
information relating to the affairs or business of Borrower as Bank may
reasonably request.
ii. REIMBURSEMENT OBLIGATIONS. Reimburse Bank upon
demand for any and all legal costs, including reasonable attorneys' fees, and
other expenses incurred in connection with the enforcement of any term or
provision of this Agreement, any of the other Loan Documents or the Warrants,
the consideration of any legal questions relevant to the transactions
contemplated by this Agreement, the other Loan Documents and the Warrants and
the consideration and/or conduct of any proposed or actual "workout" of any
of the obligations of Borrower under this Agreement or any of the other Loan
Documents, and the structuring, preparation, negotiation, review, execution,
or delivery of this Agreement, any of the other Loan Documents or Warrants or
amendments or waivers hereunder or thereunder, or any related documents
(whether or not any of the same become effective). All such costs and
expenses accrued under this Agreement, the other Loan Documents and the
Warrants through the date of this Agreement shall be paid by Borrower upon
and in connection with Bank's execution and delivery of this Agreement.
iii. INDEMNIFICATION. Indemnify and hold free and
harmless Bank and each of its shareholders, officers, directors, employees,
agents, subsidiaries and affiliates ("Indemnified Parties"), upon demand,
from and against any and all actions, causes of action, suits, losses, costs,
liabilities, damages and expenses actually incurred in connection with any of
the financing transactions contemplated by any of the Loan Documents
(irrespective of whether such Indemnified Party is a party to the action for
which indemnification is sought), including all reasonable fees and
disbursements of counsel, all amounts paid in settlement and all court costs
incurred from time to time by the Indemnified Parties or any of them, and all
liabilities and expenses that may arise under any environmental laws.
13. EVENTS OF DEFAULT; REMEDIES. Should any of the following events
occur (any such event being referred to as an "Event of Default"): (i) Default
by Borrower in the payment of any obligation of Borrower under this Agreement or
any of the other Loan Documents; (ii)
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default by Borrower of any agreement, promise or covenant of Borrower under
Section 12.a(iii) or (vi) or 12.b; (iii) default by Borrower in the due
performance or observance of any of the agreements, promises or covenants of
Borrower under any of the Loan Documents or Warrants, other than any such
agreements, promises or covenants described in clause (i) or (ii) above, which
default shall continue unremedied for ten or more days; (iv) any default or
event of default by Borrower under any Ancillary Document; (v) any material
representation or warranty of Borrower set forth in any of the Loan Documents or
Warrants, or in any certificate, instrument or statement delivered to Bank
pursuant to any Loan Documents or Warrants, shall be untrue or incorrect in any
material respect when made; (vi) Borrower shall default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of $50,000 or more of
any Indebtedness for Borrowed Money; (vii) Borrower shall default in the
observance or performance of any term, covenant or agreement contained in any
instrument governing or evidencing any Indebtedness for Borrowed Money, and such
default shall permit the holders of such Indebtedness for Borrower Money to
declare immediately due and payable or otherwise accelerate Indebtedness for
Borrowed Money in an aggregate amount exceeding $50,000; (viii) any Change of
Control shall occur; (ix) Borrower shall become insolvent or make an assignment
for the benefit of creditors; (x) Borrower shall apply for or consent to or
shall permit or suffer to exist the voluntary or involuntary appointment of a
trustee, receiver, custodian, or liquidator of all or any material part of its
or his property; (xi) Borrower shall have commenced against it, or shall
voluntarily commence, any bankruptcy, reorganization or other similar proceeding
under bankruptcy or insolvency laws or any dissolution, winding up or
liquidation proceeding, which, in the case of any such involuntary proceeding,
shall have been consented to by Borrower, as applicable, shall have resulted in
entry of an order for relief against Borrower, as applicable, or shall have
remained undismissed, undischarged or unbonded for a period of more than 60
days; or (xii) any other event or circumstance shall occur or arise which, in
the reasonable judgment of Bank, has had or is reasonably likely to have a
Materially Adverse Effect; then, in any such event, Bank may, at its option and
without demand first made and without notice to Borrower, do any one or more of
the following: (a) terminate its obligation to make loans (including, without
limitation, any Equipment Loans or Bridge Loans) to Borrower; (b) declare all
obligations of Borrower to Bank under this Agreement and the other Loan
Documents immediately due and payable; and (c) proceed to enforce all or any of
its rights under any of the Loan Documents or available at law or in equity. In
the event Bank sells or disposes of any Collateral, and a sufficient sum is not
realized from any such sale or disposition to pay all obligations of Borrower to
Bank tinder this Agreement, any of the other Loan Documents or otherwise,
Borrower shall be liable to Bank for any deficiency.
14. ATTACHMENT, ETC. If any writ of attachment, garnishment, execution
or other legal process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property, is made by any
Federal or State government or any department thereof relating to an amount
unpaid or in dispute in excess of $50,000, the commitment of Bank to make loans
(including, without limitation, any Revolving Loans, Equipment Loans or Bridge
Loans) to Borrower hereunder shall immediately terminate and all obligations
hereunder or. under any of the Loan Documents shall immediately become due and
payable without demand, presentment or notice of any kind.
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15. SETOFF. Regardless of the adequacy of any Collateral, during the
continuance of any Event of Default, any deposits or other sums credited by or
due from Bank to Borrower, and any securities or other investments or property
of Borrower in the possession of Bank, may be applied to or set off against any
obligations of Borrower to Bank under this Agreement or any other Loan Document.
16. FEES. Borrower shall pay to Bank on the date of execution and
delivery of this Agreement by Bank, a non-refundable arrangement fee in an
amount equal to $3,500.
17. SURVIVAL OF CERTAIN COVENANTS; TERMINATIONS OF COVENANTS. The
covenants and agreements of Borrower set forth in Section 12(c) are for the
benefit of Bank and the registered holders from time to time of the Warrants,
and the term "Bank," as used in Section 12(c), means the Bank and the holders
from time to time of the Warrants. Notwithstanding anything to the contrary set
forth herein, each of such covenants and agreements shall survive the
termination of all of Bank's commitments to make loans hereunder and the
repayment of all the obligations of Borrower under this Agreement and the other
Loan Documents until (a) all of such commitments have terminated and such
obligations shall have been paid in full, and (b) one of the following events
shall have occurred: (i) the Warrants shall be terminated in accordance with
Section 7 of the Warrants; or (ii) all the Warrants shall have been exercised in
full.
18. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of Bank, in the exercise of any power, right or privilege hereunder or under any
Loan Document, shall operate as a waiver thereof, nor shall any single or
partial exercise thereof or of any other right, power or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, not exclusive of, any
other rights or remedies provided in any of the Loan Documents or at law or in
equity.
19. CHOICE OF LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT AND EACH OF THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA. BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT
IN THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING THEREIN,
AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS AND TO SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER IN ANY MANNER PERMITTED BY
CALIFORNIA LAW. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.
20. AMENDMENT AND WAIVER. This Agreement is subject to modification
only by a writing signed by Bank and Borrower. Bank shall not be deemed to have
waived any right hereunder unless such waiver shall be in writing and signed by
Bank. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion.
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21. DATE OF AGREEMENT. This Agreement is executed by and on behalf of
the parties as of July 10, 1998.
VARIAGENICS, INC. IMPERIAL BANK
"Borrower" "Bank"
By: /s/ FRED D. LEDLEY, M.D. By: /s/ KAREN DUNN
------------------------ ---------------------------
Title: PRESIDENT Title: VICE PRESIDENT
--------------------- -----------------------
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Exhibit 10.5
IMPERIAL BANK
Member FDIC
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This Agreement is executed on July 10, 1998, by VARIAGENICS, INC.
(hereinafter called "Obligor") and IMPERIAL BANK (hereinafter called "Bank"),
pursuant to the Loan Agreement, dated as of the date hereof ("Loan Agreement"),
between Obligor and Bank. Capitalized terms used but not defined herein that are
defined in the Loan Agreement shall have the meanings given to such terms in the
Loan Agreement. Terms defined in the Massachusetts Uniform Commercial Code, and
not otherwise defined herein or in the Loan Agreement, shall have the meanings
given to such terms in the Massachusetts Uniform Commercial Code.
GRANT OF SECURITY INTEREST. In consideration of financial accommodations
provided by Bank to Obligor under the Loan Agreement and the other Loan
Documents, Obligor grants to Bank, as security for the payment by Obligor of all
of its obligations under the Loan Agreement and the other Loan Documents,
whether now existing or hereafter arising, and whether absolute or contingent
(collectively, "Debt"), a security interest in (a) all property (i) delivered to
Bank by Obligor, (ii) which shall be in Bank's possession or control in any
manner or for any purpose, or (iii) described under the heading "Collateral"
below, whether now owned or hereafter acquired by Obligor; and (b) all proceeds,
income and products of such property, and all accessions thereto (all such
property described in clauses (a) and (b) above being collectively referred to
herein as the "Collateral").
COLLATERAL:
All personal property, whether presently existing or hereafter created or
acquired, and all proceeds and products thereof, including but not limited to:
all furniture, fixtures, equipment, inventory, or other goods, accounts,
contract rights, rights to the payment of money, insurance refund claims and all
other insurance claims and proceeds, tort claims, chattel paper, documents,
instruments, securities and other investment property, deposit accounts and all
general intangibles including, without limitation, returns, repossessions, books
and records relating thereto, equipment containing said books and records, all
tax refund claims, license fees, trade names, computer programs, computer
software, engineering drawings, customer lists, goodwill, and all licenses,
permits, agreements of any kind or nature pursuant to which Obligor possesses,
uses or has authority to possess or use property (whether tangible or
intangible) of others or others possess, use or have authority to possess or use
property (whether tangible or intangible) of Obligor, and all recorded data of
any kind or nature, regardless of the medium of recording including, without
limitation, all software, writings, plans, specifications and schematics.
Collateral shall not include any patents, registered trademarks, service marks
or copyrights.
Obligor represents, warrants and agrees:
<PAGE>
1. Obligor will immediately pay on demand (a) Bank's costs incurred in
connection with the enforcement of any of its rights under this Agreement or
with respect to the Collateral, or in protecting, insuring or realizing on
Collateral, including reasonable attorneys' fees and expenses, and (b) any
deficiency after realization of any Collateral. Any amounts that may be payable
by Obligor to Bank pursuant to clause (a) above that shall not be paid when due
shall, to the extent permitted by applicable law, and in addition to any other
costs or charges that may be payable pursuant to the Loan Documents, accrue
interest, at the annual rate equal to the rate applicable to the Debt in
accordance with the Loan Agreement during the continuance of an Event of
Default, until such amounts are paid in full.
2. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have possession of the Collateral at the location
disclosed to Bank and will not remove the Collateral
from such location, except in the ordinary course of
business.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable
condition, repair it if necessary, clean, feed,
shelter, water, medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the
Collateral in all such ways as are considered good
practice by owners of like property, use it lawfully
and only as permitted by insurance policies, and
permit Bank to inspect the Collateral at any
reasonable time.
(d) Not sell, contract to sell, lease, encumber or
transfer the Collateral (other than inventory
Collateral), even though Bank has a security interest
in proceeds of such Collateral.
3. As to Collateral which is inventory or Accounts, Obligor:
(a) May, until notice from Bank while any Default or
Event of Default is continuing, sell, lease or
otherwise dispose of inventory in the ordinary course
of business, and collect the cash proceeds thereof.
(b) Will, upon and during the continuance of any Default
or Event of Default and upon receipt of notice from
Bank, deposit all cash proceeds as received in a
demand deposit account with Bank, and deliver
statements identifying units of inventory disposed
of, Accounts which gave rise to proceeds, and all
acquisitions and returns of inventory, as required by
Bank.
(c) Will, upon and during the continuance of any Default
or Event of Default and upon receipt of notice from
Bank, receive in trust, schedule on forms
2
<PAGE>
satisfactory to Bank and deliver to Bank all non-cash
proceeds other than inventory received in trade.
4. As to Collateral which are Accounts, chattel paper, general
intangibles and proceeds described in 3(c) above, Obligor warrants, represents
and agrees:
(a) All such Collateral is genuine, enforceable in
accordance with its terms, free from default,
prepayment, defense and conditions precedent (except
as disclosed to and accepted by Bank in writing).
Obligor will supply Bank with duplicate invoices or
other evidence of Obligor's rights on Bank's request.
(b) All persons appearing to be obligated on such
Collateral have authority and capacity to contract.
(c) All chattel paper is in compliance with law as to
form, content and manner of preparation and execution
and has been properly registered, recorded, and/or
filed to protect Obligor's interest thereunder.
(d) If an account debtor shall also be indebted to
Obligor on another obligation, any payment made by
him not specifically designated to be applied on any
particular obligation shall be considered to be a
payment on the Account in which Bank has a security
interest.
(e) While any Default or Event of Default shall be
continuing, Obligor agrees not to compromise, settle
or adjust any Account or renew or extend the time of
payment thereof without Bank's prior written consent.
5. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
6. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, any
realty owned by Obligor on which the Collateral is located, except to the extent
and so long as (a) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any material adverse effect upon its
financial condition or the loss of any right of redemption from any sale
thereunder; and (b) Obligor shall have set aside on its books reserves
segregated (to the extent required by generally accepted accounting practice)
and adequate with respect thereto.
7. Obligor will insure the Collateral with Bank as loss payee or
additional insured, as appropriate, in form and amounts with companies, and
against risks and liability satisfactory to Bank, to cancel the insurance on
Obligor's default, and to receive payment of and endorse any instrument in
payment of any loss or return premium. If Obligor should fail to deliver the
3
<PAGE>
required policy or policies to Bank, Bank may, at Obligor's cost and expense,
without any duty to do so, get and pay for insurance naming as the insured, at
Bank's option, either both Obligor and Bank, or only Bank, and the cost thereof
shall constitute reimbursable expenses under Paragraph 1 above.
8. Obligor will promptly notify Bank of any change of Obligor's chief
executive office, mailing address or location of Collateral.
9. Bank is irrevocably appointed Obligor's attorney-in-fact, while any
Default or Event of Default in continuing, to do any act which Obligor is
obligated hereby to do, to exercise such rights as Obligor may exercise, to use
such equipment as Obligor might use, to enter Obligor's premises to give notice
of Bank's security interest, and to collect Collateral and proceeds and to
execute and file in Obligor's name any financing statements and amendments
thereto required to perfect Bank's security interest hereunder, all to protect
and preserve the Collateral and Bank's rights hereunder. In such capacity, while
any Default or Event of Default is continuing, Bank may:
(a) endorse, collect and receive delivery or payment of
instruments and documents constituting Collateral;
(b) make extension agreements with respect to or
affecting Collateral, exchange it for other
Collateral, release persons liable thereon or take
security for the payment thereof, and compromise
disputes in connection therewith; and
(c) use or operate Collateral for the purpose of
preserving Collateral or its value and for preserving
or liquidating Collateral.
10. Upon and during the continuance of any Event of Default, Bank may
exercise all rights and remedies available to Bank under this Agreement, under
any of the other Loan Documents or available to secured parties under the
Massachusetts Uniform Commercial Code, all without presentment, protest, notice
of protest, demand and notice of nonpayment, notice of sale and advertisement of
sale, except to the extent required by applicable law. While any Event of
Default is continuing, without limiting in any way any of Bank's other rights
under the Loan Documents or applicable law, Bank may sell, in one or more sales,
Collateral in any county where Bank has an office; Bank may purchase at any such
sale, effect sales for cash or on credit to a wholesaler, retailer or user of
the Collateral, or at public or private auction, all of which shall be
considered commercially reasonable; and Bank may require Obligor to assemble the
Collateral and make it available to Bank at the entrance to the location of the
Collateral, or at such other location designated by Bank.
11. Bank's acceptance of partial or delinquent payments or the failure
of Bank to exercise any right or remedy shall not waive any obligation of
Obligor or right of Bank to modify this Agreement, or waive any other similar
default.
4
<PAGE>
12. On transfer of all or any part of the Debt, Bank may transfer all
or any part of the Collateral. Bank may deliver all or any part of the
Collateral to any Obligor at any time. Any such transfer or delivery shall
discharge Bank from all liability and responsibility with respect to such
Collateral transferred or delivered. This Agreement benefits Bank's successors
and assigns and binds Obligor's successors and assigns. Obligor agrees not to
assert against any assignee of Bank any claim or defense that may exist against
Bank. Time is of the essence. The Loan Agreement, this Agreement, the other
security agreements supplemental hereto, and the other Loan Documents contain
the entire security agreement between Bank and Obligor. Obligor will execute any
additional agreements, assignments or documents reasonably required by Bank to
carry this Agreement into effect.
13. THIS AGREEMENT, AND EACH OF THE OTHER LOAN DOCUMENTS, ARE INTENDED
TO TAKE EFFECT AS SEALED INSTRUMENTS AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. OBLIGOR WAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS AGREEMENT, OR ANY OF THE OTHER LOAN DOCUMENTS, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF ANY SUCH
RIGHTS OR OBLIGATIONS.
14. This Agreement is subject to modification only by a writing signed
by Bank and Obligor. No party shall be deemed to have waived any right hereunder
unless such waiver shall be in writing and signed by such party. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right on any
future occasion.
VARIAGENICS, INC. IMPERIAL BANK
"OBLIGOR" BANK"
By:/s/ FRED D. LEDLEY, M.D. By:/s/ KAREN DUNN
--------------------------- ---------------------------
Title: PRESIDENT Title: VICE PRESIDENT
----------------------- ------------------------
5
<PAGE>
Exhibit 10.6
March 18, 1999
Mr. Taylor Jackson Crouch
83 Belcher Drive
Sudbury,MA 01776
tel/fax: (978) 440-9585
Dear Taylor:
This letter agreement (the "Agreement") affirms the terms and conditions of your
employment by VARIAGENICS, INC.. ("VARIAGENICS" or the "Company"). This
Agreement will be effective on your first day of employment with the Company
("Effective Date") and, together with an Invention and Non-Disclosure Agreement
and a Stock Option Agreement (or, at your discretion, a Stock Restriction)
Agreement, will constitute the entire agreement as to your employment by
VARIAGENICS, and supersedes any prior agreements or understandings, either
written or oral.
1. Position
(a) Your initial position within the Company will be President and Chief
Business Officer. The Board of Directors will determine the duties of this
position. Initially your role and responsibilities will include:
(i) Together with the President and Chief Technical Officer, you will be
responsible for managing all of the operations of the Company.
(ii) You will be primarily responsible as the line manager for the
Business Development, Corporate Development, Finance, and
Administrative functions of the Company.
(iii) You will be a member of the Board of Directors.
(b) Your responsibilities, position, and location are subject to change at the
discretion of the Company, but will continue to be consistent with the
position of President.
(c) Notwithstanding the foregoing, your responsibilities during your first
year with the Company will not include engaging in any activities relating
to products or services that are similar to those that were provided or
marketed by your previous employer, Parexel International Corporation, and
you agree not to engage in any such activities.
(d) During your employment with the Company, you will devote your full
business time and energies to the business and affairs of the Company, and
not undertake any other employment or accept financial remuneration from
any person or entity in the biotechnology industry, without express
written consent of the Board of Directors.
2. Compensation/Benefits
<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 2
(a) Your salary will initially be $250,000 which will be reviewed at least
annually by the Compensation Committee of the Board of Directors.
(b) You will be eligible for performance-based bonuses at the sole discretion
of the Compensation Committee and the Board of Directors. The target
levels for variable compensation and options in the first year will be 30%
of salary and 50,000 options, respectively.
(c) You will receive options to purchase the Company's Common Stock at
$0.64/share subject to a Stock Option Agreement (or a Stock Restriction
Agreement which will include a buyback provision) in an amount equal to 3%
of the then fully diluted shares of the Company upon completion of the
first financing round of at least $10MM after the date of this letter, or,
if no financing is completed prior to September 1, 1999, 3% of the fully
diluted shares of the Company as of that date, whichever comes first. Of
this amount, 35% will be vested as of six (6) months after the Effective
Date, and 1/42 of the remainder will vest monthly for 42 months after that
date or until your employment with the Company is terminated. Such shares
will become fully vested in the event of acquisition of the Company or
merger of the Company into a larger entity.
(d) As of the Effective Date of this Agreement, you initially will be eligible
to participate in all of the benefits offered to employees of the Company
as outlined in the attached materials. Currently, the Company provides
benefits including: (i) comprehensive health insurance, (ii) dental
insurance, (iii) life insurance, (iv) short term disability insurance, (v)
long term disability insurance, (vi) free parking near the Company or a T
pass. The Company will provide you with four (4) weeks of paid vacation
leave each year commencing with your Start Date. In addition, you will be
entitled to six (6) paid Company holidays per year and four (4) paid
floating holidays per year The Company retains the right to change, add or
cease any particular benefit at any time with or without advance notice,
but you will be afforded the same benefits while employed as other senior
executives at the Company.
(e) The Company shall reimburse you for all reasonable and necessary expenses
incurred or paid by you in connection with, or related to, the performance
of services to the Company under this Agreement, in accordance with
Company policies in effect from time to time.
3. Term
(a) Your employment shall have an Initial Term ("Initial Term") of four years,
beginning on the Effective Date, and ending, unless terminated earlier as
specified below in Section 4.
(b) This Agreement shall be automatically extended for an additional one (1)
year term at the expiration of the Initial Term unless either party
provides no less than thirty (30) days advance written notice of its
intent not to extend.
4. Early Termination and Compensation Upon Early Termination
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<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 3
(a) If for any reason, other than for Cause as defined herein, or your
inability, because of a physical or mental condition , to perform the
essential functions of your position, within six (6) months of the
Effective Date of the Agreement, you are unable to continue working for
the Company, the Company will continue to pay you an amount equal to your
full salary (with applicable withholdings and deductions) and will provide
you with equivalent benefits (excluding vacation and
transportation/parking), for a period of six (6) months from your last day
of employment, provided that you comply with the non-competition and
non-solicitation covenants set forth in paragraph 5, the anti-piracy
covenants set forth in paragraph 6, and with your obligations under your
Invention and Non-Disclosure Agreement.
(b) You shall have the right to terminate the employment relationship at any
time during the Initial Term of this Agreement, and during any subsequent
extensions thereof, by providing the Company with thirty (30) days advance
written notice of your intention to terminate, with or without "Good
Reason" (which shall mean the breach of any material term of this
Agreement by the Company, which breach is not cured within twenty (20)
business days after written notice by you to the Company), and with or
without advance notice.
(i) If you voluntarily leave the Company without Good Reason at any
time, you will have no right to future compensation and no
compensation shall be due to you for any period beyond the effective
date of termination.
(ii) If, after six (6) months following the Effective Date, you
voluntarily leave the Company with Good Reason at any time, the
Company will continue to pay you an amount equal to your full salary
(with applicable withholdings and deductions) and will provide you
with equivalent benefits (excluding vacation and
transportation/parking), for a period of nine (9) months from your
last day of employment, provided that you comply with the
non-competition and non-solicitation covenants set forth in
paragraph 5, the anti-piracy covenants set forth in paragraph 6, and
with your obligations under your Invention and NonDisclosure
Agreement.
(c) The Company shall have the right to terminate the employment relationship
at any time during the Initial Term of this Agreement, and during any
subsequent extensions thereof, with or without cause and with or without
advance notice.
(i) If your employment is terminated by the Company without Cause any
time after six (6) months following the Effective Date, the Company
will continue to pay you an amount equal to your full salary (with
applicable withholdings and deductions) and will provide you with
equivalent benefits, excluding parking or transportation, for a
period of nine (9) months from the date it informs you of its
intention to terminate your employment, provided that you comply
with the non-competition and non-solicitation covenants set forth in
paragraph 5, the anti-
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<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 4
piracy covenants set forth in paragraph 6, and your obligations
under your Invention and Non-Disclosure Agreement.
(ii) If your employment is terminated by the Company without Cause during
the first six (6) months, 35% of the stock options described in
section 2(c) will become immediately vested.
(iii) If your employment is terminated by the Company for Cause at any
time, no compensation shall be due to you for any period beyond the
effective date of termination. "Cause" shall mean any of the
following: (A) the breach of any term of this Agreement; (B) the
commission of any crime or embezzlement or other acts of dishonesty
against the financial or business interest of the Company; (C) the
commission of any act of dishonesty in your relations with the
Company or in your representation of the Company to third parties,
including regulatory authorities; (D) the use or possession of
illegal drugs; (E) the willful refusal to perform your duties (which
is not cured within ten (10) days subsequent to written notice by
the Company); (F) and any other conduct or circumstance that
constitutes cause as that term has been defined by Massachusetts
common law. If your employment is terminated by the Company for
Cause pursuant to this paragraph, you will remain subject to the
non-competition and non-solicitation covenants set forth in
paragraph 5 and the anti-piracy covenants set forth in paragraph 6.
(d) This agreement shall terminate upon the Employee's death.
5. Non-competition/Non-solicitation
The provisions contained in this paragraph will apply during the entire term of
your employment, and in the event that your employment is terminated early
pursuant to paragraph 4, these provisions will apply for a period of nine (9)
months following this early termination.
(a) During your employment and for a period of nine (9) months thereafter, you
shall not: (i) be associated as an employee, agent, advisor, servant,
owner, partner, consultant, independent contractor or representative, or
in any other capacity whatsoever with any person, partnership,
corporation, business organization or other entity (without the prior
written consent of the Company) which directly competes with the Company's
business (a "Competing Business") which is defined as any business that
provides pharmacogenomics and/or pharmacogenetics services as a core
service area of that business; (ii) own any interest in a Competing
Business, provided, however, the foregoing shall not prohibit you from
owning not more than one per cent (1%) of the outstanding shares of a
public company traded on a national stock exchange; or (iii) assist others
to open or operate a Competing Business.
(b) The foregoing restrictions are necessary for the protection of the
business and goodwill of the Company and are considered by the Employee to
be reasonable for such purpose. The Employee agrees that any breach of
this Agreement is likely to cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, the
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<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 5
Employee agrees that the Company, in addition to such other remedies which
may be available, shall be entitled to specific performance and other
injunctive relief.
(c) Should you violate any provision of paragraph 5(a), the Company, in
addition to all other legal remedies, will have no obligation to continue
any payments, salary or benefits pursuant to paragraph 4 or otherwise.
6. Anti-Piracy of Employees
(a) During your employment and for a period of twelve (12) months commencing
on your last day of employment pursuant to this Agreement, you shall not,
directly or indirectly, entice, solicit or encourage any Company employee
to leave the employ of the Company, and shall not directly or indirectly
be involved in the recruitment of any Company employee to become
associated with any other entity.
(b) Should you violate any provision of paragraph 6(a), the Company, in
addition to all other legal remedies, will have no obligation to continue
any payments, salary or benefits pursuant to paragraph 4 or otherwise.
(c) The foregoing restrictions are necessary for the protection of the
business and goodwill of the Company and are considered by the Employee to
be reasonable for such purpose. The Employee agrees that any breach of
this Agreement is likely to cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, the Employee agrees
that the Company, in addition to such other remedies which may be
available, shall be entitled to specific performance and other injunctive
relief.
7. Workplace
The Company considers the safety and quality of the workplace to be very
important. You are expected to be familiar with and abide by the Company's
safety policies. You are expected to contribute to creating a working
environment that is both conducive to fostering the business objectives of the
Company and in which respect for the rights and dignity of all individuals is
maintained.
8. Assignment
The Company shall have the right to assign this Agreement in the event the
Company is acquired (whether through stock or asset sale) by another company or
entity or otherwise merges, reorganizes, or reconstitutes itself into another
entity and this Agreement in such event shall remain in full force and effect.
9. Choice of Law; Enforceability
You acknowledge that the Company's business is based out of and directed from
the Commonwealth of Massachusetts. You also acknowledge that during the course
of your
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<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 6
employment with the Company you will have substantial contacts with
Massachusetts. This Agreement shall be deemed to have been made in the
Commonwealth of Massachusetts, shall take effect as an instrument under seal
within Massachusetts, and the validity, interpretation and performance of this
Agreement shall be governed by, and construed in accordance with, the internal
law of Massachusetts, without giving effect to conflict of law principles. Both
parties agree that any action, demand, claim, or counterclaim relating to the
terms and provisions of this Agreement, to your employment by the Company, or to
any matter of dispute between you and the Company shall be commenced only in
Massachusetts in a court of competent jurisdiction.
10. Miscellaneous
(a) Should your employment be terminated pursuant to the provisions of
paragraph 4(c)(ii)(C) or should the Company allege that you have violated
paragraph 6(b) and for that reason terminate the payments, salary or
benefits referenced therein, and should you dispute any such action, you
may submit such dispute for binding arbitration before the American
Arbitration Association. Such dispute shall be decided by a panel of three
arbitrators, sitting in Boston, Massachusetts, and the proceedings shall
be conducted pursuant to the Rules of the American Arbitration
Association. Nothing herein shall abridge any right of the Company to seek
injunctive or other relief for a violation of the provisions of paragraph
6(b).
(b) You acknowledge and agree that should you be promoted or reassigned to a
function other than your present functions, the terms of this Agreement
and the other agreements incorporated herein shall continue to apply with
full force.
(c) Should any provision or term of this Agreement be held to be invalid,
illegal, or unenforceable, in whole or part, such invalidity, illegality,
or unenforceability shall not affect the validity, legality, or
enforceability of any other provision of this Agreement, and to the extent
permissible by law, the parties agree that a court shall have the power to
amend such specific provision so that it can be enforced to the fullest
extent permissible by law.
(d) No amendment, waiver, or revocation of this Agreement of any kind shall be
effective unless supported by a written instrument executed by you and an
authorized officer of the Company.
(e) This offer of employment is conditioned upon execution of an Invention and
Non-disclosure Agreement substantially in the form attached, and whose
terms are expressly incorporated herein.
(f) You hereby acknowledge that you have had an adequate opportunity to review
these terms and conditions and to reflect upon and consider the terms and
conditions of this Agreement. You further acknowledge that you fully
understand its terms and have voluntarily executed this Agreement.
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<PAGE>
Mr. Taylor Jackson Crouch
March 18, 1999
Page 7
Kindly acknowledge your acceptance of this Agreement by signing both copies of
this letter where indicated and returning one to my attention.
VARIAGENICS, INC.
Date: 5/18/99 By: /s/ Fred D. Ledley, M.D.
------------------ -----------------------------
Fred D. Ledley, M.D.
President & CEO
By employee By: /s/ Taylor Jackson Crouch
-----------------------------
Taylor Jackson Crouch
Date: 3/19/99
------------------
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<PAGE>
VARIAGENICS, INC.
Invention and Non-Disclosure Agreement
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its affiliates and subsidiaries as
the "Company"), and Mr. Taylor Jackson Crouch (the "Employee"). In consideration
of the employment or the continued employment of the Employee by the Company,
the Company and the Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of
information, materials and tangible property of customers of the Company
or suppliers to the Company or other third parties who may have disclosed
or entrusted the same to the Company or to the Employee.
<PAGE>
2. Developments.
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
(d) Any publications, texts, or other creative writing endeavors unrelated to
the Company's Business shall be outside the field of this Agreement and
the provisions of section 2(b)
(e) Business concepts, models plans, relationships, and other related assets
developed by the Employee prior to this Agreement related to the topic of
off-balance sheet drug
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<PAGE>
development and the management and financing thereof, hereinafter referred
to as "Off Balance Sheet Drug Development Plans" shall be outside the
field of this Agreement and the provisions of section 2(b).
3. Other Agreements.
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit 1 to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party, or which would restrict his/her ability to accept
employment or perform work for the Company. The Employee further represents that
his/her performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Employee in
confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with the other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. Employment Status.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
-3-
<PAGE>
(c) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
(d) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(e) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(f) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS:
VARIAGENICS, INC.
Date: 3/18/99 By: /s/ Fred D. Ledley, M.D.
----------------------- ------------------------
Fred D. Ledley, M.D.
President & CEO
By Employee:
Date: 3/19/99 By: /s/ Taylor Jackson Crouch
------------------------ -------------------------
Taylor Jackson Crouch
-4-
<PAGE>
Invention and Non-Disclosure Agreement
Other Agreements
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
|_| None
|X| As shown below
Employment agreement with Parexel dated February 28, 1995
By: VARIAGENICS, INC.: By: Employee:
/s/ Fred D. Ledley, M.D. /s/ Taylor Jackson Crouch
- ---------------------------- ------------------------------
Dated: 3/19/99 Dated: 3/19/99
---------------------- -----------------------
-5-
<PAGE>
Exhibit 10.7
January 27, 1998
Ms. Anne L. Bailey
Vice President, Development
VARIAGENICS, INC.
30 Spring Mill Drive
Malvern, PA 19355
Tel: (610) 889-9300
Fax: (610) 889-9304
Dear Anne:
This letter agreement (the "Agreement") affirms the terms and conditions of your
continued employment by VARIAGENICS, INC. ("VARIAGENICS" or the "Company") after
the Interim Period as defined in the Terms and Conditions sheet dated September
10, 1997 (the "Terms and Conditions Sheet").
This Agreement will be effective March 15, 1997 and will constitute the entire
agreement as to your employment by VARIAGENICS, and supersedes any prior
agreements or understandings, either written or oral, between us, including the
Terms and Conditions Sheet (except for paragraph 6 thereof), and except for the
"Invention and Non-Disclosure Agreement" dated September 10, 1997, which shall
remain in full force.
1. Position
(a) The Company agrees to continue your employment in the position of Vice
President, Development reporting to the President and CEO. The President
and CEO will determine the duties of this position. Initially your
responsibilities will include leading teams to:
(i) Transfer technologies and know-how for variance detection from the
Malvern facility to the Company's Cambridge headquarters.
(ii) Develop and implement high-throughput, quality-controlled process
for variance detection.
(iii) Develop and implement plan for diagnostic product development
through corporate alliances or affiliated companies with Business
Development.
(iv) Develop and implement advanced, high-throughput methods for genetic
variance detection and diagnostics as well as quality control
procedures required for clinical trials and commercialization of
diagnostic and therapeutic products.
(b) Your responsibilities, position, and location are subject to change at the
discretion of the Company, but will continue to be consistent with the
position of Vice President of the Company.
<PAGE>
January 27, 1998
Anne Bailey
Page 2
(c) During your employment with the Company, you will devote your full
business time and energies to the business and affairs of the Company, and
not undertake any other employment or accept financial remuneration from
any person or entity in the biotechnology industry, without express
written consent by the President and CEO. You may continue to receive
remuneration from Avitech Diagnostics based on your historical contractual
relationships with that company.
(d) Within six (6) months of the start of this Agreement, you will assume
residence in the Boston, Massachusetts area.
2. Compensation/Benefits
(a) Your initial salary shall be $145,000.00 on an annualized basis, which
will be reviewed by the Company from time to time, but at least once each
year. The Company may increase or decrease the salary at any time at its
sole discretion after providing at least 10 days written notice of its
intent, and providing that any decrease in salary is commensurate with
decreases offered to other employees at the level of Vice President. In
addition, you will be eligible to receive bonuses of up to $14,500 for
achieving milestones that will be agreed upon with the President and CEO.
(b) The Company will also provide you with three (3) weeks of paid vacation
leave each year accrued on a monthly basis. All such amounts must be used
in the calendar year in which they were accrued and may not be carried
over into the following year. The Company will also make reasonable
accommodations to allow up to one (1) week of unpaid vacation per year. In
addition, you will be entitled to six (6) paid Company holidays per year
and four (4) paid floating holidays per year.
(c) You will be entitled to participate in all employee fringe benefit
programs generally offered to other management employees, including
without limitation, medical, dental and life insurance plans. Currently,
the Company provides benefits including: (i) comprehensive health
insurance, (ii) dental insurance, (iii) life insurance, (iv) short term
disability insurance, (v) long term disability insurance, (vi)
participation in the Company's 401K plan, and (vii) free parking near the
Company or a T pass. The Company retains the right to change, add or cease
any particular benefit at any time with or without advance notice, but you
will be afforded the same benefits while employed as other senior
executives at comparable levels with the Company.
(d) You will be provided with an option to purchase 32,000 shares of common
stock at $0.64 per share with the Company subject to all the terms and
restrictions contained in a "Stock Option Agreement" that provides for the
vesting of 1/60 of the total number of shares each month for 60 months
substantially in the form of the "Stock Option Agreement" attached as
Exhibit A.
<PAGE>
January 27, 1998
Anne Bailey
Page 3
(e) The Company will reimburse your relocation/moving expenses up to $15,000
in connection with the presentation of actual and appropriate receipts to
the Company.
(f) The Company will assume certain severance/stay bonuses on behalf of
Avitech Diagnostics as described in the final Purchase and Sale documents
and paragraph 6 of the Terms and Conditions Sheet.
3. Term
Your employment shall have an Initial Term ("Initial Term") of one year,
beginning March 15, 1998, and ending March 14, 1999, unless terminated earlier
as specified below in Section 4. This Agreement shall be automatically extended
for an additional one (1) year term at the expiration of the Initial Term unless
either party provides no less than thirty (30) days advance written notice of
its intent not to extend.
4. Early Termination and Compensation Upon Early Termination
(a) You shall have the right to terminate the employment relationship at any
time during the Initial Term of this Agreement, and during any subsequent
extensions thereof, with or without "Good Reason" (which shall mean the
breach of any material term of this Agreement by the Company, which breach
is not cured within ten (10) days subject to written notice by you to the
Company), and with or without advance notice.
(i) If you voluntarily leave the Company without Good Reason at any
time, you will have no right to future compensation and no
compensation shall be due to you for any period beyond the effective
date of termination.
(ii) If you voluntarily leave the Company with Good Reason at any time,
the Company will continue to pay you an amount equal to your full
salary (with applicable withholdings and deductions) and will
provide you with equivalent benefits, excluding parking or
transportation, for a period of six (6) months from your last day of
employment, provided that you comply with the non-competition and
non-solicitation covenants set forth in paragraph 5.
(b) The Company shall have the right to terminate the employment relationship
at any time during the Initial Term of this Agreement, and during any
subsequent extensions thereof, with or without cause and with or without
advance notice.
(i) If your employment is terminated by the Company without Cause during
the Initial Term, the Company will continue to pay you an amount
equal to your full salary (with applicable withholdings and
deductions) and will provide you with
<PAGE>
January 27, 1998
Anne Bailey
Page 4
equivalent benefits, excluding parking or transportation, for a
period of six (6) months from the date it informs you of its
intention to terminate your employment, or through the remainder of
the Initial Term, whichever is longer, provided that you comply with
the non-competition and non-solicitation covenants set forth in
paragraph 5.
(ii) If your employment is terminated by the Company without Cause after
the Initial Term and during a subsequent extension thereof, the
Company will continue to pay you an amount equal to your full salary
(with applicable withholdings and deductions) and will provide you
with equivalent benefits, excluding parking or transportation, for a
period of six (6) months from the date it informs you of its
intention to terminate your employment, provided that you comply
with the non-competition and non-solicitation covenants set forth in
paragraph 5.
(iii) If your employment is terminated by the Company for Cause at any
time, no compensation shall be due to you for any period beyond the
effective date of termination. "Cause" shall mean the breach of the
terms of this Agreement (which breach is not cured within ten (10)
days subsequent to written notice by the Company), commission of any
crime or embezzlement or other acts of dishonesty against the
financial or business interests of the Company, the use or
possession of illegal drugs, the willful refusal to perform your
duties (which is not cured within ten (10) days subsequent to
written notice by the Company), and any other conduct or
circumstance that constitutes cause as that term has been defined by
Massachusetts common law.
5. Non-competition / Non-solicitation
The non-competition and non-solicitation provisions contained in this paragraph
will apply during the entire term of your employment (including the Initial Term
and any subsequent extensions thereof), and in the event that your employment is
terminated early pursuant to paragraph 4, these provisions will apply for the
Initial Term or a period of six (6) months following this early termination,
whichever is longer.
(a) During the applicable time period described above, in the continental
United States, you shall not: (i) be associated as an employee, agent,
servant, owner, partner, consultant, independent contractor or
representative, or in any other capacity whatsoever with any person,
partnership, corporation, business organization or other entity (without
the prior written consent of the Company) which directly or indirectly
competes with the Company's business (a "Competing Business"); (ii)
canvass, solicit or accept any business from any of the Company's current
or former clients; (iii) own any substantial interest in a Competing
Business; or (iv) assist others to open or operate a Competing Business.
<PAGE>
January 27, 1998
Anne Bailey
Page 5
(b) Should you violate any provision of paragraph 5(a), the Company will have
no obligation to continue any payments, salary or benefits pursuant to
paragraph 4 or otherwise.
6. Anti-Piracy of Employees
(a) For a period of twelve (12) months commencing on the later of your last
day of employment pursuant to this Agreement, you shall not, directly or
indirectly, entice, solicit or encourage any Company employee to leave the
employ of the Company, and shall not directly or indirectly, be involved
in the recruitment of any Company employee.
(b) Should you violate any provision of paragraph 6(a), the Company will have
no obligation to continue any payments, salary or benefits pursuant to
paragraph 4 or otherwise.
7. Workplace
The Company considers the safety and quality of the workplace to be very
important. You are expected to be familiar with and abide by the Company's
safety policies. You are expected to contribute to creating a working
environment that is both conducive to fostering the business objectives of the
Company and in which respect for the rights and dignity of all individuals is
maintained.
8. Choice of Law; Enforceability
You acknowledge that the Company's business is based out of and directed from
the Commonwealth of Massachusetts. You also acknowledge that during the course
of your employment with the Company you will have substantial contacts with
Massachusetts. This Agreement shall be deemed to have been made in the
Commonwealth of Massachusetts, shall take effect as an instrument under seal
within Massachusetts, and the validity, interpretation and performance of this
Agreement shall be governed by, and construed in accordance with, the internal
law of Massachusetts, without giving effect to conflict of law principles. Both
parties agree that any action, demand, claim or counterclaim relating to the
terms and provisions of this Agreement, or to its breach or its formation, shall
be commenced in Massachusetts in a court of competent jurisdiction. Both parties
further acknowledge that venue shall exclusively lie in Massachusetts and that
material witnesses and documents would be located in Massachusetts.
9. Miscellaneous
(a) You acknowledge and agree that should you be promoted or reassigned to
functions other than your present functions, the terms of this Agreement
and the other agreements incorporated herein shall continue to apply with
full force.
<PAGE>
January 27, 1998
Anne Bailey
Page 6
(b) Should any provision or term of this Agreement be held to be invalid,
illegal or unenforceable, in whole or part, such invalidity, illegality,
or unenforceability shall not affect the validity, legality or
enforceability of any other provision of this Agreement, and to the extent
permissible by law, the parties agree that a court shall have the power to
amend such specific provision so that it can be enforced to the fullest
extent permissible by law.
(c) No amendment, waiver or revocation of this Agreement of any kind shall be
effective unless supported by a written instrument executed by you and an
authorized officer of the Company.
(d) You hereby acknowledge that you have had adequate opportunity to review
these terms and conditions and to reflect upon and consider the terms and
conditions of this Agreement. You further acknowledge that you fully
understand its terms and have voluntarily executed this Agreement.
Kindly acknowledge your acceptance of this Agreement by signing both copies of
this letter where indicated and returning one to my attention.
WITNESS: VARIAGENICS, INC.
Date: 2/5/98 By: /s/ Fred D. Ledley, M.D.
------------------------ ---------------------------
Fred D. Ledley, M.D.
President & CEO
By Employee:
Date: 2/5/98 By: /s/ Anne Bailey
------------------------- ---------------------------
Anne L. Bailey
<PAGE>
VARIAGENICS, INC.
ATTACHMENT A
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its subsidiaries as the "Company"),
Anne Bailey (the "Employee").
In consideration of the employment or the continued employment of the Employee
by the Company, the Company and the Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of
information, materials and tangible property of customers of the Company
1
<PAGE>
or suppliers to the Company or other third parties who may have disclosed
or entrusted the same to the Company or to the Employee.
2. Developments.
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
3. Other Agreements.
2
<PAGE>
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit A to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party. The Employee further represents that his/her
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by the Employee in confidence or in
trust prior to his/her employment with the Company, and the Employee will not
disclose to the Company or induce the Company to use any confidential or
proprietary information or material belonging to any previous employer or
others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with the other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. No Employment Contract.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's heirs, executors and
administrators and will inure to the benefit of the Company and its
successors and assigns.
(d) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
3
<PAGE>
(e) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(f) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(g) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS ANT) AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS: VARIAGENICS, INC.
Date: 9/15/97 By: /s/ Fred D. Ledley, M.D.
------------------------ ---------------------------
Fred D. Ledley, M.D.
President
By Employee:
Date: 9/15/97 By: /s/ Anne Bailey
------------------------- ---------------------------
Anne L. Bailey
4
<PAGE>
VARIAGENICS, INC.
INVENTION AND NON-DISCLOSURE AGREEMENT
EXHIBIT A
OTHER AGREEMENTS
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
None
As shown below
1. FMC Corporation: Expires 2/17/2000 - Confidentiality regarding at
Biochem GEI products.
By VARIAGENICS, INC. By Employee:
By: /s/ Fred D. Ledley, M.D. 9/15/97 By: /s/ Anne Bailey, 9/15/97
--------------------------- -------- ------------------- -------
Fred D. Ledley, M.D. Date Anne L. Bailey Date
President
5
<PAGE>
Exhibit 10.8
July 1, 1998
Dr. Colin Dykes
Common Farm (next to #11)
Common Road
Langford, Bedfordshire, UK SG18 9SA
Dear Colin:
This letter agreement (the "Agreement") affirms the terms and conditions of your
employment by VARIAGENICS, INC. ("VARIAGENICS" or the "Company"). This Agreement
will be effective immediately upon receipt of appropriate visas for employment
in the United States ("Effective Date"), and, together with an Invention and
Non-Disclosure Agreement and a Stock Option Agreement, will constitute the
entire agreement as to your employment by VARIAGENICS and supersedes any prior
agreements or understandings, either written or oral.
1. Position
(a) Your position within the Company will be Vice President, Genomics
reporting to the President and CEO. The President and CEO will determine
the duties of this position. Initially your role and responsibilities will
include:
(i) You will be responsible for establishing VARIAGENICS as the leader
in the discovery of genetic variation as well as the application
of genetic variation to drug development through new molecular
genetic methods, population genetics, and quantitative genetics.
(ii) You will be an Officer of the Company and a member of the
Executive Management Team.
(iii) You will be responsible for working with the Company's Principal
Scientific Advisors, President & CEO, and Board of Directors to
develop an Operating Plan for Genomics that is coordinated with
the Company's Business Development function and programs in
Chemical Biology and Clinical Pharmacogenomics. It is currently
expected that the Company will hire a leader of the Chemical
Biology function at the Vice President level.
(iv) Initially, your direct reports will include Andrew Ferrie,
Director Variance Detection and Mark Adams, Ph.D. Director of
Bioinformatics as well as members of the genomic methods
development teams. We will discuss the reporting structure for
Patrice Rioux, M.D., Ph.D. Clinical Director, Pharmacogenomics and
Vincent Stanton, M.D., Vice President, Discovery Research in the
future.
(v) You will be responsible, together with the Director of Operations
and your line managers, for the hiring and performance of a team
of outstanding directors and scientists capable of achieving the
Company's technical goals.
(vi) You will be responsible for overseeing the Company's consultants
in the area of genomics as well as contract research with selected
academic or industrial groups.
<PAGE>
Colin Dykes
July 1, 1998
Page 2
We do not maintain a formal "Scientific Advisory Board", but have
focus groups of leading academics advisors for different areas of
the Company.
(vii) You will be expected to have an active role, with the Business
Development function, in identifying opportunities for corporate
alliances and successfully negotiating such alliances. You will be
primarily responsible for successfully executing the (genomic)
research plans associated with such alliances.
(viii) You will be encouraged to continue to cultivate recognition for
the Company, and yourself personally, as an opinion leader in
genomics and pharmacogenomics through presentations at appropriate
scientific and business meetings and through appropriate
publications in leading scientific or industry venues.
(b) Your responsibilities, position, and location are subject to change at the
discretion of the Company, but will continue to be consistent with the
position of Vice President.
(c) During your employment with the Company, you will devote your full
business time and energies to the business and affairs of the Company, and
not undertake any other employment or accept financial remuneration from
any person or entity in the biotechnology industry, without express
written consent by the President and CEO.
(d) It is expected that within twelve (12) months of the Effective Date, you
and your family will assume residence in the Boston, Massachusetts area.
2. Compensation / Benefits
(a) Your salary will initially be $200,000/year which will be reviewed at
least annually by the Compensation Committee of the Board of Directors.
(b) The Company will pay you a signing bonus of $25,000 one year after the
Effective Date, a portion of which will include payments by directly by
the Company for personal travel between the UK and US within this year.
(c) The Company, with the presentation of actual and appropriate receipts,
will reimburse you for all reasonable and customary moving expenses to the
Boston area for services performed within one year of your Start Date up
to $25,000. This reimbursement will include all routine and customary
closing costs for purchase of a home in the Boston area including up to 2
points towards securing a loan for such a property. The documentation for
each such expense must be submitted within one year of signing this
Agreement.
(d) You will be eligible for performance-based bonuses at the sole discretion
of the Compensation Committee and the Board of Directors.
<PAGE>
Colin Dykes
July 1, 1998
Page 3
(e) You will be entitled to purchase 70,000 shares of the Company's Common
Stock at $1.00/share vesting over five years pursuant to a Stock Option
Agreement. Of this amount, 20% will be vested one year after your Start
Date with the remaining amount vesting at a rate of 1/60/month for the
subsequent 48 months. You will be eligible to receive additional stock
option grants as may be recommended by the Compensation Committee of the
Board of Directors at its sole discretion.
(f) The Company will assume the expenses, and will make all reasonable efforts
to procure visas that will enable you to be employed pursuant to this
Agreement and for your wife to be employed in the U.S. Any expenses
incurred by you in this regard will be reimbursed only if approved in
advance by the Company.
(g) As the Effective Date of this Agreement, you initially will be eligible to
participate in all of the benefits offered to employees of the Company as
outlined in the attached materials. Currently, the Company provides
benefits including: (i) comprehensive health insurance, (ii) dental
insurance, (iii) life insurance, (iv) short term disability insurance, (v)
long term disability insurance, (vi) free parking near the Company or a T
pass. The Company will provide you with three (3) weeks of paid vacation
leave each year commencing with your Start Date. In addition, you will be
entitled to six (6) paid Company holidays per year and five (4) paid
floating holidays per year. The Company retains the right to change, add
or cease any particular benefit at any time with or without advance
notice, but you will be afforded the same benefits while employed as other
senior executives at the Company.
(h) The Company shall reimburse you for all reasonable and necessary expenses
incurred or paid by you in connection with, or related to, the performance
of services to the Company under this Agreement, in accordance with
Company policies in effect from time to time.
3. Term
(a) Your employment shall have an Initial Term ("Initial Term") of one year,
beginning September 1, 1998 ("Start Date"), and ending August 31, 1999,
unless terminated earlier as specified below in Section 4. This Agreement
shall be automatically extended for an additional one (1) year term at the
expiration of the Initial Term unless either party provides no less than
thirty (30) days advance written notice of its intent not to extend.
(b) If the Company is unable to procure visas necessary for your employment
pursuant to this Agreement by November 1, 1998, the Company will have no
further obligations to you under this Agreement, including, without
limitation, no obligation to provide you with employment, salary, or
benefits, and you shall continue to be bound only by the terms of the
Invention and Non-disclosure Agreement, the Anti-piracy covenants set
forth in paragraph 6, and the covenants of paragraph 8 and paragraph 9.
Notwithstanding the
<PAGE>
Colin Dykes
July 1, 1998
Page 4
foregoing, the Company will provide you with reimbursements for expenses
incurred by you pursuant to paragraph 2(b), 2(f), and 2(h).
4. Early Termination and Compensation Upon Early Termination
(a) You shall have the right to terminate the employment relationship at any
time during the Initial Term of this Agreement, and during any subsequent
extensions thereof, with or without "Good Reason" (which shall mean the
breach of any material term of this Agreement by the Company, which breach
is not cured within twenty (20) business days after written notice by you
to the Company), and with or without advance notice.
(i) If you voluntarily leave the Company without Good Reason at any
time, you will have no right to future compensation and no
compensation shall be due to you for any period beyond the effective
date of termination.
(ii) If you voluntarily leave the Company with Good Reason at any time,
the Company will continue to pay you an amount equal to your full
salary (with applicable withholdings and deductions) and will
provide you with equivalent benefits, excluding parking or
transportation, or, at its option, reimbursement for the cost of
equivalent benefits, for a period of six (6) months from your last
day of employment, provided that you comply with the non-competition
and non-solicitation covenants set forth in paragraph 5, the
anti-piracy covenants set forth in paragraph 6, and with your
obligations under your Invention and Non-Disclosure Agreement.
(b) The Company shall have the right to terminate the employment relationship
at any time during the Initial Term of this Agreement, and during any
subsequent extensions thereof, with or without cause and with or without
advance notice.
(i) If your employment is terminated by the Company without Cause, the
Company will continue to pay you an amount equal to your full salary
(with applicable withholdings and deductions) and will provide you
with equivalent benefits, excluding parking or transportation, for a
period of six (6) months from the date it informs you of its
intention to terminate your employment, provided that you comply
with the non-competition and non-solicitation covenants set forth in
paragraph 5, the anti-piracy covenants set forth in paragraph 6, and
your obligations under your Invention and Non-Disclosure Agreement.
(ii) If your employment is terminated by the Company for Cause at any
time, no compensation shall be due to you for any period beyond the
effective date of termination. "Cause" shall mean the breach of the
terms of this Agreement (which breach is not cured within ten (10)
days subsequent to written notice by the Company), commission of any
crime or embezzlement or other acts of dishonesty against the
financial or business interests of the Company, the use or
possession of illegal drugs, the willful refusal to perform your
duties (which is not cured within ten (10) days subsequent to
written notice by the Company), and any other
<PAGE>
Colin Dykes
July 1, 1998
Page 5
conduct or circumstance that constitutes cause as that term has been
defined by Massachusetts common law. If your employment is
terminated by the Company for Cause pursuant to this paragraph, you
will remain subject to the non-competition and non-solicitation
covenants set forth in paragraph 5 and the anti-piracy covenants set
forth in paragraph 6.
5. Non-competition / Non-solicitation
The provisions contained in this paragraph will apply during the entire term of
your employment, and, in the event that your employment is terminated early
pursuant to paragraph 4, these provisions will apply for a period of six (6)
months following this early termination.
(a) During the applicable time period described above, you shall not: (i) be
associated as an employee, agent, advisor, servant, owner, partner,
consultant, independent contractor or representative, or in any other
capacity whatsoever with any person, partnership, corporation, business
organization or other entity (without the prior written consent of the
Company) which directly or indirectly competes with the Company's business
(a "Competing Business"); (ii) canvass, solicit or accept any business
from any of the Company's current or former clients; (iii) own any
interest in a Competing Business, provided, however, that the foregoing
shall not prohibit you from owning not more than one per cent (1%) of the
outstanding shares of a public company traded on a national stock
exchange; or (iv) assist others to open or operate a Competing Business.
(b) Should you violate any provision of paragraph 5(a), the Company, in
addition to all other legal remedies, will have no obligation to continue
any payments, salary or benefits pursuant to paragraph 4 or otherwise.
6. Anti-Piracy of Employees
(a) For a period of twelve (12) months commencing on your last day of
employment pursuant to this Agreement, you shall not, directly or
indirectly, entice, solicit or encourage any Company employee to leave the
employ of the Company, and shall not directly or indirectly, be involved
in the recruitment of any Company employee to become associated with any
other entity.
(b) Should you violate any provision of paragraph 6(a), the Company, in
addition to all other legal remedies, will have no obligation to continue
any payments, salary or benefits pursuant to paragraph 4 or otherwise.
7. Workplace
<PAGE>
Colin Dykes
July 1, 1998
Page 6
The Company considers the safety and quality of the workplace to be very
important. You are expected to be familiar with and abide by the Company's
safety policies. You are expected to contribute to creating a working
environment that is both conducive to fostering the business objectives of the
Company and in which respect for the rights and dignity of all individuals is
maintained.
8. Choice of Law; Enforceability
You acknowledge that the Company's business is based out of and directed from
the Commonwealth of Massachusetts. You also acknowledge that during the course
of your employment with the Company you will have substantial contacts with
Massachusetts. This Agreement shall be deemed to have been made in the
Commonwealth of Massachusetts, shall take effect as an instrument under seal
within Massachusetts, and the validity, interpretation and performance of this
Agreement shall be governed by, and construed in accordance with, the internal
law of Massachusetts, without giving effect to conflict of law principles. Both
parties agree that any action, demand, claim or counterclaim relating to the
terms and provisions of this Agreement, or to its breach or its formation, shall
be commenced in Massachusetts in a court of competent jurisdiction. Both parties
further acknowledge that venue shall exclusively lie in Massachusetts and that
material witnesses and documents would be located in Massachusetts.
9. Miscellaneous
(a) You acknowledge and agree that should you be promoted or reassigned to
functions other than your present functions, the terms of this Agreement
and the other agreements incorporated herein shall continue to apply with
full force.
(b) Should any provision or term of this Agreement be held to be invalid,
illegal or unenforceable, in whole or part, such invalidity, illegality,
or unenforceabihity shall not affect the validity, legality or
enforceability of any other provision of this Agreement, and to the extent
permissible by law, the parties agree that a court shall have the power to
amend such specific provision so that it can be enforced to the fullest
extent permissible by law.
(c) No amendment, waiver or revocation of this Agreement of any kind shall be
effective unless supported by a written instrument executed by you and an
authorized officer of the Company.
(d) This offer of employment is conditioned upon execution of an Invention and
Non-disclosure Agreement substantially in the form attached.
(e) You hereby acknowledge that you have had adequate opportunity to review
these terms and conditions and to reflect upon and consider the terms and
conditions of this
<PAGE>
Colin Dykes
July 1, 1998
Page 7
Agreement. You further acknowledge that you fully understand its terms and
have voluntarily executed this Agreement.
Kindly acknowledge your acceptance of this Agreement by signing both copies of
this letter where indicated and returning one to my attention.
WITNESS: VARIAGENICS, INC.
Date: 7/1/98 By: /s/ Fred D. Ledley, M.D.
------------------------- ----------------------------
Fred D. Ledley, M.D.
President & CEO
By Employee:
Date: 7/3/98 By: /s/ Colin W. Dykes, M.D.
------------------------- ----------------------------
Colin Dykes, Ph.D.
<PAGE>
VARIAGENICS, INC.
Exhibit B
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its subsidiaries as the "Company"),
and Colin W. Dykes (the "Employee"). In consideration of the employment or the
continued employment of the Employee by the Company, the Company and the
Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to
1
<PAGE>
return materials and tangible property, set forth in paragraph (b) above,
also extends to such types of information, materials and tangible property
of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to
the Employee.
2. Developments.
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
2
<PAGE>
3. Other Agreements.
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit 1 to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party, or which would restrict his/her ability to accept
employment or perform work for the Company. The Employee further represents that
his/her performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Employee in
confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with the other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. Employment Status.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's heirs, executors and
administrators and will inure to the benefit of the Company and its
successors and assigns.
3
<PAGE>
(d) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
(e) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(f) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(g) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT ANT)
UNDERSTANDS AM) AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS:
VARIAGENICS, INC.
Date: 7/22/98 By: /s/ Fred D. Ledley, M.D.
------------- ------------------------
Fred D. Ledley, M.D.
President & CEO
By Employee: By: /s/ Colin W. Dykes, Ph.D.
-------------------------
Colin W. Dykes, Ph.D.
Date: 7/22/98
--------------
4
<PAGE>
VARIAGENICS, INC.
EXHIBIT 1
INVENTION AND NON-DISCLOSURE AGREEMENT
Other Agreements
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
|_| None
|_| As shown below
By: VARIAGENICS, INC.: By: Employee:
/s/ Fred D Ledley, M.D. By: /s/ Colin W. Dykes, Ph.D.
---------------------------- -------------------------
President & CEO Colin W. Dykes, Ph.D.
Dated: ______________________ Dated:______________________
5
<PAGE>
Exhibit 10.9
January 21, 2000
Bruce Maloff, Ph.D.
13715 Vernazza Court
San Diego, CA 92130-3172
Dear Bruce:
On behalf of Taylor Crouch, President and CEO of Variagenics, Inc., I
would like to offer you the position of Executive Vice President, Commercial
Operations based on the following terms and conditions:
1. Reporting Relationship: This position will report directly to the
President/CEO.
2. Salary: You will be paid a salary at an annual rate of $210,000.
3. Incentive Bonus: You will be eligible to participate in the
Company's bonus program. The amount of your bonus which is targeted
for 25% of your base salary is based upon individual and company
performance. For the first year of your employment the initial six
months or 50% of the target bonus will be guaranteed. You must be an
employee at the time of distribution to receive a bonus.
4. Stock Options: Subject to approval by the Company's Board of
Directors, you will be granted options to purchase 100,000 shares,
Your right to exercise these options will vest according to the
following schedule:
a) 25% will vest at the first year anniversary
b) The remaining 75% will vest at 1/36 per month.
The price per share will be determined by the date of employment and
approval by the Board of Directors.
5. Relocation: Variagenics will compensate you for the realtors fee and
closing costs in selling your home in San Diego. The Company will
also reimburse you for transportation of household goods from San
Diego to Boston. Gross up for taxes and closing costs on buying a
residence in the Boston area will not be paid. Temporary housing
expense in Boson will be reimbursed for a maximum of three months
not to exceed $1,500 a month. You will compensate Variagenics 50% of
the total relocation costs if you voluntarily leave the Company
within the first twelve months of employment.
6. Benefits: A benefit package will be sent separately.
<PAGE>
January21, 2000
Bruce Maloff
Page 2
7. Termination: Your employment status will be as an "Employee at
Will", which means that you or the Company may terminate your
employment at any time and for any reason. In the event that you are
terminated by the Company without cause, your base salary will be
continued for an additional six months.
8. Acceptance of Employment and Start Date: This offer must be accepted
by Monday, January 31, 2000. The start date is February 15, 2000. A
sign up bonus of $15,000 will be paid within thirty days if you
initiate employment on February 15, 2000.
Bruce, we wanted to get this employment offer to you quickly so there may
be a need for additional clarification and/or amendments. Variagenics is excited
about your prospective employment. We believe that you will make a substantial
contribution to the Company's ultimate success.
Please signify your acceptance of these terms and conditions by signing
this letter and returning to Taylor Crouch by Monday, January 31, 2000.
Sincerely,
William M. Strawn
President, Strawn Arnold Leech & Ashpitz, Inc.
Agreed to and accepted by; /s/ Bruce Maloff, Ph.D.
-----------------------
Bruce Maloff, Ph.D.
Date: 1/27/00
--------------------------
2
<PAGE>
January 24 2000
Bruce Maloff, Ph.D.
13715 Vernazza Court
San Diego, CA 92130-3172
Dear Bruce,
As an addendum to our offer letter dated January 21, 2000 we are adding the
following terms and conditions.
1. Stock Options: Assuming a start date of February 15, 2000, the exercise
price of your incentive stock options will not exceed $1.25.
2. Relocation: The Company will reimburse the reasonable costs of a rental
car for a maximum of one month. The Company will provide an appropriate
apartment for temporary housing for a maximum of three months.
3. Benefits: A summary of benefits is attached.
Please do not hesitate to contact me with any questions.
Bruce, I look forward to welcoming you onto our team!
Sincerely yours.
/s/ Richard P. Shea
- -------------------
Rick Shea
V.P. Finance
<PAGE>
VARIAGENICS, INC.
Invention and Non-Disclosure Agreement
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its affiliates and subsidiaries as
the "Company"), and Dr. Bruce Maloff, M.D. (the "Employee"). In consideration
of the employment or the continued employment of the Employee by the Company,
the Company and the Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of
information, materials and tangible property of customers of the Company
or suppliers to the Company or other third parties who may have disclosed
or entrusted the same to the Company or to the Employee.
<PAGE>
2. Developments.
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
(d) Any publications, texts, or other creative writing endeavors unrelated to
the Company's Business shall be outside the field of this Agreement and
the provisions of section 2(b)
(e) Business concepts, models plans, relationships, and other related assets
developed by the Employee prior to this Agreement related to the topic of
off-balance sheet drug
-2-
<PAGE>
development and the management and financing thereof, hereinafter referred
to as "Off Balance Sheet Drug Development Plans" shall be outside the
field of this Agreement and the provisions of section 2(b).
3. Other Agreements.
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit 1 to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party, or which would restrict his/her ability to accept
employment or perform work for the Company. The Employee further represents that
his/her performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Employee in
confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with the other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. Employment Status.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
-3-
<PAGE>
(c) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
(d) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(e) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(f) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS:
VARIAGENICS, INC.
Date: By: /s/ Taylor J. Crouch
----------------------- ------------------------
Taylor J. Crouch
President & CEO
By Employee:
Date: By: /s/ Bruce Maloff, M.D.
------------------------ -------------------------
Bruce Maloff, M.D.
-4-
<PAGE>
Invention and Non-Disclosure Agreement
Other Agreements
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
|_| None
|_| As shown below
By: VARIAGENICS, INC.: By: Employee:
/s/ Taylor J. Crouch /s/ Bruce Maloff, M.D.
- ---------------------------- ------------------------------
Dated: Dated:
---------------------- -----------------------
-5-
<PAGE>
Exhibit 10.10
K.O. Technology, Inc.
531 Hammond Street o Chestnut Hill, MA 02167
Tel: 739-1182 Fax: 739-1183
March 15, 1993
Vince Stanton
32 Royal Road
Belmont, MA 02178
Dear Vince:
It gives me great pleasure to extend to you a job offer to become Senior
Scientist for K.O. Technology.
As you know, this startup is based on technology and ideas developed by David
Housman. Our company has been established and we are currently in the process of
making a rapid transition to full-fledged, operational status.
Clearly, there are a number of issues which should be discussed as part of the
offer. First, we are happy to extend a salary of $85,000 to you. In addition, we
are prepared to offer you 4% of the company's equity post-first round financing
on a five year vesting schedule. The company will also have health insurance and
obtain coverage for you. When it is appropriate the company will initiate a
pension program and offer you inclusion in it.
This offer is subject to the closing of our financing which we believe will
occur by the end of March. Our mutual obligations to each other will commence
upon completion of financing.
Please don't hesitate to contact me if you have any questions about any part of
this offer. We very much hope that you will join our team and look forward to
working with you.
Best wishes,
K.O. Technology, Inc.
By: /s/ John J. Kao
----------------------------------
Its: Chief Executive Officer
---------------------------------
Read and agreed to:
Vince Stanton Date
/s/ Vince Stanton 3/15/93
- --------------------------------------------------
<PAGE>
VARIAGENICS, INC.
Invention and Non-Disclosure Agreement
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its affiliates and subsidiaries as
the "Company"), and Mr. Vincent P. Stanton, Jr. (the "Employee"). In
consideration of the employment or the continued employment of the Employee
by the Company, the Company and the Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of
information, materials and tangible property of customers of the Company
or suppliers to the Company or other third parties who may have disclosed
or entrusted the same to the Company or to the Employee.
<PAGE>
2. Developments.
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
(d) Any publications, texts, or other creative writing endeavors unrelated to
the Company's Business shall be outside the field of this Agreement and
the provisions of section 2(b)
(e) Business concepts, models plans, relationships, and other related assets
developed by the Employee prior to this Agreement related to the topic of
off-balance sheet drug
-2-
<PAGE>
development and the management and financing thereof, hereinafter referred
to as "Off Balance Sheet Drug Development Plans" shall be outside the
field of this Agreement and the provisions of section 2(b).
3. Other Agreements.
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit 1 to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party, or which would restrict his/her ability to accept
employment or perform work for the Company. The Employee further represents that
his/her performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Employee in
confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with the other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. Employment Status.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
-3-
<PAGE>
(c) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
(d) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(e) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(f) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS:
VARIAGENICS, INC.
Date: 3/10/00 By: /s/ Taylor J. Crouch
----------------------- ------------------------
Taylor J. Crouch
President & CEO
By Employee:
Date: 3/10/00 By: /s/ Vincent P. Stanton Jr.
------------------------ -------------------------
Vincent P. Stanton Jr.
-4-
<PAGE>
Invention and Non-Disclosure Agreement
Other Agreements
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
|X| None
|_| As shown below
By: VARIAGENICS, INC.: By: Employee:
/s/ Taylor J. Crouch /s/ Vincent P. Stanton, Jr.
- ---------------------------- ------------------------------
Dated: 3/10/00 Dated: 3/10/00
---------------------- -----------------------
-5-
<PAGE>
Exhibit 10.11
December 23, 1998
Richard P. Shea
52 Margin St.
Cohasset, MA 02025
tel: (781) 383-2384
Dear Rick:
On behalf of VARIAGENICS, I am writing to formally extend to you an offer of
employment in the position of Vice President, Finance. In addition to the formal
Letter Agreement which is attached, I wanted to communicate to you our sense of
the Company's opportunity and your role in shaping our future.
VARIAGENICS' mission is the development of novel pharmaceutical products
targeted to the normal genetic variance of human populations. Through our
marketing alliance with Quintiles (and others), and through direct marketing of
our technologies, capabilities, and intellectual property to biopharmaceutical
companies, we expect to continue building a position of leadership in the
application of genomics to drug development and we expect to profit both from
providing contract pharmacogenomic services, and from participating in the
successful development of new pharmaceutical products.
Our vision is for a Company that is not only a leader in innovative strategies
for drug development, but also a leader in innovative business practices that
optimize the return to our shareholders and employees. To this end, we must
function as a multi disciplinary team. We believe you can contribute
substantially to the success of the Company, and are looking forward to having
you join this team.
Specifically, your roles and responsibilities will be:
(1) Manage the Company's finances including accounting, purchasing, accounts
receivable, audit, leases, and investments. Ensure that the Company
maintains best practices in all of our financial practices including
implementation of project-based cost accounting and reimbursement
procedures and management information systems.
(2) Manage the Company's corporate documents, stock issuances, and
communication with shareholders as Secretary of the Corporation.
(3) Participate with the Company's Business Development and Marketing teams to
complete corporate alliances and sales of the Company's products.
Responsibilities may include cost analysis, financial projections, and
negotiations on the financial terms of agreements.
(4) Participate with the President & CEO to complete corporate financings.
Responsibilities may include developing strategy, preparing financial
projections and business plans, building relationships with investment
banks, investors, and financial analysis, and representing the Company at
meetings and conferences.
<PAGE>
Richard Shea
December 23, 1998
Page 2
(5) Manage Operations (with Eleonora Brown, Director of Operations) including
facilities, human resources, and administration.
Your direct reports at this time will be Eleonora Brown, Director of Operations
and Kathy Kreiter, Controller.
I have attached several documents related to your employment at VARIAGENICS:
A "Terms and Conditions" Agreement describing the standard terms of
employment at VARIAGENICS.
An "Invention and Non-Disclosure Agreement" required of all employees.
A draft Stock Option Agreement. (The formal agreement requires board
approval.) As we discussed, I will propose to the Board that vesting of
options be accelerated upon acquisition of the Company.
Please review these documents and contact Becky Levin or myself with any
questions. I look forward to completing these agreements and welcoming you onto
our team. Best wishes.
Sincerely,
/s/ Fred D. Ledley, M.D.
Fred D. Ledley, M.D.
President & CEO
<PAGE>
VARIAGENICS, INC.
TERMS AND CONDITIONS
The following are the terms and conditions of your employment with VARIAGENICS,
INC.
1. Position.
The Company agrees to employ you in the position of Vice President, Finance and
Administration. You will report initially to Fred D. Ledley, M.D., President &
Chief Executive Officer. As you progress with the Company, your position and
location are subject to change at the sole discretion of the Company. Should you
be promoted or reassigned to functions other than your present functions, the
terms of this agreement and the other agreements incorporated herein shall
continue to apply in full force.
During your employment, you shall devote your full business time and energies to
the affairs of VARIAGENICS, and shall not undertake any other employment or
accept financial remuneration outside your business time from any person or
entity in the biotechnology industry, without the expressed written consent of
the President and Chief Executive Officer.
2. Starting Date/Nature of Relationship.
It is expected that your employment will start on or before February 2, 1999. We
expect that your performance will be reviewed at least annually around the
anniversary of your start date. These terms and conditions shall not be
construed to create an express or implied employment contract for a specific
period of time. Either you or the Company may terminate the employment
relationship at any time for any reason with or without notice.
3. Compensation.
(a) Your initial gross salary will be $150,000 with performance based bonuses
of $30,000 paid upon completion of mutually agreed milestones. Payroll is
currently paid biweekly.
(b) You will be offered an agreement entitling you to purchase 40,000 shares
of VARIAGENICS, INC. common stock for $0.64 per share. Of these, 20% shall
vest after one year, and the remainder shall vest monthly over the ensuing
48 months, 1/60 of the total each month, pursuant to a "Stock Option
Agreement" substantially in the form of the document attached hereto as
Exhibit A.
(c) The Company may from time to time authorize bonuses comprising cash and/or
additional stock options. You will be eligible for consideration of such
bonuses based on your annual performance review, team performance, and the
Company's overall financial condition.
<PAGE>
Terms and Conditions
Page 2
(d) The Company shall reimburse you for all reasonable and necessary expenses
incurred or paid by in connection with, or related to, the performance of
services to the Company in accordance with Company policies in effect from
time to time.
4. Benefits.
As a full-time employee of the Company, you are entitled to receive such
benefits as are generally provided other full-time Company employees at your
level in accordance with the policies in effect. The Company currently provides
the following benefits: (i) comprehensive health insurance, (ii) dental
insurance, (iii) life insurance, (iv) short term disability insurance, (v) long
term disability insurance, (vi) three weeks paid vacation (accrued on a monthly
basis), (vii) four floating holidays, (viii) six fixed holidays, and (ix) either
free parking near the Company or a T pass. The Company reserves the right to
change, add or cease any particular benefit without notice at its sole
discretion.
5. Confidentiality.
The Company considers the protection of its confidential information and
proprietary materials to be very important. Therefore, as a condition of your
employment, you and the Company will become parties to an "Invention and
Non-Disclosure Agreement" substantially in the form of the document attached
hereto as Exhibit B.
6. Workplace.
The Company considers the safety and quality of the workplace to be very
important. You are expected to be familiar with, and abide by, the Company's
safety policies. You are also expected to contribute to creating a working
environment that is both conducive to fostering the business of the Company and
in which respect for the rights of all individuals is maintained.
7. Non-competition.
For one year following termination of your employment with the Company for any
reason, you shall not canvass, solicit or accept any business which directly
competes with the Company's business from any of the Company's current or former
clients or assist others to open or operate a Competing Business.
8. Anti-Piracy of Employees.
During your employment with the Company, and for a period of twelve (12) months
thereafter, you shall not, directly or indirectly, entice, solicit or encourage
any Company employee to leave the employ of the Company, nor shall you, directly
or indirectly, be involved in the recruitment of any Company employee.
9. General.
<PAGE>
Terms and Conditions
Page 2
(a) This letter, together with fully executed versions of the attached
documents will constitute our entire agreement as to your employment by
the Company and will supersede any prior agreements or understandings,
whether in writing or oral.
(b) This letter shall be governed by the laws of the Commonwealth of
Massachusetts.
(c) Should any provision or term of this Agreement be held to be invalid,
illegal or unenforceable, in whole or part, such invalidity, illegality,
or unenforceability shall not affect the validity, legality or
enforceability of any other provision of this Agreement, and to the extent
permissible by law, the parties agree that a court shall have the power to
amend such specific provision so that it can be enforced to the fullest
extent permissible by law.
(d) This offer of employment is conditioned upon execution of an Invention and
Non-disclosure Agreement substantially in the form attached.
(e) You hereby acknowledge that you have had adequate opportunity to review
these terms and conditions and to reflect upon and consider the terms and
conditions of this Agreement. You further acknowledge that you fully
understand its terms and have voluntarily executed this Agreement.
This offer of employment will expire on January 1, 1999 unless sooner revoked by
the Company or accepted by you prior to such date. You may accept this offer of
employment, and the terms and conditions thereof, by signing this letter, and
returning it to the Company within the designated time frame.
WITNESS:
VARIAGENICS, INC.
By: /s/ Fred D. Ledley, M.D. Date: 12/23/98
-------------------------------- -----------------------
Fred D. Ledley, M.D.
President & CEO
By Employee:
By: /s/ Richard P. Shea Date: 12/23/98
-------------------------------- -----------------------
Richard P. Shea
<PAGE>
Exhibit B
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to collectively with its subsidiaries as the "Company"),
and Richard P. Shea (the "Employee"). In consideration of the employment or the
continued employment of the Employee by the Company, the Company and the
Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company's business,
business relationships or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of
the Company or use the same for any purposes (other than in the
performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after
his/her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come
into his/her custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his/her duties for the Company. All such materials or copies thereof
and all tangible property of the Company in the custody or possession of
the Employee shall be delivered to the Company, upon the earlier of: (i) a
request by the Company or (ii) termination of his/her employment. After
such delivery, the Employee shall not retain any such materials or copies
thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of
information, materials and tangible property of customers of the Company
or suppliers to the Company or other third parties who may have disclosed
or entrusted the same to the Company or to the Employee.
2. Developments.
<PAGE>
Invention and Non-disclosure Agreement
Page 2
(a) The Employee will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by him/her or under his/her
direction or jointly with others during his/her employment by the Company,
whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to the Company (or
any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with
the laws of any state which precludes a requirement in an employee
agreement to assign certain classes of inventions made by an employee,
this paragraph 2(b) shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both during and
after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Development. The Employee further agrees that if the Company is unable,
after reasonable effort, to secure the signature of the Employee on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions
as the Company may deem necessary or desirable in order to protect its
rights and interests in any Development, under the conditions described in
this sentence.
3. Other Agreements.
The Employee hereby represents that, except as the Employee has disclosed in
Exhibit 1 to this Agreement or in writing to the Company, the Employee is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such
<PAGE>
Invention and Non-disclosure Agreement
Page 3
previous employer or any other party, or which would restrict his/her ability to
accept employment or perform work for the Company. The Employee further
represents that his/her performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by the Employee
in confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
4. United States Government Obligations.
The Employee acknowledges that the Company from time to time may have agreements
with other persons or with the United States Government, or agencies thereof,
which impose obligations or restrictions on the Company regarding inventions
made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made known to the Employee and to take
all action necessary to discharge the obligations of the Company under such
agreements.
5. Employment Status.
The Employee understand that this Agreement does not constitute a contract of
employment and does not imply that his/her employment will continue for any
period of time.
6. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral, between
the Employee and the Company relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by the Employee
and the Company. The Employee agrees that any change or changes in his/her
duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's heirs, executors and
administrators and will inure to the benefit of the Company and its
successors and assigns.
(d) No delay or omission by the Company in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on
any other occasion.
(e) The Employee expressly consents to be bound by the provisions of this
Agreement for the benefit of the Company or any subsidiary or affiliate
thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
<PAGE>
Invention and Non-disclosure Agreement
Page 4
(f) The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees
that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance
and other injunctive relief.
(g) This Agreement is governed by and will be construed as a sealed instrument
under and in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which is
commenced to resolve any matter arising under or relating to any provision
of this Agreement shall be commenced only in a court of the Commonwealth
of Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS:
VARIAGENICS, INC.
Date: 12/23/98 By: /s/ Fred D. Ledley, M.D.
----------------------------- ------------------------
Fred D. Ledley, M.D.
President & CEO
By Employee: By: /s/ Richard P. Shea
------------------------
Richard P. Shea
Date: 12/23/98
-------------------
<PAGE>
EXHIBIT 1
Invention and Non-Disclosure Agreement
Other Agreements
Pursuant to section 3 of this Agreement, the following is a list of pertinent
agreements between the Employee and previous employers or other parties:
|_| None
|X| As shown below
Consulting agreement dated October 24, 1998 with Pavonis, Inc.
Consulting agreement dated October 24, 1998 with Pavonis, Inc.
By: VARIAGENICS, INC.: By: Employee:
/s/ Fred D Ledley, M.D. /s/ Richard P. Shea
- ------------------------------ ------------------------------
Richard P. Shea
Dated: 12/23/98 Dated: 12/23/98
------------------------ ------------------------
<PAGE>
Exhibit 10.12
ALLIANCE AGREEMENT
This Alliance Agreement (the "Agreement") is made and dated this 2nd day of
August, 1999, between Covance Inc., a Delaware corporation ("Covance"), and
Variagenics, Inc., a Delaware corporation ("Variagenics").
Background
A. Covance and its Affiliates provide, among other products and services,
central laboratory services to Sponsors.
B. Variagenics, directly and through its Affiliates, identifies clinically
important variances in genes that affect drug action and applies this
information to the discovery and development of new drugs, and intends to
provide Variagenics Lab Services as more fully described in this Agreement.
C. Covance and Variagenics desire to form an alliance (the "Alliance") as more
fully described in this Agreement.
D. For convenience of reference, capitalized terms used herein have the meanings
listed in Exhibit A.
Terms
NOW, THEREFORE, in consideration of the foregoing premises, and other valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, the
parties agree as follows:
1. Purpose.
The purpose of the Alliance is to facilitate the development of
Variagenics Know-How by Variagenics and its Affiliates, and the license of
Variagenics Know-How to Covance. The intent of the Alliance is for Covance and
its Affiliates to use the Variagenics Know-How to provide Pharmacogenomic Lab
Services to Contracting Sponsors, and for Variagenics to use the Variagenics
Know-How to provide Variagenics Lab Services to Contracting Sponsors. To
facilitate the foregoing, Covance is licensing certain Covance Know-How to
Variagenics, and Covance and Variagenics are agreeing to certain provisions
regarding the sale of Pharmacogenomic Lab Services and Variagenics Lab Services.
2. Technology Transfer.
(a) License of Variagenics Know-How. (i) Variagenics hereby grants to
Covance a non-exclusive, worldwide license to the Variagenics Know-How solely
for use to provide
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
Pharmacogenomic Lab Services as expressly permitted by this Agreement. During
the Term, Variagenics shall provide to Covance such reasonable materials and
support as are necessary to effect this license and to enable Covance to use the
Variagenics Know-How to provide Pharmacogenomic Lab Services, including, without
limitation, support from the Employees and the FTEs. Covance shall pay to
Variagenics a royalty for such license as provided in Section 2(c) (subject to
the other provisions in this Agreement with respect thereto), and shall promptly
pay to Variagenics all reasonable out-of-pocket expenses incurred in effecting
such license. Covance shall have no right to sublicense the Variagenics Know-How
except to its Affiliates who expect to provide Pharmacogenomic Lab Services,
which Affiliates shall have no further right to sublicense the Variagenics
Know-How.
(ii) Subject to continued payment of royalties pursuant to Section
2(c), the license provided for in Section 2(a)(i) shall survive any termination
of this Agreement, but only for (a) Variagenics Alliance Know-How in existence
on the date of such termination of this Agreement, (b) Variagenics Know-How
which had been marketed by Covance and its Affiliates at any time on or prior to
the date of such termination of this Agreement, and (c) other Variagenics
Know-How in existence at any time on or prior to the date of such termination of
this Agreement to the extent necessary to practice the license set forth in
clauses (a) and (b). The foregoing notwithstanding, Covance shall have the right
at any time after the termination of this Agreement, upon six (6) months' prior
written notice to Variagenics, to terminate the license provided for in this
Section 2(a) and the obligation to pay royalties pursuant to Section 2(c). In
the event of such termination of the license, and except as necessary to satisfy
obligations to Contracting Sponsors and the requirements of any applicable law,
rule or regulation, Covance will return to Variagenics or destroy all
embodiments of Variagenics Know-How in the possession of Covance or its
Affiliates.
(b) License of Variagenics Gene Rights. (i) Variagenics will license
Variagenics Gene Rights to a Contracting Sponsor for use in a specific Product
Development Program as needed by Covance and its Affiliates to perform
Pharmacogenomic Lab Services for such Contracting Sponsor, and such Contracting
Sponsor shall have the right to sublicense such Variagenics Gene Rights to
Covance and its Affiliates solely for use by Covance and its Affiliates to
provide Pharmacogenomic Lab Services to such Contracting Sponsor for such
Product Development Program. Covance and its Affiliates shall not be obligated
to pay any royalty to Variagenics in connection with any such sublicense.
(ii) The parties may, from time to time, discuss the possible
licensing of Variagenics Gene Rights to Covance and its Affiliates for use by
Covance and its Affiliates to provide Pharmacogenomic Lab Services using
Variagenics Gene Rights to Contracting Sponsors that do not have a license from
Variagenics for such Variagenics Gene Rights. Any such license will be on such
terms as the parties may agree from time to time. Neither party shall have any
obligation to enter into any such license.
(c) Royalty. Covance shall pay to Variagenics a royalty equal to
[ ](the "Variagenics Fees"). Variagenics acknowledges that in entering into
this Agreement Covance is not guaranteeing to Variagenics [ ] of
Variagenics Fees. For purposes of this Section 2(c), "proprietary" technology
shall mean Variagenics Know-How which Variagenics or
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any of its Affiliates owns or which is licensed to Variagenics or any of its
Affiliates or with respect to which Variagenics or any of its Affiliates has an
existing patent application or patent, and in each case which Variagenics or any
of its Affiliates has an exclusive right or license to use and has not granted a
right or license with respect thereto to any party other than Covance, except
for (i) any right to use for noncommercial purposes retained by academic
institutions, (ii) any right or license granted for purposes other than
Pharmacogenomic Lab Services, and (iii) any right or license granted to a
Sponsor in connection with a specific Product Development Program to obtain
Pharmacogenomic Lab Services using such Variagenics Know-How from any central
laboratory of the Sponsor's choice or for the Sponsor to use itself; and
"nonproprietary" technology shall mean all other Variagenics Know-How. The
foregoing notwithstanding, [ ] royalty shall be payable with respect to Net
Sales which are subject to royalty solely because of the use of Variagenics
Know-How which is (i) non-proprietary technology and which is also licensed to
Covance or any of its Affiliates by a third party, or (ii) also licensed to the
Sponsor to which such Net Sales relate, provided in each case such Net Sales are
not subject to royalty because of the use of any other Variagenics Know-How
(collectively, "Excluded Net Sales"). The determination of whether specific
Variagenics Know-How constitutes "proprietary" or "non-proprietary" technology
shall be made by the Committee. If the Committee is unable to resolve such
issue, the matter shall be resolved in accordance with Section 19. The
obligation to pay the Variagenics Fees shall survive any termination of this
Agreement and shall apply to Net Sales using Variagenics Know-How made during
the Term and, subject to Section 2(a)(ii), after termination of this Agreement.
(d) License of Covance Know-How. In order to assist Variagenics in
providing Variagenics Lab Services for the purposes described in the next
succeeding sentence, Covance shall license to Variagenics such Covance Know-How
as the parties may mutually agree, which license shall be a non-exclusive,
worldwide license of the Covance Know-How. The parties agree that the Covance
Know-How to be licensed may include the Covance Know-How set forth in Exhibit B
hereto. Any such Covance Know-How shall be used by Variagenics solely to enable
Variagenics to assist Covance in providing Pharmacogenomic Lab Services and to
enable Variagenics to provide Variagenics Lab Services, in each case as
expressly permitted by this Agreement. Variagenics and its Affiliates to which
Variagenics is permitted to sublicense such Know-How as set forth below shall
have the right to use Covance Know-How and Standard Operating Procedures in the
areas of data or information handling, management, reporting, processing and
control throughout their business, and, in addition, Variagenics shall have the
right to use the Covance Know-How for such other purposes as the parties may
mutually agree. [ ] shall be payable in connection with such license, but
Variagenics shall promptly pay to Covance all reasonable out-of-pocket expenses
incurred in effecting such license. Variagenics shall have no right to
sublicense the Covance Know-How except to any wholly-owned subsidiary of
Variagenics, which Affiliates shall have no further right to sublicense the
Covance Know-How. Variagenics and such Affiliates shall not disclose or promote
to any third party that they are using any Covance Know-How. Upon the
termination of the license provided for in this Section 2(d), and except as
necessary to satisfy obligations to Contracting Sponsors and the requirements of
any applicable law, rule or regulation, Variagenics will return to Covance or
destroy all embodiments of Covance Know-How in the possession of Variagenics or
its Affiliates.
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<PAGE>
3. Employees and FTEs. In order to fully support the continued development of
Variagenics Alliance Know-How and the Alliance:
(a) Employees. Covance will fund [ ] full-time employees
("Employees") at a rate of $[ ] per year per Employee, which Employees will
be employees of Variagenics. Payment for each such Employee will be made
quarterly ($[ ]), beginning on the date each such Employee becomes fully
dedicated to supporting the Alliance. The Employees will be under the control of
Variagenics but shall be at all times fully dedicated to supporting the
Alliance. Variagenics will use its commercially reasonable efforts to have
Employees fully dedicated to supporting the Alliance as soon as practicable
after execution of this Agreement. Variagenics shall promptly provide to Covance
the names of such Employees. If any such Employee ceases being fully dedicated
to supporting the Alliance for any reason, Variagenics shall promptly notify
Covance of such event and use its commercially reasonable efforts to replace any
such Employee as soon as possible, including the reassignment of other
Variagenics employees. The foregoing notwithstanding, the obligation of Covance
to provide the funding specified in this Section 3(a) shall be abated (and an
appropriate credit or refund shall be made) when and for as long as an Employee
position is not filled.
(b) Variagenics FTEs. (i) As soon as practicable following execution of
this Agreement, Variagenics will fund and provide [ ] ("FTE") who shall, in
the aggregate, be fully dedicated to supporting the Alliance at a level
equivalent to the effort of one full-time individual. This FTE will be
employee(s) of Variagenics and under the control of Variagenics.
(ii) As soon as practicable following satisfaction of the conditions
set forth in Section 3(d)(ii), Variagenics will fund and provide [ ] who
shall, in the aggregate, be fully dedicated to supporting the Alliance at a
level equivalent to the effort of [ ]. [ ] FTE will be employee(s) of
Variagenics and under the control of Variagenics.
(iii) Variagenics shall promptly provide to Covance the names of all
persons providing services as part of these FTEs and the percentage of their
time being dedicated to the Alliance. If the required number of FTEs cease being
fully dedicated to supporting the Alliance for any reason, Variagenics shall
promptly notify Covance of such event and use its commercially reasonable
efforts to replace such support as soon as possible, including the reassignment
of other Variagenics employees. The obligation of Covance to provide the funding
required by Section 3(a) shall be abated (and an appropriate credit or refund
shall be made) when, for as long as and to the extent the appropriate number of
FTEs are not fully supporting the Alliance. For purposes of illustrating the
foregoing concept, if Variagenics is required to fund and provide one (1) FTE
and only .50 FTE is fully dedicated to supporting the Alliance, then Covance's
obligations under Section 3(a) during the period when only .50 FTE is supporting
the Alliance shall be reduced by twenty-five percent (25%); and if Variagenics
is required to fund and provide two (2) FTEs and only 1.5 FTE is fully dedicated
to supporting the Alliance, then Covance's obligations under Section 3(a) during
the period when only 1.5 FTEs are supporting the Alliance shall be reduced by
twenty-five percent (25%). Under any circumstance, Variagenics shall be
responsible for providing the funding for the two Employees during any period
and to the extent Covance is not obligated to do so pursuant to this Section
3(a)(iii).
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<PAGE>
(c) Covance FTEs. Upon satisfaction of the conditions set forth in the
first sentence of Section 3(d)(i), or sooner if Covance elects in its sole
judgment, Covance will provide to Variagenics an advance to fund [ ] at a
rate of $[ ] per year per FTE. These advances will be made quarterly
($[ ]), beginning on the date each person who is part of such FTEs becomes
dedicated to supporting the Alliance, or on a pro rata basis to the extent that
fewer than [ ] FTEs are dedicated to supporting the Alliance; provided, however,
that Covance will not be obligated to provide any advance under this Section
3(c) unless at least [ ] FTE is dedicated to supporting the Alliance under
this Section 3(c). Variagenics will use its commercially reasonable efforts to
have these [ ] FTEs fully dedicated to supporting the Alliance as soon as
practicable after the satisfaction of the conditions set forth in Section
3(d)(i), or Covance's election, whichever is earlier. These advances shall be
repaid by Variagenics to Covance either, at Covance's election, by payment by
Variagenics to Covance in an amount equal to the sum of the Variagenics
Non-Alliance Fees and one-half of the Variagenics Fees (such payment to Covance
to be made within seven (7) days of the payment by Covance to Variagenics of the
Variagenics Fees and the Variagenics Non-Alliance Fees), or by the retention by
Covance of the Variagenics Non-Alliance Fees and one-half of the Variagenics
Fees otherwise payable to Variagenics. Variagenics shall promptly provide to
Covance the names of all persons providing services as part of these FTEs and
the percentage of their time being dedicated to the Alliance. If the required
number of FTEs cease being fully dedicated to supporting the Alliance for any
reason, Variagenics shall promptly notify Covance of such event and use its
commercially reasonable efforts to replace such support as soon as possible,
including the reassignment of other Variagenics employees. The foregoing
notwithstanding, the obligation of Covance to provide the advances specified in
this Section 3(c) shall be abated (and an appropriate credit or refund shall be
made) when, for as long as and to the extent these FTE positions are not filled.
(d) Conditions. (i) Covance's obligation under Section 3(c) shall not
begin until (A) the aggregate Net Sales of Pharmacogenomic Lab Services by
Covance and its Affiliates using Variagenics Know-How under the Alliance, plus
such Net Sales (without regard to receipt of payment) expected to be made under
signed agreements with Contracting Sponsors under the Alliance (in all cases net
of cancellations and modifications), but excluding Excluded Net Sales
("Cumulative Alliance Net Sales"), equals or exceeds $[ ], and (B) Covance
and its Affiliates have entered into signed agreements with Contracting Sponsors
to provide Pharmacogenomic Lab Services using Variagenics Know-How involving at
least [ ] Product Development Programs with respect to [ ]different
drugs, but excluding Excluded Net Sales. (For purposes of illustrating the
foregoing concepts, if Covance's Net Sales under agreements with Contracting
Sponsors have totaled $[ ], Net Sales expected under signed agreements with
Contracting Sponsors total $[ ], and Covance signs an additional agreement
with a Contracting Sponsor which, by its terms, is expected to generate
$[ ] or more of Net Sales for Covance, then, assuming the requirement in
clause (B) in the previous sentence has also been satisfied, Covance's
obligation under Section 3(c) shall begin). In addition, Covance may elect in
its sole judgment to provide the advances as provided for in Section 3(c) at
anytime. If Covance is not obligated pursuant to this Section 3(d)(i) to begin
providing the advances provided for in Section 3(c) by the first anniversary of
the date of this Agreement, and Covance has not elected to begin providing such
advances on or prior to such date, then Variagenics shall have the right,
exercisable by written notice to Covance within forty-five (45) days after such
first anniversary
5
<PAGE>
date, to terminate this Agreement thirty (30) days after the notice is given,
and there shall be no liability to Covance in connection with or as a result of
such termination. After such forty-five (45) days, Variagenics shall have no
right to terminate this Agreement pursuant to this Section 3(d).
(ii) Variagenics' obligation to fund its [ ] under Section
3(b)(ii) shall begin upon the earlier to occur of (A) the aggregate of the Net
Sales of Variagenics Lab Services by Variagenics and its Affiliates under the
Alliance, plus such Net Sales (without regard to payment) expected to be made
under signed agreements with Contracting Sponsors, equaling or exceeding
$[ ] and (B) the earlier to occur of the satisfaction of the conditions set
forth in the first sentence of Section 3(d)(i) and Covance's election to provide
the advances as provided for in Section 3(c).
(e) Renewal. (i) (A) The obligation to provide funding and advances
contained in this Section 3 shall continue for a two-year period from the date
of this Agreement and shall be continued for a three-year period thereafter if
Cumulative Alliance Net Sales by Covance and its Affiliates at the end of such
two-year period are at least $[ ]. In addition, Covance may elect in its
sole judgment to continue providing such funding and advances at the same level
as in effect at the end of such two-year period. If the $[ ] amount set
forth in the second preceding sentence is not achieved at the end of such
two-year period, the parties will attempt to agree upon a mutually acceptable
lower level of funding during such three-year period, as determined in their
respective sole judgment. If such Cumulative Alliance Net Sales at the end of
such two-year period are not at least $[ ], the parties have not agreed
upon a mutually acceptable lower level of funding after such two-year period,
and Covance has not elected to continue such funding and advances at the same
level as in effect at the end of such two-year period, then Variagenics shall
have the right, exerciseable by written notice to Covance within forty-five (45)
days after the end of such two-year period, to terminate this Agreement thirty
(30) days after the notice is given, and there shall no liability to Covance in
connection with or as a result of such termination. After such forty-five (45)
days, Variagenics shall have no right to terminate this Agreement pursuant to
this Section 3(e).
(B) After the fifth anniversary of the date of this Agreement,
any funding obligation then in effect shall be continued for additional one-year
periods unless Covance or Variagenics gives written notice to the other of
termination of the obligations to provide funding and advances contained in this
Section 3 at least one hundred and twenty (120) days prior to the expiration of
the then-current period.
(ii) The expiration of the obligation to provide funding and
advances contained in this Section 3 shall not eliminate the obligation of
Variagenics to repay advances as provided in Section 3(c). The conditions to
funding and advances provided for in this Section 3(e) are in addition to the
conditions to funding and advances contained elsewhere in this Agreement.
(f) Positions. All individuals serving as Employees and FTEs shall, in
supporting the Alliance, serve in scientific or data processing positions, or
positions administering scientific information or data, and in all cases shall
be developing Variagenics Alliance Know-How and
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effecting the license provided for in Section 2(a), and shall have sufficient
scientific, data processing or related training, experience and education so as
to permit them to be productive for such purpose in a reasonable timeframe.
Without limiting the foregoing, individuals serving as Employees and FTEs shall
not be secretaries, administrative assistants or other non-technical or
non-scientific personnel. Covance shall have the right to request that specific
employees of Variagenics serve as Employees or FTEs, and Variagenics shall give
good faith consideration to making these employees available to so serve. Prior
to any individual serving as an Employee or FTE, Variagenics will send to
Covance the curriculum vitae of such individual, and Covance shall have the
right in its reasonable discretion to promptly object to any such individual
serving as an Employee or FTE, in which case such individual shall not so serve.
In addition, Covance shall have the right to request that any individual serving
as an Employee or FTE no longer so serve, if in Covance's reasonable judgment,
such individual does not meet the requirements of this Section 3(f) or is
otherwise not performing in the best interests of the Alliance.
(g) No Limitations. The provisions contained in Sections 3(a), (b), and
(c) abating Covance's obligation to provide funding and advances are not
intended to and shall not limit any other rights or remedies Covance or
Contracting Sponsors may have as a result of a breach by Variagenics of its
obligations contained in those Sections.
4. Assay Delivery. Variagenics agrees to use all reasonable efforts to deliver
to Covance fully validated genotyping assays of the type and by the delivery
date set forth in Exhibit C hereto. The foregoing obligations may be amended by
unanimous vote of the Committee. If Variagenics fails to deliver any fully
validated assay as set forth in Exhibit C (including as Exhibit C may be amended
by the Committee from time to time), then Covance shall have the right,
exerciseable by written notice to Variagenics within forty-five (45) days after
such failure, to terminate this Agreement thirty (30) days after the notice is
given, and there shall no liability to Variagenics in connection with or as a
result of such termination.
5. Provision of Services.
(a) Services. If Covance or any of its Affiliates shall desire Variagenics
or any of its Affiliates to provide Variagenics Lab Services to a Sponsor, then
Covance or its Affiliates will provide Variagenics with the specifications for
the Variagenics Lab Services to be performed and Variagenics will prepare a
Price Quotation in response thereto within ten (10) business days of the
delivery of the specifications to Variagenics (or such shorter timeframe as may
be necessary to satisfy the requirements of the Sponsor); provided, that
Variagenics shall be under no obligation to deliver a Price Quotation if
providing such Price Quotation is prohibited by any written agreements of
Variagenics with third parties in effect prior to the date of this Agreement and
Variagenics delivers a letter to Covance to such effect within such ten (10)
business days. These Price Quotations will be binding upon Variagenics or its
Affiliates which provide such Price Quotation. For each Price Quotation
submitted by Variagenics or any of its Affiliates to Covance or any of its
Affiliates with respect to which Covance or such Affiliate desires Variagenics
or its applicable Affiliates to perform Variagenics Lab Services, Covance or
such Affiliate and Variagenics or such Affiliates shall promptly enter into an
IPA.
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<PAGE>
(b) Compliance. In performing Variagenics Lab Services under this
Agreement or any IPA, Variagenics and its Affiliates will, at their own cost and
expense, comply with Covance Standard Operating Procedures and with all present
and future applicable laws, rules and regulation in effect from time to time. If
Variagenics or any of its Affiliates is subjected to an on-site inspection or if
any inquiries which have a bearing on Variagenics Lab Services under this
Agreement are made by any government agencies, Variagenics will notify Covance
immediately. Variagenics shall also notify Covance immediately (i) if for any
reason it or any of its Affiliates is disqualified by a government regulatory
agency or (ii) of any events or circumstances which can affect the Variagenics
Lab Services under this Agreement.
(c) Payments to Covance. For all Variagenics Lab Services performed by
Variagenics or any of its Affiliates (i) independent of any Pharmacogenomic Lab
Services provided by Covance or any of its Affiliates and with respect to which
Covance or any of its Affiliates has (A) initiated contact between Variagenics
and the Contracting Sponsor, (B) made a proposal on behalf of Variagenics, (C)
joined a sales process initiated by Variagenics at the request of Variagenics,
and/or (D) assisted Variagenics in approaching a Contracting Sponsor or
establishing the contract for the Variagenics Lab Services with the Contracting
Sponsor or (ii) as part of a package consisting of Variagenics Lab Services
provided by Variagenics or any of its Affiliates and Pharmacogenomic Lab
Services provided by Covance or any of its Affiliates arranged for together
between Covance or any of its Affiliates and a Sponsor, Variagenics shall pay to
Covance a fee equal to [ ](the "Covance Fees"). Variagenics acknowledges
that in entering into this Agreement Covance is not guaranteeing a minimum
amount of Net Sales which will generate Covance Fees. Covance acknowledges that
in entering into this Agreement, Variagenics is not guaranteeing to Covance any
minimum amount of Covance Fees.
(d) Audits. Variagenics and its Affiliates shall permit Covance or any of
its Affiliates and any Contracting Sponsor to audit their facilities, books and
records (including access to its personnel) for any reason in connection with
this Agreement. Apart from extenuating circumstances, Covance, its Affiliates or
the Contracting Sponsor, as applicable, shall provide Variagenics with
reasonable advance written notice of when the audit is to be conducted and such
audit will be held during Variagenics' regular business hours. Variagenics will
assist Covance, its Affiliates or the Contracting Sponsor in scheduling such
audits. Variagenics agrees to expediently address any deficiencies determined
within 30 days of such determination.
(e) Equipment. In order to facilitate the efficient operation of the
Alliance, Covance and Variagenics will cooperate to integrate their equipment
and procedures, including, without limitation, sample handling, sample tracking,
result reporting systems, and laboratory testing equipment, each at its own
expense. Subject to Sections 2(d) and 5(b) above, if Covance requires
Variagenics to utilize particular equipment, hardware or software, Covance will
lend such equipment, hardware or software to Variagenics, or otherwise make it
available to Variagenics at [ ].
(f) Covance Services. If Variagenics or any of its Affiliates shall desire
Covance or any of its Affiliates to provide Pharmacogenomic Lab Services under
this Agreement to a prospective Contracting Sponsor, other than a prospective
Contracting Sponsor to whom Covance or its Affiliates has marketed or provided
Pharmacogenomic Lab Services, as part of a
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package consisting of Variagenics Lab Services provided by Variagenics or any of
its Affiliates and Pharmacogenomic Lab Services provided by Covance or any of
its Affiliates arranged for together between Variagenics or any of its
Affiliates and a prospective Contracting Sponsor, then Variagenics or its
Affiliates will provide Covance with the specifications for the Pharmacogenomic
Lab Services to be performed and Covance will prepare a Price Quotation in
response thereto within ten business days of the delivery of the specifications
to Covance (or such shorter timeframe as may be necessary to satisfy the
requirements of the prospective Contracting Sponsor). These Price Quotations
will be binding upon Covance or its Affiliates which provide such Price
Quotation. For each Price Quotation submitted by Covance or any of its
Affiliates to Variagenics or any of its Affiliates with respect to which
Variagenics or such Affiliate desires Covance or its applicable Affiliates to
perform Pharmacogenomic Lab Services, Variagenics or such Affiliate and Covance
or such Affiliate shall promptly enter into an IPA. The foregoing
notwithstanding, Covance and its Affiliates shall not be obligated to provide a
Price Quotation or perform any Pharmacogenomic Lab Services if prohibited by
agreements with third parties (whether entered into prior to or after the date
of this Agreement), as determined by Covance in its sole judgment. Nothing
contained herein shall preclude Covance and its Affiliates from providing
Pharmacogenomic Lab Services not arranged by Variagenics.
(g) Variagenics Identification. Covance and its Affiliates will identify
to a Sponsor for whom they are performing Pharmacogenomic Lab Services that
utilizes Variagenics Know-How (other than any such services which are Excluded
Net Sales), that Variagenics is the source of the technology used in such
Pharmacogenomic Labs Services. Such identification shall be in a form as will be
mutually agreed upon by Covance and Variagenics. The foregoing obligation shall
not apply if making such an identification is prohibited by the Sponsor or the
Sponsor requests that such an identification not be made. Except as provided in
this Section 5(g), and anything in this Agreement to the contrary
notwithstanding, Covance shall be under no obligation to engage in any marketing
activities for Variagenics.
(h) Contract Protections. Anything in Sections 5(a) and 5(f) to the
contrary notwithstanding, the obligation of Covance or Variagenics, or their
Affiliates, to enter into any IPA shall be subject to the receipt by such party
of the benefit of such contractual provisions (whether as a third party
beneficiary or otherwise), as such party shall determine in its sole judgment as
are necessary to protect its interests.
(i) Non-Alliance Sales. Covance shall pay to Variagenics a fee equal to
[ ] ("Variagenics Non-Alliance Fees"). The foregoing notwithstanding, no
Variagenics Non-Alliance Fees shall be payable by Covance to Variagenics with
respect to any Sponsor to which Covance or its Affiliates has marketed or is
marketing the service which generated the applicable Net Sales independent of
the contact initiated by Variagenics. Covance acknowledges that in entering into
this Agreement Variagenics is not guaranteeing a minimum amount of Net Sales as
described in this Section 5(i). Variagenics acknowledges that in entering into
this Agreement Covance is not guaranteeing to Variagenics any minimum amount of
Variagenics Non-Alliance Fees and is not agreeing that it will perform any of
the services indicated on Exhibit D for any Sponsor.
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6. Advisory Committee. Promptly after execution of this Agreement, Variagenics
and Covance shall establish an Advisory Committee (the "Committee"), which shall
consist of two representatives of each of the parties or such other number as
the parties may mutually agree. The purpose of the Committee shall be to
determine the nature and scope of services to be subject to the Alliance, and
address such other matters as the parties may mutually agree. Each of
Variagenics and Covance shall bear the expenses for their members' participation
in the Committee, including any travel costs.
7. Fees.
(a) Variagenics Fees and Variagenics Non-Alliance Fees. Covance shall send
to Variagenics a statement within thirty (30) days after the end of each
calendar quarter of the Net Sales during such quarter with respect to which
Variagenics is entitled to a Variagenics Fee and a Variagenics Non-Alliance Fee
and the Variagenics Fees and Variagenics Non-Alliance Fees therefor, accompanied
by payment of such Fees (which may be by wire transfer). The foregoing
notwithstanding, Covance shall have the right to withhold from any payment to
Variagenics the amounts to be applied to the repayment of advances provided for
in Section 3(c).
(b) Covance Fees. Variagenics shall send to Covance a statement within 30
days after the end of each calendar quarter of the Net Sales during such quarter
with respect to which Covance is entitled to a Covance Fee and the Covance Fees
therefor, accompanied by payment of such Covance Fees (which may be by wire
transfer).
(c) Disputes. All such statements shall include reasonable detail as to
the services provided, and shall be certified by an officer of the party to be
correct to the best of such party's knowledge and information. Any objection to
such Fees shall be given in writing by the objecting party within 30 days after
such statement has been sent and shall include a statement as to the basis of
any such objection. The parties shall attempt in good faith to resolve such
objections. If the parties are unable to resolve such objections within 30 days
of receipt by the applicable party of such objection, then the dispute shall be
resolved in accordance with the provisions of Section 19.
(d) Termination. The obligation to pay Variagenics Non-Alliance Fees and
Covance Fees shall survive any termination of this Agreement, but only with
respect to applicable written agreements pursuant to which such Fees will be
generated entered into prior to any termination of this Agreement. No
Variagenics Non-Alliance Fees or Covance Fees shall be payable with respect to
agreements entered into after any such termination.
8. Exclusivity. During the Term, Variagenics and its Affiliates shall not,
directly or indirectly, either alone or in conjunction with any other person or
entity, (i) enter into any alliance, partnership, joint venture, distribution or
similar arrangement or agreement with any person or entity for the purpose of
providing Pharmacogenomic Lab Services or (ii) license any Variagenics Know-How
to any person or entity for the purpose of providing Pharmacogenomic Lab
Services, except as set forth in the next sentence. Variagenics and its
Affiliates may, however, license Variagenics Know-How to a Sponsor in connection
with a specific Product Development Program to obtain Pharmacogenomic Lab
Services using such Variagenics Know-
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How from any central laboratory of the Sponsor's choice or for the Sponsor to
use itself. In addition, during the Term, Variagenics and its Affiliates shall
not, directly or indirectly, provide Pharmacogenomic Lab Services to a Sponsor
for a specific Product Development Program, unless (i) Variagenics has offered
Covance and its Affiliates the opportunity to provide the Pharmacogenomic Lab
Services for such Product Development Program and they have declined to provide
such services or Covance and its Affiliates do not have the necessary technology
or intellectual property rights or otherwise cannot meet the Sponsor's
specifications for such services, (ii) the Sponsor does not wish to acquire the
Pharmacogenomic Lab Services for such Product Development Program from Covance
or its Affiliates, (iii) Covance or its Affiliates are marketing or performing
substantially similar Pharmacogenomic Lab Services which do not utilize
Variagenics Know-How, or (iv) such Pharmacogenomic Lab Services are furnished
pursuant to a written proposal or agreement which is disclosed on Exhibit E, all
of which predate this Agreement; provided, that in the case of clause (i),
Variagenics' right to perform such services shall only apply if the
Pharmacogenomic Lab Services are performed by Variagenics on substantially the
same terms as the specifications last provided to Covance prior to Covance's
declining to provide such services or Covance's decision that it does not have
the necessary technology or rights or cannot meet such specifications. In
addition, except as may be mutually agreed to by the parties, during the Term,
Variagenics and its Affiliates shall not, directly or indirectly, provide
Pharmacogenomic Lab Services to any person or entity which is not a "Sponsor" as
provided in the definition thereof. No Employees or FTEs may be used by
Variagenics or its Affiliates to provide such Pharmacogenomic Lab Services.
9. Representations; Covenants.
(a) Variagenics Representations. Variagenics represents and warrants to
Covance that: it is duly organized, validly existing and in good standing under
the laws of the State of Delaware; it has taken all actions necessary to secure
all approvals required to be secured by it in connection with the transactions
contemplated hereby; the execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate, shareholder and other
action; this Agreement has been duly executed and delivered and constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms; the execution, delivery and performance of this Agreement does not
violate any agreement to which it is a party or by which it is bound or any law,
order or decree applicable to it, or any provision of its charter documents or
bylaws; no third party has asserted in writing to Variagenics that the
Variagenics Know-How infringes upon any intellectual property rights that are
owned or claimed by such third party, and to the best knowledge of Variagenics,
the Variagenics Know-How does not infringe upon any intellectual property rights
that are owned or claimed by any third party; and it shall obtain and shall
maintain in full force and effect all permits, licenses and other required
governmental approvals necessary to perform Variagenics Lab Services.
Variagenics further represents and warrants that neither it nor its Affiliates
is currently a party to any alliance, partnership, joint venture, distribution
or similar arrangement or agreement, or any license, of the nature described in
the first sentence of Section 8, or any arrangement or agreement to provide
Pharmacogenomic Lab Services to any Sponsor, and it does not have outstanding
any proposal for any of the foregoing, except for agreements listed on Exhibit E
and proposals for specific services that propose a price for such services and
which are listed on Exhibit E. Variagenics has the right to license to Covance
all of the presently existing Variagenics Know-How and will have
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the right to license to Covance all of the Variagenics Know-How developed after
the date hereof that is owned by Variagenics, including in each case after the
termination of this Agreement as provided in Section 2(a).
In addition, Variagenics represents and warrants to Covance that Variagenics has
obtained an aggregate of at least $10,000,000 in equity or debt financing after
July 20, 1999 which is "new" money (i.e., the proceeds of such financing are not
being used to replace, retire or refinance existing debt or equity of
Variagenics).
(b) Covance Representations. Covance represents and warrants to
Variagenics that: it is duly organized, validly existing and in good standing
under the laws of the State of Delaware; it has taken all actions necessary to
secure all approvals required to be secured by it in connection with the
transactions contemplated hereby; the execution, delivery and performance of
this Agreement by it has been duly authorized by all necessary corporate,
shareholder and other action; this Agreement has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation,
enforceable against it in accordance with its terms; the execution, delivery and
performance of this Agreement does not violate any agreement to which it is a
party or by which it is bound or any law, order or decree applicable to it, or
any provision of its charter documents or bylaws; no third party has asserted in
writing to Covance that the Covance Know-How infringes upon any intellectual
property rights that are owned or claimed by such third party, and to the best
knowledge of Covance, the Covance Know-How does not infringe upon any
intellectual property rights that are owned or claimed by any third party; and
it has and shall maintain in full force and effect all permits, licenses and
other required governmental approvals necessary to perform Pharmacogenomic Lab
Services. Covance has the right to license to Variagenics all of the presently
existing Covance Know-How and will have the right to license to Variagenics all
of the Covance Know-How developed after the date hereof that is owned by
Covance.
10. Review. In addition to the rights set forth in Section 7(c), the parties
agree that each party shall have the right at its sole cost and expense to have
an independent accountant, reasonably satisfactory to the party whose books are
being reviewed, review the financial books and records of the other and its
Affiliates at such times as the parties shall reasonably agree and upon
reasonable notice to the other for the sole purpose of verifying the
determination of the applicable Net Sales, and the Covance Fees and Variagenics
Fees. In addition, Covance shall have the right to have such accountant review
such appropriate books and records of Variagenics and its Affiliates as are
necessary to verify obligations with respect to Employees and FTEs set forth in
Section 3.
11. Indemnification.
(a) Covance Indemnification. Covance shall indemnify, defend and hold
harmless Variagenics and its Affiliates and their respective officers,
directors, employees and agents from, against and in respect of any and all
losses, damages, costs or expenses (including reasonable attorney's fees) (a
"loss") arising from any claim, action, suit, assessment, proceeding or demand
(a "Claim") asserted by a third party resulting from, relating to or arising out
of (i) the negligence, gross negligence or intentional misconduct or inaction of
Covance or any of its
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Affiliates in the performance of their obligations under this Agreement or any
IPA, or the breach of any representation, warranty, covenant or agreement of
Covance or any of its Affiliates in the performance of their obligations under
this Agreement or any IPA; provided, that if such Loss or Claim arises in whole
or in part from the negligence, gross negligence or intentional misconduct or
inaction of Variagenics or any of its Affiliates then the amount of the Loss or
Claim that Covance shall indemnify Variagenics and its Affiliates for pursuant
to this Section 11 shall be reduced by an amount in proportion to the percentage
of Variagenics' or its Affiliates' responsibility for such Loss or Claim as
determined by a court of competent jurisdiction in a final and non-appealable
decision or, if available, pursuant to the arbitration provisions of Section 19
hereof, or in a binding settlement between the parties or (ii) any actual or
alleged infringement by the Covance Know-How which is licensed to Variagenics
hereunder of any intellectual property rights that are owned or claimed by any
third party.
(b) Variagenics Indemnification. Variagenics shall indemnify, defend and
hold harmless Covance and its Affiliates and their respective officers,
directors, employees and agents from, against and in respect of any and all
Losses arising from any Claim asserted by a third party resulting from, relating
to or arising out of (i) the negligence, gross negligence or intentional
misconduct or inaction of Variagenics or any of its Affiliates in the
performance of their obligations under this Agreement or any IPA, or the breach
of any representation, warranty, covenant or agreement of Variagenics or any of
its Affiliates in the performance of their obligations under this Agreement or
any IPA; provided, that if such Loss or Claim arises in whole or in part from
the negligence, gross negligence or intentional misconduct or inaction of
Covance or any of its Affiliates then the amount of the Loss or Claim that
Variagenics shall indemnify Covance and its Affiliates for pursuant to this
Section 11 shall be reduced by an amount in proportion to the percentage of
Covance's or its Affiliates' responsibility for such Loss or Claim as determined
by a court of competent jurisdiction in a final and non-appealable decision or,
if available, pursuant to the arbitration provisions of Section 19 hereof, or in
a binding settlement between the parties or (ii) any actual or alleged
infringement by the Variagenics Know-How of any intellectual property rights
that are owned or claimed by any third party.
(c) Third Party Claims. Upon receipt of notice of any Claim brought or
asserted against any party hereto by any third party which may give rise to a
right of indemnity from the other party or parties hereto, the party seeking
indemnification (the "Indemnified Party") shall give prompt written notice
thereof to the other party or parties (the "Indemnifying Party") with a claim
for indemnity; provided, that failure to give prompt notification shall not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure. Such claim for indemnity shall indicate the nature of the Claim and the
basis therefore. The Indemnifying Party shall have ten days from its receipt of
the notice of the Claim to notify the Indemnified Party whether or not the
Indemnifying Party elects, at its sole cost and expense, to defend the
Indemnified Party hereunder against such Claim; provided, that the Indemnified
Party is authorized, but not obligated, prior to notification from the
Indemnifying Party of its desire to defend the Claim, to file any motion, answer
or other pleading that it shall deem necessary or appropriate to protect its
interest.
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The Indemnifying Party shall be permitted to defend the Claim if it so elects,
provided that (i) the Indemnified Party is given the right to participate in the
defense of such Claim at its own cost and expense, (ii) the Indemnifying Party
conducts the defense of such Claim with due regard for the business interests
and potential related liabilities of the Indemnified Party and (iii) the
Indemnifying Party will, prior to making any settlement, consult with the
Indemnified Party as to the terms of such settlement. The Indemnified Party
shall have the right, at its election, to release and hold harmless the
Indemnifying Party from its obligations hereunder with respect to such Claim and
assume the complete defense of the same in return for payment by the
Indemnifying Party to the Indemnified Party of the amount of any settlement
offer by the Indemnifying Party. The Indemnifying Party will not, in defense of
any such Claim, except with the consent of the Indemnified Party, consent to the
entry of any judgment or enter into any settlement which (i) does not include,
as an unconditional term thereof, the giving by the third party to the
Indemnified Party of a release from all liability in respect thereof or (ii)
imposes any obligation on the Indemnified Party. After notice to the Indemnified
Party of the Indemnifying Party's election to assume the defense of such Claim,
the Indemnifying Party shall be liable to the Indemnified Party for such legal
or other expenses subsequently incurred at the request of the Indemnifying Party
by the Indemnified Party in connection with the defense thereof. As to those
Claims with respect to which the Indemnifying Party does not elect to assume
control of the defense, the Indemnified Party will afford the Indemnifying Party
an opportunity to participate in such defense, at the Indemnifying Party's own
cost and expense, and will not settle or otherwise dispose of any of the same
without the consent of the Indemnifying Party.
(d) Direct Claims. If either party (a "Non-Breaching Party") shall have a
claim against the other party (a "Breaching Party") resulting from, relating to
or arising out of any breach of the Breaching Party's representations,
warranties, covenants or agreements in or under this Agreement, or the
negligence, gross negligence or intentional misconduct or inaction of the
Breaching Party or any of its Affiliates under this Agreement or IPA, and which
does not involve a Claim being brought or asserted by a third party (a "Direct
Claim"), then the Non-Breaching Party shall promptly send written notice thereof
to the Breaching Party; provided, that failure to give prompt notification shall
not affect the rights of the Breaching Party except to the extent the
Non-Breaching Party shall have been actually prejudiced as a result of such
failure. If the Breaching Party does not notify the Non-Breaching Party within
thirty (30) days from its receipt of the notice of the Direct Claim that it
disputes such Direct Claim, then the amount of the Direct Claim shall be deemed
an obligation of the Breaching Party hereunder. If the Breaching Party notifies
the Non-Breaching Party that it disputes such Direct Claim, then the matter will
be resolved as set forth in Section 19. The substantially prevailing party in
any dispute involving a Direct Claim shall be entitled to recover its reasonable
attorneys' fees and all reasonably related costs (including out of pocket
expenses), in addition to any other remedies at law or in equity.
(e) Payment of Obligations. If an Indemnifying Party or Breaching Party is
required to make any payment under this Section, the Indemnifying Party or
Breaching Party shall promptly pay the Indemnified Party or the Non-Breaching
Party the amount so determined. If there should be a dispute as to the amount of
any obligation owed under this Section, the Indemnifying Party or Non-Breaching
Party shall nevertheless pay when due such portion, if any, of the obligation as
shall not be subject to dispute. The difference, if any, between the
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amount of the obligation ultimately determined as properly payable under this
Section and the portion, if any, previously paid shall bear interest as provided
in Section (f) below.
(f) Failure to Pay. If all or part of any obligation under this Agreement
is not paid when due, then the Indemnifying Party or the Breaching Party shall
pay the Indemnified Party or the Non-Breaching Party interest on the unpaid
amount of the obligation for each day from the date the amount became due
through the date on which payment in full is made, payable on demand, at the
fluctuating rate per annum publicly announced on the date of the claim for
indemnification under this Agreement by Bank of America, N.A. (or its
successors) as its so-called "prime rate."
(g) Breach by Indemnified Party or the Non-Breaching Party. A breach by
the Indemnified Party or the Non-Breaching Party of its obligations under this
Agreement shall not relieve the Indemnifying Party or the Breaching Party of its
obligations under this Section unless such breach was solely responsible for the
Loss or Claim as determined by a court of competent jurisdiction in a final and
non-appealable decision, or, if available, pursuant to the arbitration
provisions of Section 19 hereof, or in a binding agreement between the parties.
12. Use of Names; Website. (a) Variagenics and Covance agree each may use the
name and logo of the other in its marketing and promotional materials, but
solely in reference to the existence and services of the Alliance and only after
written approval by the other party of the text of such materials in which the
other party's name is used. The parties shall issue a mutually acceptable joint
press release in a form agreed prior to the execution hereof promptly after the
execution hereof. All subsequent press releases relating to this Agreement or
the Alliance shall be subject to the written approval of both parties. The
foregoing notwithstanding, once a particular item of information has been
disclosed as permitted by this Section 12, either party may make subsequent
disclosure of such item of information in the same or similar context without
approval of the other party, except with respect to press releases that include
any information other than the fact that the Alliance is in existence and the
general subject matter of the Alliance. Except as specifically set forth herein,
no party shall otherwise use the name of the other parties, including any
tradename, service mark, trademark, trade name, symbol or logo, in any
advertising or sales promotional materials or in any publication without prior
written consent.
(b) Website. Variagenics agrees that in maintaining its website at
www.variagenics.com, or any other website it may directly or indirectly control,
Variagenics shall, subject to the requirements of Section 12(a), display the
Covance name and logo (or any successors thereto) (including a hyperlink to
www.covance.com or any successor website) and describe the existence of the
relationship created by this Agreement, in a substantially equivalent manner as
is described any relationship which Variagenics may have with any other party
regarding Variagenics Lab Services and is displayed the name and logo of any
such party. Nothing in this Section 12(b) shall require Variagenics to display
any of the foregoing with respect to Covance if none of the foregoing are
displayed with respect to any party with whom Variagenics has such a
relationship.
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13. Property Rights. All Variagenics Know-How, Covance Know-How and other
information provided by one party to the other party shall remain the exclusive
property of the providing party, subject to the rights therein granted in this
Agreement, and shall be kept confidential as provided in Section 14.
14. Confidential Information.
(a) Confidentiality Obligation. It is anticipated that in the performance
of this Agreement, Covance and its Affiliates and Variagenics and its Affiliates
shall provide to the other or the other's Affiliates access to certain
information ("Proprietary Information") which the discloser considers
proprietary, which may include information of third parties, including Sponsors
(each party disclosing information and its Affiliates is referred to as a
"Discloser" and each party and its Affiliates receiving information is referred
to as a "Recipient"). For purposes hereof, Proprietary Information shall include
any such information disclosed by one party to the other party at any time on or
after June 17, 1998. During the period from the date of this Agreement through
the later of eight (8) years after the date of this Agreement and three (3)
years after the termination of this Agreement (or such later period as may be
required by a Sponsor, if applicable), the Recipient of Proprietary Information
shall use such Proprietary Information solely for the purposes of fulfilling the
Recipient's obligations under this Agreement or an applicable IPA, and shall
keep confidential and not disclose such Proprietary Information to any other
person or entity for any purpose; provided, that the foregoing limitations on
use and requirements of confidentiality and non-disclosure shall not terminate
with respect to Covance Know-How or Variagenics Know-How. In addition, each
party represents to the other that any Proprietary Information of the other
party received by such party between June 17, 1998 and the date of this
Agreement has been used, kept and not disclosed as is required by this Section
14(a) with respect to Proprietary Information disclosed after the date of this
Agreement. Proprietary Information shall include the material (including
economic) terms and conditions of this Agreement.
(b) Exceptions. The obligations contained in this Section shall not apply
with respect to Proprietary Information which (i) is publicly available prior to
the date of this Agreement or becomes publicly available thereafter through no
breach of this Agreement by the Recipient, (ii) was known to the Recipient prior
to the date of disclosure or becomes known to the Recipient thereafter from a
third party not under an obligation of confidentiality with respect to such
information known to the Recipient; (iii) is disclosed with the written
permission of the Discloser; (iv) is independently developed or conceived by the
Recipient by persons or entities having no access to the Proprietary Information
of the Discloser; or (v) the Recipient is obligated to disclose pursuant to
applicable law, regulation, rule, subpoena, order, decree, decision or other
legal process, or by stock exchange rules, provided, that Recipient promptly
notifies Discloser of any such requirement and cooperates, at the Discloser's
expense, with the Discloser in seeking a protective order with respect to such
Proprietary Information. In addition, either party may disclose the terms
(including economic terms) of this Agreement to existing or prospective
investors, lenders or other sources of financing; provided, that any such
recipient of such disclosures is subject to a reasonable confidentiality
agreement, and under no circumstances may disclosures be made to any existing or
prospective investor, lender or other source of financing who performs or whose
Affiliates perform Product Development Services.
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(c) Remedies. Each party hereto acknowledges and agrees that the
disclosure of Proprietary Information in violation of the terms of this
Agreement without the express written permission of the Discloser may cause
irreparable harm and that the breach or threatened breach of the provisions of
this Section will entitle said party to injunctive relief, in addition to any
other equitable or legal remedies that may be available to it.
15. Insurance.
(a) Variagenics. Variagenics shall, at its sole cost and expense, procure
and maintain in full force and effect during the Term and for a three-year
period thereafter, comprehensive general liability and professional liability
insurance. Such coverage shall be maintained at a minimum with limits of
$1,000,000 per occurrence and $5,000,000 in the aggregate. Covance shall be
named as an additional insured on such policies. Variagenics shall provide
Covance with a certificate of insurance evidencing the coverage required by this
Section upon request.
(b) Covance. Covance shall, at its sole cost and expense, procure and
maintain in full force and effect during the Term and for a three-year period
thereafter, comprehensive general liability and professional liability
insurance. Such coverage shall be maintained at a minimum with limits of
$1,000,000 per occurrence and $5,000,000 in the aggregate. Variagenics shall be
named as an additional insured on such policies. Covance shall provide
Variagenics with a certificate of insurance evidencing the coverage required by
this Section upon request.
(c) Amendments to Insurance. These policies shall not be changed (other
than any change that is not material and adverse) or canceled during the Term
without fifteen (15) days prior written notice to the other party. The
procurement or maintenance of such insurance, however, shall not in any way be
construed or be deemed to limit or relieve any party from any obligation, risk,
or liability assumed under the terms of this Agreement.
16. Term and Termination.
(a) Term. Subject to earlier termination as provided elsewhere in this
Agreement, or unless otherwise agreed to by the parties, this Agreement shall be
effective for a period of five (5) years from the date of this Agreement, and
thereafter this Agreement shall be effective and automatically be renewed for
successive terms of one (1) year provided that neither party gives the other
party written notice of its intent not to renew this Agreement at least ninety
(90) days prior to the expiration of the current term (such period of
effectiveness, the "Term"). All terms and conditions set forth in this Agreement
shall apply to any such renewal term(s).
(b) Termination--Agreement. Notwithstanding the provisions of Section
16(a), either party may terminate this Agreement upon the occurrence of any of
the following: the material breach of the other party's representations,
warranties, covenants or agreements contained in this Agreement or any IPA and
such party's failure to remedy any such breach within sixty (60) days after
written notice thereof by the non-breaching party; the other party's committing
any act of intentional, willful or negligent misconduct in the performance of
its duties or obligations under this Agreement or any IPA, and such party's
failure to remedy any such misconduct within sixty
17
<PAGE>
(60) days after written notice thereof by the non-breaching party; the other
party's insolvency; the initiation of bankruptcy or receivership proceedings by
or against the other party (which are not dismissed in forty-five (45) days);
the other party makes a general assignment for the benefit of creditors or a
receiver is appointed for it; or the assignment of the other party's assets for
the benefit of creditors. If this Agreement shall terminate, whether pursuant to
this Section 16(b) or other provisions of this Agreement, prior to termination
of any IPA and completion of the obligations thereunder, then, subject to
termination of any IPA as provided in Section 16(c), the parties shall complete
their obligations under any IPA then in effect subject to the terms and
conditions of this Agreement.
(c) Termination--IPAs. Covance or Variagenics (as the party or primary
party to the agreement with the Contracting Sponsor with respect to the
applicable Product Development Program) may terminate any IPA when the
Contracting Sponsor has terminated the applicable Product Development Program or
any portion thereof to which the IPA relates (regardless of the reason for such
termination by the Contracting Sponsor), or when the other party has materially
breached any of its representations, warranties, covenants or agreements
contained in such IPA or committed any act of intentional, willful or negligent
misconduct in the performance of its duties or obligations under such IPA. If
any IPA is terminated prior to the completion of the Variagenics Lab Services or
Pharmacogenomic Lab Services provided for therein, Variagenics shall cooperate
with Covance and its Affiliates in concluding such Variagenics Lab Services, or
Covance or its Affiliates shall cooperate with Variagenics in concluding such
Pharmacogenomic Lab Services, as the case may be, as expeditiously as
practicable and in accordance with all applicable laws, rules and regulations.
(d) Change of Control. (i) Subject to the following provisions in this
Section 16(d), Covance shall have the right in its absolute discretion to
terminate this Agreement and/or any or all IPAs in connection with a Change of
Control. If Variagenics expects there to be a Change of Control, Variagenics
shall provide to Covance prompt prior written notice of such expected event,
together with such information with respect thereto as Covance shall reasonably
request, which information Covance shall request in writing within 10 days of
such written notice; provided, that Variagenics shall notify Covance promptly in
writing if Taylor Crouch no longer is serving as President of Variagenics.
Within fifteen (15) days of receipt of such notice and information, Covance
shall give written notice to Variagenics as to whether or not Covance intends to
terminate this Agreement in connection with such Change of Control. If Covance
does not give a written response within such fifteen (15) days, or if Covance's
written response indicates it will not terminate this Agreement in connection
with the Change of Control, then Covance will have no right to terminate this
Agreement in connection with the Change of Control. If Covance's response
indicated it intends to terminate this Agreement in connection with the Change
of Control, then Covance shall have the right, exercisable within ten (10) days
after receipt of Variagenics' notice to Covance of the effectiveness of such
Change of Control, to immediately terminate this Agreement and/or any or all
IPAs in its absolute discretion. The foregoing notwithstanding, if the Change of
Control is completed on terms materially different than the terms indicated in
the notice provided for in the first sentence of this Section 16(d) and
information provided to Covance (a "Non-Compliant Change of Control"), then
Covance shall have the right to terminate this Agreement and/or any or all IPAs
in its absolute discretion within
18
<PAGE>
forty-five (45) days after Covance has actual knowledge of the occurrence of the
Non-Compliant Change of Control.
(ii) Covance shall also have the right to terminate this Agreement
and/or any or all IPAs in its absolute discretion in connection with a Change of
Control with respect to which Covance was not provided the notice and
information required by this Section 16(d) or, in the case of a Change of
Control under clause (v) of the definition thereof, as to which no satisfactory
replacement is obtained within the permitted one-hundred and eighty (180) day
period. Covance may exercise this right by written notice given at any time
prior to forty-five (45) days after receipt by Covance of all information with
respect to any such Change of Control Covance may reasonably request in writing,
which request shall be made by Covance within ten (10) days of Covance's receipt
of written notice from Variagenics of such Change of Control.
(iii) Under all circumstances under this Section 16(d), Variagenics
will notify Covance immediately upon the effectiveness of any Change of Control,
and promptly provide such information as Covance shall reasonably request to
determine whether the Change of Control was a Non-Compliant Change of Control.
(e) Survival of Obligations. Upon the termination or expiration of this
Agreement for any reason, all of the rights and obligations of the parties
hereto shall terminate, except that (i) except as otherwise provided for in this
Agreement, all licenses provided for in this Agreement shall continue after such
termination or expiration solely for use with respect to and until the
completion of all obligations to perform Pharmacogenomic Lab Services and
Research Lab Services under or in connection with this Agreement in effect on
the date of such termination or expiration, and (ii) such termination or
expiration shall not (a) relieve any party from any liability arising from any
breach of this Agreement, (b) affect the right of either party to receive
payment, subject to the limitations contained herein, of all Covance Fees,
Variagenics Fees or Variagenics Non-Alliance Fees, as applicable, or repayment
of the advances provided for in Section 3(c), or (c) eliminate any party's
obligations under Sections 2(a), 2(c), 2(d), 7, 11, 12, 13, 14, 15, 16, 17, 18,
19, 20 and 21 of this Agreement.
17. No Consequential Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT OR SPECIAL DAMAGES SUFFERED BY THE OTHER
PARTY OR THEIR AFFILIATES AS A RESULT OF ANY BREACH BY SUCH PARTY OR ITS
AFFILIATES OF THEIR OBLIGATIONS HEREUNDER OR RELATED HERETO.
18. Nature of Relationship. The parties are independent contractors. Nothing in
this Agreement or otherwise shall constitute Covance or Variagenics or any of
their Affiliates as an employee, agent, joint venturer, partner, or servant of
the other or give any party the authority to make representations or agreements
on behalf of the other.
19. Arbitration. Except with respect to the seeking of injunctive relief and
specific performance in connection with the agreements contained in this
Agreement, and disputes involving third parties which must be resolved in a
court of competent jurisdiction, in the event any dispute shall arise between or
among the parties with respect to any of the terms and
19
<PAGE>
conditions of this Agreement, then such dispute shall be submitted and finally
settled by arbitration in the vicinity of New York, NY, pursuant to the
prevailing rules of the American Arbitration Association. The arbitrators shall
include one nominee of Covance and one nominee of Variagenics and a third
individual jointly selected by these nominees, none of whom shall be affiliated
or associated with either party. In the event the respective nominees of Covance
and Variagenics are unable to jointly select such third individual, then Covance
and Variagenics shall request the American Arbitration Association in New York,
NY, to designate the third arbitrator. The arbitrators shall resolve the dispute
within sixty (60) days after the third arbitrator is chosen. The award rendered
by the arbitrators shall be final and binding upon the parties hereto, and
judgment upon the award rendered may be entered by either party in any court
that would ordinarily have jurisdiction over the parties or the subject matter
of the controversy or claim. The expense of such arbitration, including
attorneys' fees, shall be allocated between or among the parties as the
arbitrators shall decide.
20. Force Majeure. Each party shall be excused from performing its obligations
under this Agreement if its performance is delayed or prevented by any event
beyond its reasonable control, including, without limitation, acts of God, fire,
explosion, weather, disease, war, insurrection, civil strife, riots, government
action, or power failure, provided that such performance shall be excused only
to the extent of and during such disability. Any time specified for completion
of performance in this Agreement falling due during or subsequent to the
occurrence of any of such events shall be automatically extended for a period of
time equal to the period of such disability.
21. Miscellaneous.
(a) Governing Law. This Agreement shall be governed, construed and
interpreted in accordance with the laws of New Jersey, without regard to its
principles of conflicts of laws.
(b) Waiver. The waiver by any party or the failure by any party to claim a
breach of any provision of this Agreement shall not be deemed to constitute a
waiver or estoppel with respect to any subsequent breach or with respect to any
provision thereof.
(c) Amendments. This Agreement may be amended only by a further written
agreement between authorized representatives of both parties.
(d) No Assignment. Subject to Covance's right set forth in Section 16(d),
no party hereto may assign this Agreement or its rights or obligations hereunder
without the prior written approval of the other party, except that (i) either
party may assign this Agreement in connection with a sale of all or
substantially all of its assets or in connection with its merger or
consolidation and (ii) either party may assign this Agreement or its rights or
obligations hereunder to any wholly-owned subsidiary of such party who is
capable of performing all of the obligations of the assigning party hereunder.
Subject to the foregoing, all of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
heirs, executors, legal representatives, successors and permitted assigns of the
parties.
(e) Counterparts. This Agreement may be executed in counterparts, each of
which is an original, and all of which together shall be deemed to be one and
the same instrument. This
20
<PAGE>
Agreement shall become binding when one or more counterparts taken together
shall have been executed and delivered by all of the parties.
(f) Notices. Any notice, request or other communication hereunder shall be
in writing and shall be deemed given only if delivered personally to the address
set forth below (to the attention of the individual identified below) or sent by
telecopier, recognized courier providing evidence of receipt, or by registered
or certified mail, postage prepaid, as follows:
If to Covance, to: With a required copy to:
Covance Central Laboratory 210 Carnegie Center
Services Limited Partnership Princeton, NJ 08540
8211 SciCor Drive Telecopier No. (609) 452-9865
Indianapolis, IN 46214 Attention: Mark R. Eisenach and
Attention: William Campbell Jeffrey S. Hurwitz
If to Variagenics, to: With a required copy to:
Taylor Crouch Jeffrey M. Wiesen
President Mintz, Levin, Cohn, Ferris, Glovsky
60 Hampshire Street and Popeo, P.C.
Cambridge, MA 02139 One Financial Center
Telecopier No.: (617) 588-5399 Boston, MA 02111
Telecopier No.: (617) 542-2241
or to such other address or attention as the addressee may have specified in a
notice duly given to the sender and to counsel as provided herein. Such notice,
request, or other communication will be deemed to have been given as of the date
so delivered or, if telecopied, upon telephone confirmation of receipt, or, if
sent by courier, the date so delivered, or if mailed, five business days after
the date so mailed.
(g) No Third-Party Beneficiaries. Except as set forth in Section 11 and
with respect to Sponsors as specifically provided elsewhere in this Agreement,
this Agreement is for the sole benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
assigns, and no party intends to confer any benefit under this Agreement on any
person or entity other than the parties hereto or their successors in interest
and nothing contained herein shall be deemed to confer any such benefit on any
such person or entity, and nothing herein shall be construed as conferring and
is intended to confer any rights on any other person or entity.
(h) Entire Agreement. This Agreement, and the other agreements and
documents referenced herein, set forth the entire agreement of the parties
hereto with respect to the subject matter hereof. Any prior agreements or
understandings between the parties hereto regarding the subject matter hereof,
whether oral or written, are superseded by this Agreement.
(i) Section Headings. All section headings are for convenience only and
shall in no way affect the meaning or interpretation of this Agreement or any
provisions hereof.
21
<PAGE>
(j) Fees and Expenses. Each party hereto will pay all fees and expenses
which such party incurs in connection with the negotiation of this Agreement.
(k) Invalidity. If any term or provision of this Agreement, or the
application thereof to any person, entity, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, entities, property or
circumstances other than those as to which it is invalid or unenforceable shall
not be affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
(1) Joint Effort. The preparation of this Agreement and the other
agreements contemplated herein has been the joint effort of the parties, and the
resulting documents shall not be construed more severely against any party or
parties than against the other parties.
(m) Hiring of Employees. During the Term, the employees of Variagenics or
any of its Affiliates who come to know any of the employees of Covance or any of
its Affiliates solely in connection with the Alliance shall not, while employed
by Variagenics or any of its Affiliates, solicit for employment any of the
employees of Covance or any of its Affiliates such employees of Variagenics and
its Affiliates came to know. During the Term, the employees of Covance or any of
its Affiliates who come to know any of the employees of Variagenics or any of
its Affiliates solely in connection with the Alliance shall not, while employed
by Covance or any of its Affiliates, solicit for employment any of the employees
of Variagenics or any of its Affiliates such employees of Covance and its
Affiliates came to know. The foregoing prohibitions shall not apply to any
solicitation to hire any such employee after such employee is no longer employed
by the applicable entity for at least three (3) months, or to advertisements in
trade magazines, use of search firms and other conventional means of obtaining
employees unless specifically directed at employee(s) which may not be solicited
pursuant to these provisions.
During the Term and for six months thereafter, the employees of Covance or any
of its Affiliates who come to know any of the Employees or the FTEs solely in
connection with the Alliance shall not, while employed by Covance or any of its
Affiliates, hire any Employees or FTEs such employee of Covance or its
Affiliates came to know, unless, in either case, such Employee's or FTE's
employment with Variagenics terminated at least six months before his or her
date of hire. For purposes of this Section 21(m) only, FTEs shall mean only
those FTEs whose percentage of time dedicated to the Alliance has been at least
30% for at least six consecutive months at any time during the previous twelve
months.
(n) Research Tax Credit. Each party agrees that the party which provides
the funding pursuant to Section 3 for Employees or FTE's shall be the sole party
entitled to make any claim for any Federal or state research tax credit with
respect to such funding.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Covance Inc. Variagenics, Inc.
/s/ Mark Eisenach /s/ Taylor J. Crouch
- --------------------------------- ---------------------------------
Name: Mark Eisenach Name: Taylor J. Crouch
Title: Corporate V.P. Title: President
22
<PAGE>
Exhibit A
Definitions
"Affiliate" means, with respect to a person or entity, (a) any other person or
entity that, directly or indirectly through one or more intermediaries, controls
such person or entity (a "Controlling Person") or (b) any other person or entity
(other than such person or entity) which is controlled by or is under common
control with a Controlling Person. As used herein, the term "control" and with
correlative meaning "controlled" and "under common control" means possession,
direct or indirect, of the power to direct or cause the direction of the
management or policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" is defined in the heading of this Agreement.
"Alliance" is defined in the background section of this Agreement.
"Breaching Party" is defined in Section 10(d).
"Central Labs Affiliates" means any Affiliate of Covance Central Labs that
provides central laboratory services to Sponsors the same or similar to those
provided by Covance Central Labs on the date of this Agreement.
"Change of Control" shall mean the occurrence of any of the following: (i) fewer
than three of the members of the Board of Directors of Variagenics immediately
after Variagenics' next financing (whether debt or equity) (or successors
employed by the same stockholder in the case of directors who are employees of
stockholders) continue to serve on the Board of Directors of Variagenics; (ii)
capital stock of Variagenics representing more than one-half of the right to
vote for the election of directors of Variagenics shall no longer be owned by
the shareholders who owned such capital stock immediately after Variagenics'
next equity financing; (iii) the sale of all or a material part of the assets of
Variagenics; (iv) any merger or consolidation of Variagenics with any other
person or entity in which Variagenics is not the surviving corporation in the
merger or consolidation or in which shareholders of Variagenics immediately
prior to the merger or consolidation do not hold a majority of the shares of the
surviving entity immediately after the merger or consolidation; or (v) Taylor
Crouch is not serving as President of Variagenics and is not replaced in this
capacity by a person reasonably satisfactory to Covance within one hundred and
eighty days (180) days.
"Claim" is defined in Section 11(a).
"Committee" is defined in Section 6(a).
"Contracting Sponsor" means a Sponsor which contracts for Research Lab Services,
Pharmacogenomic Lab Services, or both, hereunder; provided, that no person or
entity that performs or whose Affiliates perform Product Development Services,
other than Covance and its Affiliates, shall become a Contracting Sponsor
hereunder, unless the parties mutually agree.
23
<PAGE>
"Controlling Person" is defined in the definition of Affiliate.
"Covance" is defined in the heading of this Agreement.
"Covance Central Labs" means Covance Central Laboratory Services Limited
Partnership, an Affiliate of Covance in which Covance owns, directly and
indirectly, 100% of the equity interests.
"Covance Fees" is defined in Section 5(c).
"Covance Know-How" means all patents, copyrights and applications for any of the
foregoing, and any trade secrets, technology, know-how, inventions, discoveries,
ideas, improvements, processes, computer programs, software, databases, and
Standard Operating Procedures, used, licensed, leased or owned, directly or
indirectly, by Covance or its Affiliates and used in providing or relating to
central laboratory services, whether now existing or developed at any time
during the Term.
"Cumulative Alliance Net Sales" is defined in Section 3(d).
"Direct Claim" is defined in Section 11(d).
"Discloser" is defined in Section 14(a).
"Employees" is defined in Section 3(a).
"Excluded Net Sales" is defined in Section 3(c).
"FTEs" is defined in Section 3(b).
"Indemnified Party" is defined in Section 11(c).
"Indemnifying Party" is defined in Section 11(c).
"IPA" means a separate written individual project agreement in the form of
Exhibit F hereto between Covance or any of its Affiliates and Variagenics or any
of its Affiliates, which shall incorporate the terms and provisions of the
applicable Price Quotation.
"Loss" is defined in Section 11(a).
"Net Sales" means gross sales, less credits, allowances, and taxes with respect
to such sales, if any, when payment is received therefor by the applicable
party.
"Non-Breaching Party" is defined in Section 11(d).
"Non-Compliant Change of Control" is defined in Section 16(d).
24
<PAGE>
"Pharmacogenomic Lab Services" means (i) detection in human samples of
previously identified gene sequence variances as part of a Sponsor-funded
Product Development Program, (ii) developing and validating assays for metabolic
enzymes, proteins and pharmacogenetic markers for the purpose of such detection
of variances and (iii) laboratory testing utilizing such validated assays as
part of a Product Development Program.
"Price Quotation" means a price quotation prepared by Variagenics or one of its
Affiliates indicating the work to be performed in connection with Variagenics
Lab Services for a particular Sponsor, or a price quotation prepared by Covance
or one of its Affiliates indicating the work to be performed in connection with
Pharmacogenomic Lab Services for a particular Sponsor, and in each case the
costs and expenses to be incurred with such work, and the assumptions used in
developing the foregoing.
"Product Development Program" means a program to test a drug or therapeutic
medical device in humans for scientific evaluation or regulatory approval.
"Product Development Services" means services the same or similar to those
provided by Covance and its Affiliates now or hereafter at any time during the
Term to pharmaceutical, biotechnology and medical device companies and similar
entities, including preclinical studies, Phase I, II, III and IV clinical trial
services, pharmaceutical packaging services, biomanufacturing services, health
economic services and central laboratory services.
"Proprietary Information" is defined in Section 14(a).
"Recipient" is defined in Section 14(a).
"Research Lab Services" means variance discovery in specified genes on the
pathway of action of the Sponsor's drug. In general, Research Lab Services will
involve the following: working with the Sponsor's product development team,
Variagenics will select candidate genes which may affect drug action and
identify variances in these genes which occur in the normal population, through
experimentation using Variagenics' variance discovery platform and from
Variagenics' database of proprietary and public domain variances. Variagenics
will provide the Sponsor with an annotated summary of variances that may affect
drug action. Sponsors may be granted by Variagenics an option for a limited
period of time to obtain exclusive, co-exclusive or non-exclusive rights to the
use of variances discovered pursuant to their sponsorship, as agreed by
Variagenics and the Sponsor on a case-by-case basis.
"Sponsor" means a pharmaceutical, biotechnology or medical device company or
similar entity which engages in Product Development Programs; provided, that no
person or entity listed on Exhibit G hereto or any of their Affiliates, or any
successor to any such person or entity, shall be a Sponsor for any purpose under
this Agreement unless the parties mutually agree.
"Standard Operating Procedures" means the aggregation of the guidelines, rules
and regulations adopted or implemented at Covance and its Affiliates relating to
central lab services, as the same may be modified, amended or supplemented from
time to time, as submitted in writing to Variagenics, which may include
summaries thereof.
25
<PAGE>
"Term" is defined in Section 16(a).
"Variagenics" is defined in the heading of this Agreement.
"Variagenics Alliance Know-How" means all Variagenics Know-How developed by the
FTEs (in their activities in support of the Alliance) and the Employees.
"Variagenics Fees" is defined in Section 2(c).
"Variagenics Gene Rights" means all proprietary gene sequence variances and
variance databases useful in demonstrating the effect of gene sequence variance
on drug action, which are owned or licensed by Variagenics or its Affiliates,
and which Variagenics or its Affiliates have the right to license to Sponsors.
"Variagenics Know-How" means all patents, copyrights, and applications for any
of the foregoing, and any trade secrets, technology, know-how, inventions,
discoveries, ideas, improvements, processes, computer programs, software and
databases, used, licensed, leased or owned, directly or indirectly, by
Variagenics or its Affiliates and used in providing or relating to
Pharmacogenomic Lab Services, whether now existing or developed at any time
during the Term, including all assays, and including all of the foregoing
developed by the FTEs and Employees, but excluding all Variagenics Gene Rights.
"Variagenics Non-Alliance Fees" is defined in Section 5(i).
"Variagenics Lab Services" means Pharmacogenomic Lab Services and/or Research
Lab Services provided by Variagenics and/or its Affiliates.
26
<PAGE>
Exhibit B
Covance Know-How
(1) Regulatory Compliance
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
100-200039-02
- --------------------------------------------------------------------------------
100-200441-01
- --------------------------------------------------------------------------------
100-600802-05
- --------------------------------------------------------------------------------
100-600803-04
- --------------------------------------------------------------------------------
100-600807-05
- --------------------------------------------------------------------------------
100-600808-05
- --------------------------------------------------------------------------------
100-600809-03
- --------------------------------------------------------------------------------
100-600809-06
- --------------------------------------------------------------------------------
100-600811-04
- --------------------------------------------------------------------------------
100-600822-06
- --------------------------------------------------------------------------------
100-600825-03
- --------------------------------------------------------------------------------
100-600830-03
- --------------------------------------------------------------------------------
100-600833-03
- --------------------------------------------------------------------------------
100-600837-04
- --------------------------------------------------------------------------------
100-600839-03
- --------------------------------------------------------------------------------
100-600840-04
- --------------------------------------------------------------------------------
100-600841-03
- --------------------------------------------------------------------------------
100-600844-04
- --------------------------------------------------------------------------------
100-600851-05
- --------------------------------------------------------------------------------
100-600853-06
- --------------------------------------------------------------------------------
100-600857-02
- --------------------------------------------------------------------------------
100-600858-03
- --------------------------------------------------------------------------------
100-600859-03
- --------------------------------------------------------------------------------
100-600860-04
- --------------------------------------------------------------------------------
100-600861-02
- --------------------------------------------------------------------------------
100-600862-03
- --------------------------------------------------------------------------------
100-600866-02
- --------------------------------------------------------------------------------
100-600868-04
- --------------------------------------------------------------------------------
100-600870-04
- --------------------------------------------------------------------------------
100-600875-06
- --------------------------------------------------------------------------------
100-600882-02
- --------------------------------------------------------------------------------
100-600883-01
- --------------------------------------------------------------------------------
100-600884-02
- --------------------------------------------------------------------------------
100-600886-02
- --------------------------------------------------------------------------------
330-100004-01
- --------------------------------------------------------------------------------
330-100011-01
- --------------------------------------------------------------------------------
330-100012-01
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
330-100020-01
- --------------------------------------------------------------------------------
330-100022-02
- --------------------------------------------------------------------------------
330-100030-02
- --------------------------------------------------------------------------------
330-100032-05
- --------------------------------------------------------------------------------
330-100052-04
- --------------------------------------------------------------------------------
330-100099-05
- --------------------------------------------------------------------------------
330-300376-07
- --------------------------------------------------------------------------------
360-200439-01
- --------------------------------------------------------------------------------
350-380005-0 1
- --------------------------------------------------------------------------------
355-1 01 001-01
- --------------------------------------------------------------------------------
355-101002-01
- --------------------------------------------------------------------------------
355-101004-03
- --------------------------------------------------------------------------------
355-101006-02
- --------------------------------------------------------------------------------
355-101007-02
- --------------------------------------------------------------------------------
355-101008-02
- --------------------------------------------------------------------------------
355-101010-02
- --------------------------------------------------------------------------------
355-101013-03
- --------------------------------------------------------------------------------
355-1 01 014-02
- --------------------------------------------------------------------------------
355-101016-02
- --------------------------------------------------------------------------------
355-101017-03
- --------------------------------------------------------------------------------
355-101018-02
- --------------------------------------------------------------------------------
355-101019-03
- --------------------------------------------------------------------------------
355-101020-02
- --------------------------------------------------------------------------------
355-101021-02
- --------------------------------------------------------------------------------
355-101024-03
- --------------------------------------------------------------------------------
355-101026-01
- --------------------------------------------------------------------------------
355-101028-01
- --------------------------------------------------------------------------------
355-101029-01
- --------------------------------------------------------------------------------
355-101030-01
- --------------------------------------------------------------------------------
355-1 01 031-01
- --------------------------------------------------------------------------------
355-Program-01
- --------------------------------------------------------------------------------
355-Program-01
- --------------------------------------------------------------------------------
355-Program-01
- --------------------------------------------------------------------------------
355-Program- 01
- --------------------------------------------------------------------------------
355-Program-01
- --------------------------------------------------------------------------------
360-100024-03
- --------------------------------------------------------------------------------
360-200438-04
- --------------------------------------------------------------------------------
360-300236-01
- --------------------------------------------------------------------------------
600-10000-01
- --------------------------------------------------------------------------------
600-100013-01
- --------------------------------------------------------------------------------
600-100033-03
- --------------------------------------------------------------------------------
600-100034-04
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
600-100036-03
- --------------------------------------------------------------------------------
600-100037-03
- --------------------------------------------------------------------------------
600-100060-05
- --------------------------------------------------------------------------------
600-100065-03
- --------------------------------------------------------------------------------
600-100068-03
- --------------------------------------------------------------------------------
600-100070-05
- --------------------------------------------------------------------------------
600-200047-03
- --------------------------------------------------------------------------------
600-200060-03
- --------------------------------------------------------------------------------
600-200061-04
- --------------------------------------------------------------------------------
600-200069-04
- --------------------------------------------------------------------------------
600-200073-04
- --------------------------------------------------------------------------------
600-200099-03
- --------------------------------------------------------------------------------
600-300098-03
- --------------------------------------------------------------------------------
600-300182-01
- --------------------------------------------------------------------------------
600-300285-01
- --------------------------------------------------------------------------------
600-300288-01
- --------------------------------------------------------------------------------
600-300289-01
- --------------------------------------------------------------------------------
600-300290-01
- --------------------------------------------------------------------------------
600-300291-01
- --------------------------------------------------------------------------------
600-300834-01
- --------------------------------------------------------------------------------
620-100006-01
- --------------------------------------------------------------------------------
620-100063-02
- --------------------------------------------------------------------------------
620-100064-02
- --------------------------------------------------------------------------------
620-200003-01
- --------------------------------------------------------------------------------
620-200095-01
- --------------------------------------------------------------------------------
620-200116-02
- --------------------------------------------------------------------------------
620-300058-02
- --------------------------------------------------------------------------------
29
<PAGE>
(2) Specimen Management
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
460-300116-01
- --------------------------------------------------------------------------------
460-300118-01
- --------------------------------------------------------------------------------
460-300117-01
- --------------------------------------------------------------------------------
460-200201-01
- --------------------------------------------------------------------------------
460-300305-01
- --------------------------------------------------------------------------------
460-300090-01
- --------------------------------------------------------------------------------
460-300090-01
- --------------------------------------------------------------------------------
460-3001 20-01
- --------------------------------------------------------------------------------
460-300175-01
- --------------------------------------------------------------------------------
460-300303-01
- --------------------------------------------------------------------------------
60-300122-01
- --------------------------------------------------------------------------------
460-300121-01
- --------------------------------------------------------------------------------
420-200455-02
- --------------------------------------------------------------------------------
420-300605-03
- --------------------------------------------------------------------------------
420-300160-04
- --------------------------------------------------------------------------------
420-300161-04
- --------------------------------------------------------------------------------
420-300578-03
- --------------------------------------------------------------------------------
420-300579-03
- --------------------------------------------------------------------------------
420-300480-03
- --------------------------------------------------------------------------------
420-300553-04
- --------------------------------------------------------------------------------
420-300558-03
- --------------------------------------------------------------------------------
420-300473-03
- --------------------------------------------------------------------------------
420-300488-03
- --------------------------------------------------------------------------------
420-300813-03
- --------------------------------------------------------------------------------
420-300060-02
- --------------------------------------------------------------------------------
420-300005-03
- --------------------------------------------------------------------------------
420-300109-02
- --------------------------------------------------------------------------------
420-300110-02
- --------------------------------------------------------------------------------
420-200142-01
- --------------------------------------------------------------------------------
420-200065-02
- --------------------------------------------------------------------------------
420-200143-01
- --------------------------------------------------------------------------------
420-300498-02
- --------------------------------------------------------------------------------
420-300421-01
- --------------------------------------------------------------------------------
420-200453-03
- --------------------------------------------------------------------------------
420-300599-04
- --------------------------------------------------------------------------------
420-299159-01
- --------------------------------------------------------------------------------
420-300332-01
- --------------------------------------------------------------------------------
420-200154-01
- -----------------
420-300486-04
- --------------------------------------------------------------------------------
30
<PAGE>
(3) Data Transfer
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
55T-200078
- --------------------------------------------------------------------------------
500-300402
- --------------------------------------------------------------------------------
500-300009
----------------------------------------------------------------
55T-300049
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------
- --------------------------------------------------------------------------------
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) Clinical Trial And Data Base Design and Management
(a) Protocol Services Departmental
- --------------------------------------------------------------------------------
Procedure No. Title
- --------------------------------------------------------------------------------
300320
- --------------------------------------------------------------------------------
300279
- --------------------------------------------------------------------------------
300286
- --------------------------------------------------------------------------------
300566
- --------------------------------------------------------------------------------
300402
- --------------------------------------------------------------------------------
300053
- --------------------------------------------------------------------------------
300304
- --------------------------------------------------------------------------------
300069
- --------------------------------------------------------------------------------
300063
- --------------------------------------------------------------------------------
300009
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
300049
- --------------------------------------------------------------------------------
300300
- --------------------------------------------------------------------------------
300297
- --------------------------------------------------------------------------------
300295
- --------------------------------------------------------------------------------
300298
- --------------------------------------------------------------------------------
300299
- --------------------------------------------------------------------------------
300314
- --------------------------------------------------------------------------------
30023
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
300325
- --------------------------------------------------------------------------------
300312
- --------------------------------------------------------------------------------
300555
- --------------------------------------------------------------------------------
300551
- --------------------------------------------------------------------------------
300550
- --------------------------------------------------------------------------------
300331
- --------------------------------------------------------------------------------
300067
- --------------------------------------------------------------------------------
300322
- --------------------------------------------------------------------------------
300308
- --------------------------------------------------------------------------------
300061
- --------------------------------------------------------------------------------
300327
- --------------------------------------------------------------------------------
300328
- --------------------------------------------------------------------------------
300324
- --------------------------------------------------------------------------------
300573
- --------------------------------------------------------------------------------
300062
- --------------------------------------------------------------------------------
300224
- --------------------------------------------------------------------------------
300296
- --------------------------------------------------------------------------------
300282
- --------------------------------------------------------------------------------
300549
- --------------------------------------------------------------------------------
300311
- --------------------------------------------------------------------------------
300374
- --------------------------------------------------------------------------------
300294
- --------------------------------------------------------------------------------
300128
- --------------------------------------------------------------------------------
300301
- --------------------------------------------------------------------------------
300070
- --------------------------------------------------------------------------------
(b) Protocol Services Interdepartment
- --------------------------------------------------------------------------------
200058
- --------------------------------------------------------------------------------
200092
- --------------------------------------------------------------------------------
200125
- --------------------------------------------------------------------------------
200041
- --------------------------------------------------------------------------------
200119
- --------------------------------------------------------------------------------
200078
- --------------------------------------------------------------------------------
200049
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
200109
- --------------------------------------------------------------------------------
200110
- --------------------------------------------------------------------------------
200150
- --------------------------------------------------------------------------------
200077
- --------------------------------------------------------------------------------
200108
- --------------------------------------------------------------------------------
200440
- --------------------------------------------------------------------------------
200112
- --------------------------------------------------------------------------------
200436
- --------------------------------------------------------------------------------
200004
- --------------------------------------------------------------------------------
200120
- --------------------------------------------------------------------------------
200444
- --------------------------------------------------------------------------------
200079
- --------------------------------------------------------------------------------
200445
- --------------------------------------------------------------------------------
200107
- --------------------------------------------------------------------------------
200045
- --------------------------------------------------------------------------------
200121
- --------------------------------------------------------------------------------
200122
- --------------------------------------------------------------------------------
200086
- --------------------------------------------------------------------------------
200427
- --------------------------------------------------------------------------------
200500
- --------------------------------------------------------------------------------
200456
- --------------------------------------------------------------------------------
200028
- --------------------------------------------------------------------------------
200105
- --------------------------------------------------------------------------------
200053
- --------------------------------------------------------------------------------
200063
- --------------------------------------------------------------------------------
200437
- --------------------------------------------------------------------------------
200057
- --------------------------------------------------------------------------------
200048
- --------------------------------------------------------------------------------
200441
- --------------------------------------------------------------------------------
200003
- --------------------------------------------------------------------------------
200123
- --------------------------------------------------------------------------------
200442
- --------------------------------------------------------------------------------
33
<PAGE>
Exhibit C
Assays
Variagenics will deliver to Covance the following minimum number of assays, with
the indicated minimum levels of complexity (which for purposes of this Exhibit C
means genetic variations detected by the assay), on the following schedule:
Assays Delivery Date
Complexity # Variations 2/28/00 4/30/00 7/15/00 Total
---------- ------------ ------- ------- ------- -----
Level 1
Level 2
Level 3
----------- --------------- ----------- ---------
Total
The specific assays at each Complexity Level to be delivered will be determined
by the Advisory Committee. If the Advisory Committee cannot agree upon what
assays are to be delivered, then Variagenics agrees to deliver the number of
fully validated assays of the indicated Complexity Level by the indicated
Delivery Date from the lists below as selected by Covance (any such selection by
Covance may only be changed as mutually agreed to by the parties or in
connection with the inability to obtain a necessary license as described in the
following sentence). The foregoing notwithstanding, if the licenses necessary,
if any, to allow Variagenics to deliver a specific assay selected by Covance
cannot be obtained, then Covance shall select a replacement assay; if the
licenses necessary, if any, to allow Variagenics to deliver the required number
of assays from the lists below cannot be obtained, then the Advisory Committee
shall determine replacement assays which Variagenics shall deliver.
Complexity Level I
Complexity Level 2
Complexity Level 3
Other Assays
These other assays will be assigned a Complexity Level for purposes of inclusion
on the lists.
34
<PAGE>
Exhibit D
Services for Variagenics Non-Alliance Fees
1. Collection, extraction and/or storage or other processing of genetic
material.
2. Analysis of laboratory data resulting from genetic testing in connection with
Pharmacogenomic Lab Services, except with respect to Net Sales of such services
which are subject to a royalty pursuant to Section 2(c) or excluded from a
royalty pursuant to Section 2(c).
3. Pharmacogenomic Lab Services not subject to a royalty pursuant to Section
2(c) or excluded from a royalty pursuant to Section 2(c). The Net Sales subject
to this item 3 shall be subject to a Variagenics Non-Alliance Fee at a rate of
[ ] ([ ]%).
35
<PAGE>
Exhibit E
Proposals and Agreements
Companies
- --------------------------------------------------------------------------------
Company Name Program(s) Status
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
36
<PAGE>
Government and Academic Institutions
- --------------------------------------------------------------------------------
Institution Name Program(s) Status
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The parties acknowledge that the foregoing list may not refer to the legal names
of all the indicated entities.
37
<PAGE>
Exhibit F
Form of
INDIVIDUAL PROJECT AGREEMENT
This Individual Project Agreement, dated as of ____________, ____, ("IPA") is by
and between Variagenics Inc. ("Variagenics")* and Covance _____ ("Covance") and
relates to the Alliance Agreement dated _____________, 1999 between Variagenics
and Covance Inc. (the "Agreement"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to them in the
Agreement.
The parties agree as follows:
1. IPA. This document and its attachments constitute an IPA under the Agreement.
As such, this IPA is subject in all respects to the terms and provisions of the
Agreement.
2. Scope of Work.. [Variagenics] [Covance] agrees, in accordance with the
Agreement and the Protocol attached hereto as Exhibit 1, to provide the
[Variagenics Lab Services] [Pharmacogenomic Lab Services] as outlined in the
Price Quotation attached hereto as Exhibit 2.
3. Compensation. Payments for the services performed under this IPA will be made
in accordance with the provisions of the payment schedule attached to this IPA
and the Agreement.
4. Project Period. This IPA shall be in effect until the [Variagenics Lab
Services] [Pharmacogenomic Lab Services] as described in the attached Price
Quotation are completed, unless the IPA is earlier terminated in accordance with
the Agreement or this IPA.
- ----------
*or its applicable Affiliate.
38
<PAGE>
5. Conflict. In the event of any conflict between the terms of the Agreement and
this IPA, the terms of the Agreement shall govern.
ACCEPTED AND AGREED TO:
Covance _______ Variagenics
By:______________________________ By:_____________________________
Name: Name:
Title: Title:
IPA Payment Schedule
[Describe payment provisions for Variagenics Lab Services or
Pharmacogenomic Lab Services under IPA]
39
<PAGE>
Exhibit G
Persons
Quintiles Transnational Corporation
PAREXEL International
PPD, Inc.
Quest Diagnostics
Lab Corp.
Viromed
Specialty Laboratories
National Genetics Institute
Consolidated Laboratories
Smithkline Beecham Clinical Labs
Mayo Clinic
MediLab
UCT
The parties acknowledge that the foregoing list may not refer to the legal names
of all the indicated entities.
40
<PAGE>
Exhibit 10.13
MARKETING ALLIANCE AGREEMENT
This Marketing Alliance Agreement (this "Agreement") is made and dated as
of December 1, 1998 between QUINTILES TRANSNATIONAL CORP., a North Carolina
corporation ("Quintiles"), and VARIAGENICS, INC., a Delaware corporation
("Variagenics").
WHEREAS, Quintiles is in the business of providing contract pharmaceutical
services, including Clinical Services (as defined below);
WHEREAS, Variagenics is in the business of providing pharmacogenomic
technologies and services, including Variagenics Services, Variagenics Gene
Rights and Variagenics Technology (as defined below);
WHEREAS, the parties desire to establish an alliance to enable the
marketing and delivery of Variagenics Services, Variagenics Gene Rights and
Variagenics Technology through and on an integrated basis with Quintiles'
Clinical Services to Sponsors on the terms and conditions in this Agreement (the
"Alliance");
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties set forth in this Agreement, Quintiles and Variagenics agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Alliance Agreement" shall mean a written agreement with a Sponsor
pursuant to which an Alliance Program is conducted.
"Alliance Program" shall mean (i) any contract preclinical or clinical
research program or other program for a Sponsor for which Quintiles and
Variagenics make a proposal hereunder during the conduct of which Variagenics
provides Variagenics Services or in which Variagenics
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
or the Sponsor (under license from Variagenics) utilizes Variagenics Gene
Rights, and in which Quintiles provides other services (directly or indirectly)
to the Sponsor and (ii) any contract preclinical or clinical research program or
other program for a Sponsor for which Quintiles and Variagenics make a proposal
hereunder and during the conduct of which Variagenics provides Variagenics
Services or in which Variagenics or the Sponsor (under license from Variagenics)
utilizes Variagenics Gene Rights, and in which Quintiles does not provide other
services (directly or indirectly) to the Sponsor. Alliance Programs will not
include drug discovery or gene discovery alliances or other corporate alliances
not involving CROs (including Quintiles) in which Variagenics participates.
"CR0" shall mean a contract research organization.
"Clinical Services" shall mean clinical trial management, monitoring, data
management, biostatistics, medical, regulatory and other related services
performed under contract for an entity which is testing a pharmaceutical product
for the purpose of obtaining either regulatory approval to conduct human
clinical trials or regulatory approval of the sale of such product. Clinical
Services does not include (i) basic research and development activities in drug
discovery, or (ii) diagnostic laboratory services.
"Event of Default" shall have the meaning given such term in Section
12(h).
"Field" shall mean products and services regarding the effects of gene
sequence variation on drug action, including pharmacokinetics and
pharmacodynamics.
"Joint Alliance Program" shall mean an Alliance Program described in
clause (i) of the definition of Alliance Program.
"Note" shall have the meaning given such term in Section 12.
2
<PAGE>
"Quintiles Technology" shall mean all processes, know-how, trade secrets,
analytical methods, procedures, techniques, technical expertise, computer
software, algorithms and other intellectual property for use in conducting,
monitoring and analyzing data from clinical trials, which are owned or licensed
by Quintiles.
"Senior Debt" shall mean all indebtedness of Variagenics for borrowed
money from banks and similar institutional lenders and all liabilities under
equipment and real estate lease.
"Sponsor" shall mean a pharmaceutical, biotechnology or drug development
company or similar entity, which contracts for an Alliance Program.
"Termination Date" shall have the meaning given such term in Section 6.
"Unilateral Alliance Program" shall mean an Alliance Program described in
clause (ii) of the definition of Alliance Program.
"Variagenics Gene Rights" shall mean all proprietary gene-sequence
variances (each, a "Variance") and variance databases (each, a "Variance
Database") useful in demonstrating the effect of gene sequence variance on drug
action, which are owned or licensed by Variagenics.
"Variagenics Services" shall mean all services offered or rendered from
time to time by Variagenics pursuant to Section 3(c)(ii) and (iii).
"Variagenics Technology" shall mean (i) all variance discovery
technologies, variance detection technologies, proprietary pharmacogenomics
algorithms, applications and procedures, useful in demonstrating the effect of
gene sequence variance on drug action, which are owned or licensed by
Variagenics, and (ii) Variagenics Gene Rights.
2. ESTABLISHMENT OF THE ALLIANCE.
3
<PAGE>
(a) Purpose of the Alliance. The purpose of the Alliance is to enable the
marketing and delivery of Variagenics Services, Variagenics Gene Rights and
Variagenics Technology through and on an integrated basis with Quintiles'
Clinical Services to Sponsors. The goal of the Alliance is to engage in multiple
Alliance Programs, during which Sponsors will use Variagenics Gene Rights and
Variagenics Services in clinical development programs performed by Quintiles in
order to facilitate development, approval and marketing of such Sponsors'
products. Depending on the particular circumstances and requirements of each
Alliance Program, Quintiles and Variagenics will make these technologies and
services available to Sponsors through (a) Variagenics Services rendered by
Variagenics or (b) licensing Variagenics Gene Rights to Sponsors.
(b) Management of the Alliance.
(i) Joint Management Committee. Within 30 days following the date of
this Agreement, the parties shall form a standing joint management committee
(the "Joint Management Committee") which shall (i) manage the Alliance, (ii)
generally oversee the performance of the parties under this Agreement; (iii)
plan, schedule and coordinate Joint Alliance Programs, (iv) provide continuity
for making strategic decisions relating to the Alliance and this Agreement, and
(v) to develop appropriate operating procedures for the Alliance and Affiance
Programs. The Joint Management Committee shall be comprised of four members, two
of whom shall be appointed by Quintiles and two of whom shall be appointed by
Variagenics. The Joint Management Committee shall meet at least quarterly (or
less frequently by agreement of its members). The party which appointed a member
of the Joint Management Committee may (or shall, in the event of a vacancy)
appoint a replacement for such member at any time, in such party's sole
discretion, effective upon written notice to the other party.
4
<PAGE>
(ii) Project Teams. At the time that each Joint Alliance Program is
initiated by Quintiles and Variagenics, the parties will create a project team
for such Joint Alliance Program (which may be the same team for one or more
programs), which shall coordinate with the Joint Management Committee on matters
relating to such Joint Alliance Program. Each party will use its reasonable
efforts to afford access to such party's project team by the other party's
project team for each Joint Alliance Program, including with respect to
participation in internal and Sponsor project team meetings and planning and
decision processes, in order to assure optimal project coordination and
implementation.
(c) Relationship of the Parties.
(i) Quintiles intends that during the term of this Agreement,
Quintiles will treat Variagenics as Quintiles' preferred provider of products
and services within the Field, on a worldwide basis. Variagenics intends that
during the term of this Agreement, Variagenics will treat Quintiles as
Variagenics' preferred provider for Clinical Services to Variagenics or
Variagenics' clients, on a worldwide basis. Each of the parties intends that
during the term of this Agreement the parties will collaborate to provide the
parties with significant marketing opportunities under Alliance Programs. For
purposes of this Agreement, "preferred provider' means that a party will give
first and preferential consideration to the other party when such party intends
to market (or make proposals to a prospective Sponsor to provide) Clinical
Services in combination with services or technology substantially similar to
those of Variagenics, with a view towards fulfilling the purpose of the Alliance
as set forth above, subject to the terms and conditions of this Agreement.
(ii) Each party acknowledges that, in order to properly serve their
clients, they must maintain existing third party relationships and continue to
develop new third party
5
<PAGE>
relationships. Therefore, consistent with the provisions hereof, the Alliance
and relationship contemplated herein shall not be considered an exclusive
relationship, except that until December 31, 2000 (a) Variagenics shall market
(or make proposals to a prospective Sponsor to provide) Variagenics Gene Rights
or Variagenics Services in the Field in combination with the provision of
Clinical Services exclusively with Quintiles and (b) Quintiles shall market (or
make proposals to a prospective Sponsor to provide) Clinical Services in
combination with rights to gene variances or gene variance databases or
provision of services in the Field substantially similar to the Variagenics
Services exclusively with Variagenics. The foregoing will not restrict
Variagenics from providing products and services in the Field to companies
directly, whether such companies conduct clinical trials themselves or with a
CRO, nor will it restrict Quintiles from providing contract clinical trial
services to any companies, whether such companies obtain services in the Field
from another supplier of such services or such companies do work in the Field
themselves.
(iii) Without limiting the foregoing, Variagenics understands that
Quintiles may direct services in the Field to other providers, based upon lack
of capacity of Variagenics, business conflicts resulting from Variagenics'
relationships with developers of competing drugs, the unavailability to Alliance
Programs of Variagenics Gene Rights necessary to complete a proposed Alliance
Program as a result of a license by Variagenics of such Variagenics Gene Rights
to a third party, the unavailability to Variagenics of intellectual property
necessary to complete a proposed Alliance Program, Sponsor preferences, and
extreme variances in costs.
(iv) Any complaints regarding a party's utilization of the other
party's services shall be referred to the Joint Management Committee. In the
event that a Sponsor objects to using either party as a provider of services
under an Alliance Program because of an actual or
6
<PAGE>
potential business conflict between such party and such Sponsor, the matter
shall be referred to the Joint Management Committee.
(v) Except as expressly provided in this Agreement, nothing will
constitute either party as agent for the other or give either party the
authority to make representations or agreements on behalf of the other, and each
party covenants not to make any representations or to take any actions
inconsistent with the foregoing. The parties are independent contractors and
nothing in this Agreement will be deemed to constitute or create a joint
venture, partnership, pooling arrangement, principal and agent arrangement or
other formal business entity or fiduciary relationship between the parties.
(vi) In carrying out its responsibilities under this Agreement, each
party agrees that its activities will be conducted in compliance with all
applicable laws, rules and regulations, including the U.S. Food, Drug and
Cosmetic Act and the regulations promulgated pursuant to such Act, or any
equivalent laws, rules or regulations pertaining to jurisdictions in which the
activities are conducted. Neither party will engage the services of any person
debarred by relevant governmental or regulatory authorities, in connection with
activities under this Agreement.
3. MARKETING AND ADMINISTRATION OF ALLIANCE PROGRAMS
(a) Marketing Plan for Alliance Programs. Within 30 days following
the date of this Agreement, Quintiles shall use its reasonable efforts to
prepare for the parties an initial plan for marketing Alliance Programs under a
written marketing plan (a "Marketing Plan"). Quintiles shall consult with
Variagenics in preparing a Marketing Plan and it shall be subject to
Variagenics' approval, which Variagenics shall not withhold unreasonably. The
initial Marketing Plan (and all subsequent Marketing Plans) adopted by the
parties shall be executed by the parties
7
<PAGE>
and become a part of this Agreement. A Marketing Plan adopted by Quintiles and
Variagenics may be modified from time to time by written agreement of the
parties. At least annually, the parties will adopt a Marketing Plan for the
coming year, and a Marketing Plan shall remain in effect until a subsequent
Marketing Plan is adopted by the parties in writing or until the earlier
termination of this Agreement. Each Marketing Plan will:
(i) identify possible business opportunities for Alliance
Programs, including identification and prioritizing of target Sponsors;
(ii) set forth the responsibilities of each party with respect
to such business opportunities and the development of such business
opportunities;
(iii) set forth a marketing and sales strategy;
(iv) establish a budget;
(v) establish minimum commitments of resources by each party
in order to assure proper sales force staffing and training, marketing material
development, conference presentation and public relations, target Sponsor
identification and prioritization, and sales call strategy development and
implementation (which shall include at least two FTE's from Quintiles and one
FTE from Variagenics); and
(vi) require that any marketing materials for prospective
Alliance Programs used repetitively by either party relating to the conduct of
clinical trials involving the Field will be approved by both parties and will
include the names and logos of both parties and state that Quintiles will
provide Clinical Services and that Variagenics will provide Variagenics Services
and Variagenics Gene Rights.
(b) Procedure for Proposals to Sponsors for Alliance Programs.
8
<PAGE>
(i) Quintiles will coordinate the marketing of Alliance
Programs, including the marketing of Variagenics Technologies and Variagenics
Services directly to Sponsors, as part of Quintiles' portfolio of Clinical
Services, and Variagenics will provide its technologies and services and commit
its capacity to Alliance Programs, all subject to the terms and conditions of
this Agreement. Quintiles will coordinate proposals for Alliance Programs and
lead negotiations with Sponsors for corresponding Alliance Agreements. Such
Alliance Agreements shall be between Quintiles and the Sponsors, unless
otherwise agreed by Quintiles, except that licenses for Variagenics Gene Rights
will be between Variagenics and the Sponsor.
(ii) Within 30 days following the date of this Agreement,
Quintiles shall use its reasonable efforts to prepare for the parties a formal,
written process for preparing and presenting proposals to Sponsors for Alliance
Programs (a "Proposal Plan"), which the parties agree will be established
consistent with existing and future processes in place at Quintiles. Quintiles
shall consult with Variagenics in preparing a Proposal Plan and it shall be
subject to Variagenics' approval, which Variagenics shall not withhold
unreasonably. The initial Proposal Plan (and all subsequent Proposal Plans)
adopted by the parties shall be executed by the parties and become a part of
this Agreement. A Proposal Plan adopted by Quintiles and Variagenics may be
modified from time to time by written agreement of the parties.
(iii) Set forth on Exhibit A are "per unit" prices for certain
non-exclusive licenses and services, which the parties agree shall be minimum
prices applicable to Alliance Programs. Also set forth on Exhibit A is a
description of the payment terms, including timing of payments by Sponsors,
which the parties agree shall be applicable to Alliance Programs. All
information set forth on Exhibit A is collectively referred to in this Agreement
as the "Pricing Schedule." At least annually, the parties will review the
Pricing Schedule to consider whether
9
<PAGE>
adjustments are necessary to reflect market conditions. The Pricing Schedule may
be modified from time to time by written agreement of the parties. The Pricing
Schedule shall remain in effect until modified by the parties or until the
earlier termination of this Agreement.
(iv) Whenever Quintiles identifies an opportunity for an
Alliance Program, which in Quintiles' reasonable judgment should be pursued,
Quintiles shall notify Variagenics of a proposed Alliance Program. Promptly
following such notification, the parties agree to cooperate in good faith to
establish a proposal for presentation to the respective Sponsor. Quintiles shall
consult with Variagenics in preparing such proposal and it shall be subject to
Variagenics' approval, which Variagenics shall not withhold unreasonably.
Specifically, Variagenics agrees that it will not withhold its approval on a
proposal as to pricing the Alliance Program, so long as the terms of the
Alliance Program meet or exceed the terms set forth on the Pricing Schedule. A
proposal as finally adopted by Quintiles and Variagenics may be modified from
time to time by written agreement of the parties.
(v) The parties acknowledge and agree that they contemplate
that Variagenics will participate at the request of Quintiles in a proposed
Alliance Program, for which the Applicable Percentage for Advances under Section
12 is [ ]%, unless Variagenics is restricted from doing so due to contractual
commitments of Variagenics to third parties, including licenses by Variagenics
of Variagenics Gene Rights. Variagenics will be free to participate or not, in
its sole discretion, in any other proposed Alliance Program. Variagenics agrees
to notify Quintiles in writing from time to time of such commitments, promptly
after such commitments are incurred. At the request of Quintiles, Variagenics
will participate in good faith in the presentation to a Sponsor of any proposal
adopted by the parties for an Alliance Program.
10
<PAGE>
(c) Services and Rights to be Provided to Sponsors Under Alliance
Programs. In connection with Alliance Programs, the parties will provide the
services and take the other actions as described in this Section, subject to the
other terms and conditions of this Agreement.
(i) General. Depending on the particular circumstances and
requirements of each Alliance Program, Quintiles and Variagenics will make
Variagenics' technologies and services available to Sponsors through (a)
Variagenics' Services rendered by Variagenics to a Sponsor, pursuant to an
Alliance Agreement between Quintiles and the Sponsor and pursuant to this
Agreement or (b) licensing Variagenics Gene Rights to Sponsors, pursuant to a
license agreement between Variagenics and the Sponsor.
(ii) Services to be Provided by Variagenics.
(A) Variance Discovery and Database: Variagenics will
perform variance discovery in specified genes under Alliance Programs.
Variagenics will select candidate genes which may affect drug action,
pharmacokinetics, or pharmacodynamics and provide the Sponsor with an annotated
summary of variances in the Variance Database, Variances discovered by
Variagenics, or variances in the public domain. Variance discovery in genes
proprietary to Sponsors will be performed by Variagenics outside the Alliance.
(B) Variance Detection: Variagenics will perform or
engage contractors to perform Variance Detection for Alliance Programs using
Variagenics Technologies. The parties will discuss during the first year of this
Agreement (at any time until Variagenics has engaged a contractor to perform
Variance Detection) the feasibility, terms and conditions of transferring the
Variance Detection Technology to Quintiles to enable Quintiles to perform
Variance Detection, in which event Quintiles could elect to be a preferred
provider to Variagenics' partners for Variance Detection in clinical trials
outside Alliance Programs.
11
<PAGE>
(C) Pharmacogenomic Services: Variagenics will provide
pharmacogenomic services, such as genetics, pharmacogenomic statistics,
pharmacology, medicinal chemistry, molecular modeling and simulation, commercial
modeling, pharmacogenomic sub-protocol writing, data management, biostatistics,
pharmacogenomic analyses and report writing, for Alliance Programs.
(iii) Other Commitments of Variagenics.
(A) Variance Use Rights: Variagenics will provide
Variance Database access to Sponsors and grant non-exclusive licenses (or
options to obtain non-exclusive licenses) to use Variances in selected genes to
Sponsors for use in Alliance Programs on terms coordinated by Quintiles and
Variagenics as part of each corresponding Alliance Program proposal, which shall
be no less favorable than the terms upon which similar non-exclusive licenses or
options are made available to Variagenics' clients outside the Alliance. Once a
Sponsor has use rights for any Variances, Variagenics will not grant rights to
third parties which will limit or terminate the Sponsor's rights. Variagenics
shall control the grant of exclusive or co-exclusive licenses to Variances and
shall give notice of the availability of such rights to Sponsors, and they shall
be made available on terms no less favorable than they are made available to
Variagenics' clients outside the Alliance.
(B) Preferred Provider for Programs Outside Alliance:
Variagenics will use reasonable efforts to have the Alliance be the preferred
provider for Clinical Services in the Field for any clinical trial program
outside the Alliance in which Variagenics participates.
(iv) Services to be Provided by Quintiles.
12
<PAGE>
Quintiles (including its affiliates) will perform
contract clinical research services, such as clinical trial management,
monitoring, data management, biostatistics, medical, regulatory, and other
related services for Joint Alliance Programs.
(d) Certain Responsibilities of Each Party.
(i) Each party will reserve sufficient capacity and resources
for proposed Alliance Programs which are accepted by Sponsors, so that each such
Alliance Program may be implemented and completed on a timely basis in
accordance with the terms of the respective proposal adopted by the parties.
(ii) Each party will cooperate and negotiate in good faith
regarding all Marketing Plans, Proposal Plans, Pricing Schedules, proposals for
Alliance Programs, and other matters relating to this Agreement.
(iii) Each party will use reasonable efforts to implement all
Marketing Plans and Alliance Programs adopted by the parties and accepted by
Sponsors.
(iv) Except as otherwise agreed in writing by the parties,
each party shall be solely responsible for all costs and expenses incurred by it
in preparing proposals for Alliance Programs and in providing services under
Alliance Programs.
(e) Compensation and Payments.
(i) Quintiles shall bill Sponsors for all payments due under
Joint Alliance Programs, and revenues remitted by Sponsors thereunder shall be
paid to Quintiles. After receipt of such revenues from a Sponsor, Quintiles
shall remit to Variagenics as soon as practical [ ]% of the revenues which
are attributable to Variagenics Services rendered by
13
<PAGE>
Variagenics under Joint Alliance Programs, less any amounts applied to Advances
or otherwise as provided in Section 12 below.
(ii) Variagenics shall bill Sponsors for all payments due
under Unilateral Alliance Programs, and revenue remitted by Sponsors thereunder
shall be paid to Variagenics. After receipt of such revenues from a Sponsor,
Variagenics shall remit to Quintiles as soon as practical a commission equal to
[ ]% of revenues received under Unilateral Alliance Programs.
(iii) Each party shall keep reasonably detailed records of all
revenues received under Alliance Programs, which shall be available for
inspection by the other party, upon reasonable advance notice.
(f) Alliance Brands.
(i) Any trademarks, service marks or other relevant brand
names (collectively, "Brands") created, registered or used in relation to
marketing of Alliance Programs under this Agreement will be agreed upon by both
parties. Quintiles will be responsible for maintaining any registrations related
to these Brands, except as such Brands relate solely to Variagenics
Technologies, Variagenics Services or Variagenics Gene Rights, and the expenses
associated with maintaining such registrations shall borne equally by the
parties.
4. License from Variagenics to Quintiles.
(a) To the extent necessary to permit Quintiles to perform Clinical
Services under any Joint Alliance Program, Variagenics hereby grants to
Quintiles a worldwide, nonexclusive license under all Variagenics Technology
(other than Variagenics Gene Rights) and a worldwide, non-exclusive sublicense
under all licenses of Variagenics Technology to
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Variagenics to use Variagenics Technology (other than Variagenics Gene Rights)
solely to perform Clinical Services for Sponsors in Joint Alliance Programs.
Such license and sublicense shall become effective for each Joint Alliance
Program upon execution of the Alliance Agreement with respect thereto and shall
terminate on the Termination Date with respect to such Joint Alliance Program.
Quintiles will not have the right to sublicense Variagenics Technology. In the
event that Variagenics owns or otherwise controls any technology during the term
of the Agreement that is reasonably required to practice Variagenics Technology
licensed to Quintiles in any Joint Alliance Program, then Variagenics will use
reasonable efforts to license or sublicense, as the case may be, such technology
to Quintiles, to the extent Variagenics has a legal right to do so.
(b) After the date hereof, upon request by Quintiles, Variagenics
shall, within a reasonable time thereafter, make available to Quintiles know-how
with respect to use of the Variagenics Technology licensed to Quintiles under
Section 4(a), through such reasonable written and oral disclosures and such
reasonable on site training as Quintiles may request. Without limiting the
generality of the foregoing, Variagenics will provide Quintiles with such
manuals, standard operating procedures, process descriptions and the like, as
Variagenics employs in its own utilization of such Variagenics Technology.
Variagenics will receive reasonable compensation for such activities on terms to
be agreed upon by the parties.
5. Intellectual Property.
(a) Variagenics Property. The parties agree that all Variagenics
Technology, as well as any additions or improvements to the Variagenics
Technology developed in the Alliance, will be owned by Variagenics, and shall be
available for Alliance Programs, except to the extent that Variagenics has
exclusively licensed Variagenics Gene Rights to third parties.
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(b) Quintiles Property. The parties agree that all Quintiles
Technology, as well as any additions or improvements to the Quintiles Technology
developed in the Alliance, will be owned by Quintiles, and shall be available
for Alliance Programs.
(c) Joint Property. Title to all inventions and other intellectual
property, including databases, technologies or processes, jointly made or
created by Quintiles and Variagenics in connection with and arising out of the
Alliance and the Alliance Programs ("Joint Technology") shall be deemed jointly
owned by Quintiles and Variagenics. Joint Technology shall not include Quintiles
Technology or Variagenics Technology or any additions or improvements thereto
developed in the Alliance. The parties will seek to identify all Joint
Technology and collaborate in its development. The parties will have the right
to sublicense the Joint Technology by mutual agreement.
6. Term; Termination; Consequences of Termination.
(a) Term. The term of this Agreement shall commence on the date of
this Agreement and shall expire on the fifth anniversary thereof, unless earlier
terminated pursuant to the provisions of this Agreement; provided, however, that
this Agreement shall remain in full force and effect with respect to any
Alliance Program for which an Alliance Agreement has been executed until such
Alliance Program has been completed or terminated and all provisions hereof
relating to such Alliance Program have been complied with by Quintiles and
Variagenics (an "Alliance Program Completion Date"). This Agreement may be
renewed by mutual written agreement of the parties. As used herein, the term
"Termination Date" shall mean the expiration of the term of this Agreement or
the earlier termination of this Agreement in accordance with this Section 6,
except that with respect to any particular Alliance Program (including Advances
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pursuant to Section 12 relating to such Alliance Program), such term shall mean
the later of the aforesaid date or the Alliance Program Completion Date.
(b) Termination by Quintiles. This Agreement may be terminated by
Quintiles in the event of a material breach or default by Variagenics of the
terms and conditions of this Agreement (so long as Quintiles is not in material
breach or default of this Agreement); provided, however, Quintiles shall first
give Variagenics notice of the proposed termination, specifying the grounds
therefor, and Variagenics shall have 45 days after such notice to cure such
breach or default. If not so cured, this Agreement shall terminate at the
expiration of such 45 days. Quintiles also may terminate a particular Joint
Alliance Program if, in Quintiles' reasonable judgment, Variagenics' services to
clients within the Field outside of such Joint Alliance Program are in conflict
with or detrimental to a Sponsor for that Joint Alliance Program, but only after
referral of such matter to the Joint Management Committee and its failure to
resolve the matter within a reasonable time.
(c) Termination by Variagenics. This Agreement may be terminated by
Variagenics in the event of a material breach or default by Quintiles of the
terms and conditions of this Agreement (so long as Variagenics is not in
material breach or default of this Agreement); provided, however, Variagenics
shall first give to Quintiles notice of the proposed termination, specifying the
grounds therefor, and Quintiles shall have 45 days after such notice to cure
such breach or default. If not so cured, this Agreement shall terminate at the
expiration of such thirty 45 days.
(d) Termination by Either Party. This Agreement may be terminated by
either party after December 31, 2000 and before June 30, 2001 by 30 days prior
written notice, if
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Alliance Agreements providing for aggregate payments to Variagenics of at least
$[ ] have not been executed by December 31, 2000.
(e) Consequences of Termination. Termination of this Agreement by a
party shall not affect any other rights or remedies which may be available to
such party against a defaulting party. Termination or expiration of this
Agreement shall not relieve any party of any obligation under this Agreement
which accrued or arose prior to such termination, including any obligation to
complete services under Alliance Programs then in progress or to make payments
required by this Agreement. Upon termination of this Agreement in accordance
with its terms, all rights to Variagenics Technology shall be returned to
Variagenics, and all rights to Quintiles Technology shall be returned to
Quintiles, except (in each case) (i) as previously licensed to Sponsors under
Alliance Programs then in progress and (ii) all licensed rights shall continue
after termination (on a non-exclusive basis) for the duration of all Alliance
Programs then in progress, solely for use in such Alliance Programs.
7. Indemnification: Limitation of Liability.
(a) Indemnification by Variagenics. Variagenics shall defend,
indemnify and hold harmless Quintiles, its affiliates and its and their
respective directors, officers, agents and employees from and against any and
all liability, loss, damage, claims, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses) to or by any third party to
the extent proximately caused, directly or indirectly, by or as a result of (i)
a material breach or default by Variagenics of this Agreement, (ii) any willful
misconduct, negligent act or omission of Variagenics or any representative of
Variagenics in connection with Variagenics' performance of its obligations under
this Agreement, or (iii) the infringement or violation, or alleged
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infringement or violation, by Variagenics or the Variagenics Technology of any
patents or any copyright, trademark, trade secret or other intellectual property
right.
(b) Indemnification by Quintiles. Quintiles shall defend, indemnify
and hold harmless Variagenics, its affiliates and its and their respective
directors, officers, agents and employees from and against any and all
liability, loss, damage, claims, causes of action, and costs and expenses
(including reasonable attorneys' fees and expenses) to or by any third party to
the extent proximately caused, directly or indirectly, by or as a result of (i)
any material breach or default under this Agreement by Quintiles, (ii) any
willful misconduct, negligent act of omission of Quintiles or any representative
of Quintiles in connection with Quintiles' performance of its obligations under
this Agreement, or (iii) the infringement or violation, or alleged infringement
or violation, by Quintiles or the Quintiles Technology of any patents or any
copyright, trademark, trade secret or other intellectual property right.
(c) Indemnification Procedures. The party seeking indemnification
hereunder (the "Indemnified Party") shall: (a) give the party obligated to
indemnify (the "Indemnifying Party") prompt notice of any such claim or law suit
(including a copy thereof) served upon Indemnified Party; and (b) the
Indemnified Party shall fully cooperate with Indemnifying Party and its legal
representatives in the investigation of any matter the subject of
indemnification, and (c) the Indemnified Party shall not unreasonably withhold
its approval of the settlement of any such claim, liability, or action by the
Indemnifying Party covered by this indemnification provision unless such
settlement would require the Indemnified Party to be subject to any injunction
or to make a monetary payment or to take any action or refrain from taking any
action in the future; provided, however, that the Indemnified Party's failure to
comply with its obligations pursuant to this Section shall not constitute a
breach of this Agreement nor relieve
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the Indemnifying Party of its indemnification obligations pursuant to this
Section, except to the extent, if any, that the Indemnifying Party's defense of
the affected claim, action or proceeding actually was materially impaired
thereby. The Indemnifying Party shall make reasonable efforts to minimize any
interruption in the normal conduct of the Indemnified Party's business in
requesting the Indemnified Party's cooperation and shall reimburse the
Indemnified Party's reasonable out-of-pocket expenses. The Indemnified Party may
use the same counsel, selected by the Indemnifying Party, as joint counsel in
the defense of any such claim, unless the Indemnified Party, in the exercise of
commercially reasonable judgment, determines that it needs to retain separate
counsel because of an actual or potential conflict of interest between the
Indemnifying Party and the Indemnified Party.
(d) Limitation of Liability. Neither party or its affiliates, nor
any of its or their respective directors, officers, employees or agents shall
have any liability for any special, incidental, or consequential damages,
including without limitation for loss of opportunity, loss of revenue or profit,
or loss of the use of any data or information supplied hereunder, in connection
with or arising out of this Agreement, even if the party shall have been advised
of the possibility of such damages.
8. Dispute Resolution. (a) The parties will attempt in good faith to
resolve any controversy or claim between the parties arising out of or relating
to this Agreement promptly by negotiations between the parties. Any such matter
which is not so resolved shall be referred promptly to the Joint Management
Committee, who shall meet and endeavor in good faith to resolve the same within
15 days after their meeting for such purpose. If the Joint Management Committee
is unable unanimously to resolve any matter before it, the Joint Management
Committee shall promptly notify a high-ranking corporate officer designated by
each party who
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will meet at least once and attempt to resolve the matter. If such executive
officers are unable to resolve the matter within 15 days, then either party may
pursue any available remedies under this Agreement or otherwise available.
(b) Arbitration. Any controversy, dispute or claim arising out of or
in connection with this Agreement, or the breach, termination or validity hereof
that is not resolved pursuant to Section 8(a), shall be settled by final and
binding arbitration to be conducted by an arbitration tribunal in New York, New
York pursuant to the commercial arbitration rules of the American Arbitration
Association. The arbitration tribunal shall consist of three arbitrators. The
party initiating arbitration shall nominate one arbitrator in the request for
arbitration and the other party shall nominate a second in the answer thereto
within thirty (30) days of receipt of the request. The two arbitrators so named
will then jointly appoint the third arbitrator. If the answering party fails to
nominate its arbitrator within the thirty (30) day period, or if the arbitrators
named by the parties fail to agree on the third arbitrator within thirty (30)
days, the office of the American Arbitration Association in New York, New York
shall make the necessary appointments of such arbitrator(s). The arbitrators
shall be requested to (i) establish a procedure and timetable for discovery and
trial which will complete all hearings within ninety (90) days after appointment
of the third arbitrator, and (ii) render their decision within fifteen (15) days
after completion of all hearings. Each party shall pay the costs of its
respective arbitrator, and the parties shall share equally the costs of the
third arbitrator. The decision or award of the arbitration tribunal (by a
majority determination, or if there is no majority, then by the determination of
the third arbitrator) shall be final, and judgment upon such decision or award
may be entered in any competent court or application may be made to any
competent court for judicial acceptance of such decision or award and an order
of enforcement. In the event
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of any procedural matter not covered by the aforesaid rules, the procedural law
of the State of New York shall govern.
9. Representations and Warranties.
(a) Representations and Warranties of Variagenics. Variagenics
hereby represents and warrants to Quintiles as follows:
(i) Variagenics has duly executed and delivered each of this
Agreement and the Note and each of this Agreement and the Note constitute the
valid and binding obligation of Variagenics, enforceable against Variagenics in
accordance with its terms.
(ii) Variagenics owns the entire right, title and interest in
and to the Variagenics Technology, or has sufficient rights therein, to use the
Variagenics Technology for the purposes set forth in this Agreement. To
Variagenics' knowledge, the Variagenics Technology to be used as contemplated by
this Agreement does not infringe or violate any patents or any copyright,
trademark, trade secret or other intellectual property right, and there are no
claims of any such infringement or violation which have been asserted to
Variagenics. Variagenics agrees that it will not knowingly use as contemplated
by this Agreement any patent, copyright, trademark, trade secret or other
intellectual property in a manner that infringes on the rights of any third
party.
(iii) Variagenics is not a party to any strategic relationship
relating to marketing of Variagenics Services or Variagenics Technology in
combination with Clinical Services in the Field or to any agreement or
arrangement (other than licenses of Variagenics Gene Rights) which could in any
material way restrict it from fulfilling its obligations under this Agreement.
Until December 31, 2000, Variagenics shall not enter into any third-party
strategic
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alliance relating to marketing of Variagenics Services or Variagenics Technology
in combination with Clinical Services in the Field. Variagenics will not enter
into any agreement or arrangement (other than licenses of Variagenic Gene
Rights) which could in any material way restrict Variagenics' ability to perform
its obligations under this Agreement or any Alliance Program, including the
grant of any right or interest in or to any Variagenics Technology, except as
expressly contemplated or permitted by this Agreement.
(b) Representations and Warranties of Quintiles. Quintiles hereby
represents and warrants to Variagenics as follows:
(i) Quintiles has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding obligation of Quintiles,
enforceable against Quintiles in accordance with its terms.
(ii) Quintiles owns the entire right, title and interest in
and to the Quintiles Technology, or has sufficient rights therein, to use the
Quintiles Technology for the purposes set forth in this Agreement. To Quintiles'
knowledge, the Quintiles Technology, as it currently exists, to be used as
contemplated by this Agreement does not infringe or violate any patents or any
copyright, trademark, trade secret or other intellectual property right, and
there are no claims of any such infringement or violation which has been
asserted to Quintiles.
(iii) Quintiles is not a party to any strategic relationship
relating to marketing of Clinical Services in combination with services or
technology of third parties in the Field or to any agreement or arrangement
which could in any material way restrict it from fulfilling its obligations
under this Agreement. Until December 31, 2000, Quintiles shall not enter into
any third-party strategic alliance relating to marketing of Clinical Services in
combination with services or technology of third parties in the Field. Quintiles
will not enter into
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any agreement or arrangement which could in any material way restrict Quintiles'
ability to perform its obligations under this Agreement or any Alliance Program
or otherwise impact the viability of the Alliance, except as expressly
contemplated or permitted by this Agreement.
10. Confidentiality. In connection with any Alliance Program or otherwise
in connection with this Agreement or the conduct of the Alliance, each party
(the "Recipient") may receive, either intentionally or unintentionally, certain
oral and written proprietary and confidential information of the other party
(the "Disclosing Party") (or a third party providing such information to the
Disclosing Party) which is not otherwise a part of the public domain
("Proprietary Information"). Proprietary Information includes, but is not
limited to, intellectual property, know-how, trade secrets, computer software,
pricing information, physician lists, investigation/nurse coordinator network
lists, mailing lists, subject and patient lists, employee lists, fee schedules,
client and customer lists, programmactical information and structure,
utilization review procedures, proprietary sequence information, variance
discovery and variance detection techniques, pharmacogenomics algorithms,
applications and procedures, formats and structure and related information and
documents concerning the planning, structure and operations of the Disclosing
Party or relating to its business affairs. Each party (for itself, its
affiliates and its and their respective directors, officers, employees, agents,
subcontractors, affiliates and representatives) agrees that all Proprietary
Information shall be disclosed to the Recipient's directors, officers,
employees, agents, subcontractors, affiliates and representatives only on a
need-to-know basis for the purposes of carrying out the purposes of any Alliance
Program, this Agreement or the Alliance. Each party further agrees to keep all
Proprietary Information in the strictest confidence, to use the Proprietary
Information only in furtherance of the purposes of this Agreement, not to
duplicate, transmit, reverse engineer, decompile, or
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disassemble any Proprietary Information, and not to, directly or indirectly,
divulge, disclose, reveal, report, or transfer such Proprietary Information to
any third party without, in each instance, obtaining specific, prior written
authorization of the Disclosing Party. Each party further agrees that all health
records of patients or subjects of the investigators participating in any
Alliance Program shall be treated as confidential so as to comply with all state
and federal laws and regulations and industry standards regarding the
confidentiality of patent health records and research records. Subject to the
right of access provided herein, any Proprietary Information developed by either
party in connection with the Alliance shall be and remain the property of the
party which developed such Proprietary Information, except as provided in
Section 5(c).
Notwithstanding the foregoing, the obligations set forth above shall not
prevent either party from disclosing information:
(a) which is or becomes generally available to the public other than
as a result of a disclosure by or at the direction of, the Recipient or its
affiliates or their respective directors, officers, employees, agents, advisors,
and other representatives;
(b) was or becomes available to the Recipient on a non-confidential
basis from a source other than the Disclosing Party or its representatives,
provided that such source is not bound by a confidentiality agreement with the
Disclosing Party in respect thereof (unless the Recipient did not know or have
reason to know of the existence of such a confidentiality agreement);
(c) was within the Recipient's possession prior to its being
furnished to the Recipient by or on behalf of the Disclosing Party, provided
that the source of such information was not bound by a confidentiality agreement
with the Disclosing Party in respect thereof (unless
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the Recipient did not know or have reason to know of the existence of such a
confidentiality agreement); or
(d) which the Recipient can demonstrate was developed independently
of any disclosure by the Disclosing Party by persons having no access to any
disclosure of the Disclosing Party.
Notwithstanding any provisions herein to the contrary, in the event that
any recipient of Proprietary Information becomes obligated by mandatory
applicable law, regulatory rule or judicial or administrative order to disclose
such Proprietary Information, or any portion thereof, the Recipient shall
promptly notify the Disclosing Party thereof, so that the Disclosing Party may
seek an appropriate protective order or other remedy with respect to resisting
or narrowing the scope of such requirement. In the absence of such a protective
order or other remedy, the Recipient may disclose such Proprietary Information
without liability hereunder, provided that the Recipient furnishes only such
portion of the Proprietary Information as is legally required to be disclosed.
11. Non-Solicitation. During the period from the date hereof, through and
including the first anniversary of the date of expiration or termination of this
Agreement or any extensions thereof (regardless of the reason for termination),
neither party shall, directly or indirectly through one or more intermediaries,
employ, contract with, solicit for employment or engagement, or advise or
recommend to any other person or entity that such person or entity employ or
solicit for employment or engagement, any person who at any time during the term
of this Agreement is or was an employee of the other party within the previous
one year, including a person employed with respect to an Alliance Program,
without, in each instance, obtaining the
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prior written consent of the other Party. Consent may be withheld in the party's
absolute discretion.
12. Financing from Quintiles to Variagenics.
(a) Advances by Quintiles to Variagenics. Quintiles agrees, on the
terms and conditions set forth below, to make advances (the "Advances") to
Variagenics from time to time during the period from the date of this Agreement
until the Termination Date. Each advance shall be a loan from Quintiles to
Variagenics and Variagenics' obligations to pay the principal amount of the
Advances thereon shall be evidenced by the promissory note dated the date of
this Agreement and executed by Variagenics and delivered to Quintiles (the
"Note").
(b) Making of Advances. At any time after a Sponsor has accepted a
Joint Alliance Program proposal made by Quintiles and Variagenics, as evidenced
by an Alliance Agreement between Quintiles and such Sponsor, Variagenics may
deliver to Quintiles a written request (an "Advance Request") for an Advance in
an amount equal to the Applicable Percentage (as defined below) of the
Qualifying Program Revenues (as defined below). Each Advance Request shall be in
writing and be delivered in accordance with Section 13(d). Each Advance Request
shall be irrevocable and binding on Variagenics, and Variagenics shall reimburse
Quintiles for any reasonable cost or expense incurred by Quintiles as a result
of any revocation or attempted revocation of such Advance Request, including any
cost or expense incurred by reason of Quintiles borrowing to fund the Advance.
Within 30 days of the receipt by Quintiles of an Advance Request, Quintiles
shall make such Advance by wire transfer of immediately available funds to an
account designated by Variagenics so long as (i) no Event of Default exists, and
(ii) Variagenics has complied with all conditions precedent to such Advance
described below. "Qualifying Program Revenues" shall mean (x) the amount of
revenues which are
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attributable to Variagenics Services or Variagenics Technology rendered by
Variagenics and which are payable by a Sponsor under a Joint Alliance Program
during the period beginning on the date of the Alliance Agreement for such Joint
Alliance Program and ending on the earlier of (i) the date which is one year
following the date of the applicable Advance Request or (ii) the Termination
Date of such Alliance Program, all as determined pursuant to the terms of such
definitive agreement, or if the Qualifying Program Revenues are not determinable
on the face of the Alliance Agreement, then as determined by mutual agreement by
Quintiles and Variagenics consistent with the foregoing definition, less (y) the
amount of any Qualifying Program Revenues which have previously been paid by the
Sponsor. "Applicable Percentage" shall mean (x) with respect to Joint Alliance
Programs with the Sponsors who have revenues in the current or preceding fiscal
year of at least $100,000,000, 80%, and (y) with respect to Joint Alliance
Programs with any Sponsor. other than as described in the foregoing clause (x),
between 60% and 80%, with the specific percentage to be negotiated in good faith
by the parties, taking into account appropriate factors, including the perceived
risk of nonpayment by the Sponsor, prior payment history by the Sponsor to
either of the parties, and the nature and terms of the Joint Alliance Program
(including the amount of payments due under the Joint Alliance Program).
Notwithstanding anything to the contrary in this Agreement, Quintiles shall have
no obligation to make any Advance after this Agreement is terminated pursuant to
Section 6, except for Advances for Alliance Programs that continue after such
termination pursuant to Section 6, or after the occurrence of an Event of
Default. In addition, Quintiles shall have no obligation to make any Advance
unless and until Variagenics has obtained the written agreement of Imperial Bank
to subordinate its security interest in the Collateral to the security interest
in the Collateral granted to Quintiles by this Agreement.
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(c) Application of Alliance Program Revenues to Advances. Upon
receipt by Quintiles of revenues from a Sponsor pursuant to a Joint Alliance
Program, Quintiles shall, after retaining for Quintiles the amounts provided in
Section 3(e), apply such revenues as follows: first, to repay any Advances made
with respect to such Joint Alliance Program; second, to repay any other
outstanding Advances under any other Joint Alliance Programs; and third, any
remaining revenues to Variagenics in accordance with Section 3(e).
(d) Repayment of Advances; Certain Other Obligations.
(i) To the extent not paid pursuant to Section 12(c), all
Advances shall be due and payable by Variagenics upon the earlier of (A) the
receipt by Quintiles of revenues under a Joint Alliance Program with respect to
which an Advance was made, or (B) the Termination Date of the Alliance Program
to which an Advance relates, except as otherwise provided in Section 12(h).
Notwithstanding anything in this Agreement or the Note to the contrary,
Quintiles agrees that if Variagenics has rendered Variagenics Services pursuant
to a Joint Alliance Program and if a Sponsor fails to pay revenues under a Joint
Alliance Program for which an Advance has been made to Variagenics, then
Quintiles will refrain from pursuing collection of such Advance from
Variagenics, unless in the event such Sponsor has indicated in writing to
Quintiles or Variagenics that the reason for such Sponsor's failure to pay such
revenues or any portion thereof is that such Sponsor is dissatisfied with the
Variagenics Services under the Joint Alliance Program and continues to be
dissatisfied after the meeting contemplated by Section 12(d)(ii). In such event,
the parties agree that Quintiles shall have full recourse against Variagenics to
obtain repayment of such Advance. Nothing contained in this subsection (d),
however, shall limit Quintiles' right at any time to apply any revenues received
from Sponsors under Joint Alliance Programs to Advances as described in
subsection (c) above.
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(ii) In the event that a Sponsor has indicated to Quintiles or
Variagenics that it is dissatisfied with the Variagenics Services under a Joint
Alliance Program, as described above, Variagenics and Quintiles will meet with
the Sponsor to resolve the matter. If after such meeting the Sponsor indicates
in writing to Quintiles or Variagenics that the Sponsor continues to be
dissatisfied with the Variagenics Services under a Joint Alliance program,
Variagenics agrees:
(A) to provide again such services to the satisfaction
of the Sponsor, at no additional cost or expense to the Sponsor, or
(B) if requested by the Sponsor, to cause a third party
(in lieu of Variagenics) to provide such services to the satisfaction of the
Sponsor, at Variagenics' cost and expense.
(e) Grant of Security Interest.
(i) As security for the prompt and complete payment and
performance of all Advances and the Note, Variagenics does hereby assign,
transfer and pledge to Quintiles and does hereby grant to Quintiles a continuing
security interest of first priority in all right, title and interest of
Variagenics in, to and under all cash and all "accounts," "contract rights,"
"general intangibles," "instruments," and the "proceeds" thereof or claims
relating thereto (as such terms are used or defined in the Uniform Commercial
Code) in each case which from time to time relate to or arise out of any amounts
payable to Variagenics or otherwise attributable to Variagenics or Variagenics
Services or Variagenics Technology under Joint Alliance Programs or any amounts
payable by Quintiles to Variagenics under Joint Alliance Programs (collectively,
the "Collateral").
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(ii) Variagenics represents, warrants and covenants, as
follows:
(A) All filings, registrations and recordings necessary
or appropriate to create, preserve, protect and perfect the security interests
granted by Variagenics to Quintiles hereby in respect of the Collateral have
been accomplished, and the security interest granted to Quintiles pursuant to
this Agreement in and to the Collateral constitutes a valid and enforceable
perfected security interest therein superior and prior to the rights of all
other persons therein and is entitled to all the rights, priorities and benefits
afforded by the Uniform Commercial Code or other applicable law as enacted in
any relevant jurisdiction to perfected security interests;
(B) on the date of this Agreement, except for a security
interest granted to Imperial Bank ("Imperial Bank"), the Collateral is free of
any liens, security interests or encumbrances and there exists no financing
statement (or similar statement or instrument or registration under the law of
any jurisdiction) covering or purporting to cover any interest of any kind in
the Collateral, and so long as any of the Advances remain unpaid, Variagenics
will not execute or authorize to be filed in any public office any security
agreement or financing statement (or similar statement or instrument or
registration under the law of any jurisdiction) relating to a security interest
senior to the security interest granted in this Agreement with respect to the
Collateral;
(C) the chief executive office of Variagenics is located
at Cambridge, Massachusetts and Variagenics will not establish a new location
for its chief executive office until Variagenics shall have given to Quintiles
not less than 30 days' prior written notice of its intention so to do, clearly
describing such new location and providing such other information in connection
therewith as Quintiles may reasonably request; and
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(D) neither the execution and delivery of this Agreement
and the other documents executed in connection herewith, nor consummation of any
of the transactions herein contemplated, nor compliance with the terms and
provisions hereof, will contravene or conflict with any provision of law,
statute or regulation to which Variagenics is subject or any judgment, license,
order or permit applicable to Variagenics or any indenture, mortgage, deed of
trust, agreement or other instrument to which Variagenics is a party or by which
Variagenics may be bound, or to which Variagenics may be subject, or violate or
contravene any provision of the bylaws of Variagenics or the instruments of
incorporation forming Variagenics.
(iii) Variagenics will, at its own expense, make, execute,
endorse, acknowledge, file or deliver to Quintiles from time to time such
confirmatory assignments, conveyances, financing statements, powers of attorney,
certificates, reports, and other assurances or instruments and take such further
steps relating to the Collateral as Quintiles deems reasonably appropriate or
advisable to perfect, preserve or protect its security interest in the
Collateral.
(iv) Variagenics agrees that, if any Event of Default (as
defined in the Note) shall have occurred and be continuing, then and in every
such case, Quintiles, in addition to any rights now or hereafter existing under
applicable law, shall have all rights as a secured creditor under the Uniform
Commercial Code in all relevant jurisdictions.
(f) Conditions Precedent to Initial Advance. The obligation of
Quintiles to make the initial Advance is subject to the condition precedent that
Quintiles shall have received on or before the day of such Advance the
following, in form and substance satisfactory to Quintiles:
32
<PAGE>
(i) the Note, duly executed by Variagenics;
(ii) acknowledgment copies or stamped receipt copies of proper
financing statements, duly filed under the Uniform Commercial Code of all
jurisdictions that Quintiles may deem necessary or desirable in order to perfect
the security interests created in the Collateral;
(iii) completed requests for information, listing the
financing statements referred to in paragraph (ii) above and all other effective
financing statements filed in the jurisdictions referred to in paragraph (ii)
above that name Variagenics as debtor, together with copies of such other
financing statements (none of which shall cover the Collateral);
(iv) evidence of the completion of all recordings and filings
of or with respect to the Collateral that Quintiles may deem necessary or
desirable in order to perfect the security interests created in the Collateral;
(v) evidence that all other actions necessary or, in the
opinion of Quintiles, desirable to perfect and protect the security interests
created in the Collateral have been taken;
(vi) certified copies of the resolutions of the Board of
Directors of Variagenics approving each of this Agreement and the Note
(collectively, the "Loan Documents"), and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
each such Loan Document; and
(vii) a favorable opinion of counsel for Variagenics,
substantially in the form of Exhibit B.
33
<PAGE>
(g) Conditions Precedent to All Advances. The obligation of
Quintiles to make each Advance (including the initial Advance) shall be subject
to the further conditions precedent that, on the date of such Advance, the
following statements shall be true and Quintiles shall have received a
certificate signed by a duly authorized officer of Variagenics dated the date of
such Advance, stating that (and each of the giving of the applicable notice
requesting such Advance and the acceptance by Variagenics of the proceeds of
such Advance shall constitute a representation and warranty by Variagenics that
on the date of such Advance such statements are true):
(A) the representations, warranties and covenants
contained in Section 1 2(e)(ii) of this Agreement are correct on and as of the
date of such Advance, before and after giving effect to such Advance and to the
application of the proceeds therefrom, as though made on and as of such date,
and
(B) no event has occurred and is continuing, or would
result from such Advance or from the application of the proceeds therefrom,
which constitutes an Event of Default (as defined in the Note) or would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
(h) Certain Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(A) Variagenics shall fail to pay this Note or any
portion thereof when due;
(B) Quintiles shall terminate this Agreement pursuant to
Section 8;
34
<PAGE>
(C) Variagenics shall fail to pay when due, whether by
scheduled maturity, acceleration or otherwise, any material indebtedness under
Senior Debt or any other default or event of default shall occur under the terms
of any agreement or instrument pursuant to which Variagenics has incurred any
Senior Debt, as a result of which default such Senior Debt shall be declared to
be due and payable prior to the stated maturity thereof;
(D) Variagenics shall (i) file a voluntary petition or
commence a voluntary case seeking liquidation, reorganization, dissolution,
arrangement, readjustment of debts or any other relief under the U.S. Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, (ii) consent to the appointment of or taking possession by
a custodian, trustee, receiver or similar official for or of all or a
substantial part of its properties, (iii) fail generally to pay its debts as
they become due or admit in writing its inability to pay its debts generally as
they become due, or (iv) make a general assignment for the benefit of creditors;
or Variagenics shall take any action to authorize or approve any of the actions
described above;
(E) Any involuntary petition or case shall be filed or
commenced against Variagenics seeking liquidation, reorganization, dissolution,
arrangement, readjustment of debts, the appointment of a custodian, trustee,
receiver or similar official for it or all or a substantial part of its
properties or any other relief under the U.S. Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
which petition or case is not dismissed, bonded or discharged within 60 days of
the date of filing; or an order for relief (including, without limitation, the
appointment of a custodian, trustee, receiver or similar official) shall be
entered in any such proceeding, which order is not immediately stayed or made
subject to other similar relief; or
35
<PAGE>
(F) the dissolution, liquidation or termination of
Variagenics. Upon and at any time after the occurrence and during the
continuance of any Event of Default, Quintiles may (i) declare in writing all or
any part of the Note or the Advances to be immediately due and payable,
whereupon such amounts shall become immediately due and payable; provided,
however that, upon the occurrence of an Event of Default pursuant to Sections I
2(h)(D) and (E) above, all of such amounts shall automatically become
immediately due and payable, and (ii) exercise all rights and remedies available
to it under, and subject to, this Agreement, the Note and applicable law.
(i) Subordination. The payment of Advances shall be
subordinate to the payment of all Senior Debt as provided in this Section 12(i).
Upon the default of Senior Debt, pursuant to which such Senior Debt shall be
declared to be due and payable prior to the stated maturity thereof, Quintiles
shall refrain from pursuing collection of Advances from Variagenics as described
in Section 12(d) for a period beginning on the date Quintiles receives written
notice from the holder of such Senior Debt and ending on the earlier of (A) the
date on which Variagenics has paid all amounts then due and payable under such
Senior Debt and (B) 120 days after the date of such notice. Nothing contained in
this Section 12(i), however, shall limit Quintiles' right at any time to apply
any revenues received from Sponsors under Joint Alliance Programs to Advances as
described in Section 12(c) above or to exercise its rights and remedies with
respect to the Collateral.
(j) Costs. Expenses and Taxes. Variagenics agrees to pay on
demand all costs and expenses, if any (including reasonable attorneys' fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of the Note and the provisions of this Section
12, including, without limitation, reasonable attorneys fees and
36
<PAGE>
expenses in connection with the enforcement of rights under this Section. In
addition, Variagenics shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution, delivery, filing and
recording of the Loan Documents and the other documents to be delivered under
the Loan Documents, and agrees to save Quintiles harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
(k) Interest and Loan Charges Not to Exceed Maximum Allowed by
Law. Anything in this Agreement or the Note to the contrary notwithstanding, in
no event whatsoever, whether by reason of advancement of proceeds of the loans
made pursuant to this Agreement, acceleration of the maturity of the unpaid
balance of the loans or otherwise, shall any interest or loan charges agreed to
be paid to Quintiles for the use of the money advanced or to be advanced
hereunder exceed the maximum amounts collectible under applicable laws in effect
from time to time. It is understood and agreed by the parties that, if for any
reason whatsoever the interest or loan charges paid or contracted to be paid by
Variagenics in respect of the indebtedness evidenced by the Loan Documents shall
exceed the maximum amounts collectible under applicable laws in effect from time
to time, then ipso facto, the obligation to pay such interest or loan charges
shall be reduced to the maximum amounts collectible under applicable laws in
effect from time to time, and any amounts collected by Quintiles that exceeds
such maximum amounts shall be applied to the reduction of the principal balance
of the indebtedness evidenced by the Note or refunded to Variagenics so that at
no time shall any interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
13. Miscellaneous.
37
<PAGE>
(a) Assignment: Parties in Interest. This Agreement or any of the
rights or obligations hereunder may not be assigned, transferred or
subcontracted (except as provided in Section 3(c)(ii)(B)) by any party hereto
without the prior written consent of the other party; provided, however, that
Quintiles may assign this Agreement to any affiliate of Quintiles. In the event
Variagenics proposes to engage in a sale of all or substantially all of its
assets in the line of business to which this Agreement pertains or to engage in
any merger or consolidation, as a result of which (in either case) stockholders
of Variagenics immediately prior to such transaction do not own a majority of
the voting shares of the resulting or surviving corporation immediately after
such transaction (a `Transaction"), Variagenics shall give Quintiles written
notice (a `Transaction Notice") of such Transaction at least forty-five (45)
days prior to the date anticipated for consummation thereof. Quintiles shall
have a period of thirty (30) days after receipt of the Transaction Notice in
which to give Variagenics written notice (a "Negative Response") that Quintiles
intends to terminate this Agreement upon consummation of such Transaction, in
which event Variagenics shall notify Quintiles of such consummation and
Quintiles shall have a period of ten (10) days after such consummation to
terminate this Agreement. If Quintiles does not give a Negative Response within
such thirty (30) days, Quintiles will be deemed to have given prior written
consent to the Transaction and the assignment of this Agreement in connection
therewith. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Each party
hereto intends that this Agreement shall not benefit or create any right or
cause of action in or on behalf of any person other than the parties hereto,
except as set forth in Section 7 hereof.
38
<PAGE>
(b) Amendment and Waiver. This Agreement or any provision hereof may
not be amended, changed, modified or waived, except by written instrument signed
by the parties hereto. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right of such party at a later date to enforce the same. No waiver by any party
of any condition or the breach of any provision, term, covenant, representation
or warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
(c) Remedies. The rights and remedies set forth in this Agreement
are cumulative and not exclusive of any rights or remedies provided by law or
otherwise. The exercise by a party of any right or remedy will not preclude such
party from exercising any other right or remedy, and no single or partial
exercise of any right or remedy shall preclude any other or further exercise
thereof. A party may pursue its rights and remedies in such order as it
determines.
(d) Notices. All notices required or permitted to be given under
this Agreement shall be in writing, and shall be delivered personally or sent by
(a) registered or certified mail, return receipt requested, (b) a nationally
recognized courier service guaranteeing next-day delivery and providing evidence
of receipt, charges pre-paid or (c) facsimile transmission with confirmation of
receipt (with the original promptly sent by any of the foregoing manners), and
shall be deemed to be duly given upon mailing, delivery to such courier, or upon
transmission by facsimile, as the case may be. Any such notice shall be
addressed to the receiving party at such party's address set forth beside its
signature to this Agreement below, or
39
<PAGE>
at such other address as may from time to time be furnished by a party to the
other party by notice as described above.
(e) Governing Law: Jurisdiction. The construction, validity,
interpretation and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, without
regard to the conflicts of laws principles thereof.
(f) Severability. In case any provision in this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
(g) Entire Agreement: Integration. This Agreement constitutes the
full understanding of the parties and a complete statement of the terms. of
their agreement with respect to the subject matter contained herein and
supersedes and cancels all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting such
subject matter. Notwithstanding the foregoing, all prior agreements between the
parties regarding confidentiality shall remain in full force and effect.
(h) Headings: Exhibits. The article, section and paragraph headings
contained in this Agreement have been inserted for reference convenience only
and shall not be used in any way to construe or interpret this Agreement. All
Exhibits to this Agreement are specifically incorporated herein by reference.
(i) Counterparts. This Agreement and any amendment or supplement
hereto may be executed in any number of counterparts, each of which when
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
40
<PAGE>
(j) Publicity. The parties will agree upon a press release which
shall be issued promptly after the execution of this Agreement. Except as
otherwise required by applicable law, no party shall issue any press release or
make any other public statement relating to, connected with or arising out of
this Agreement or the matters contained herein without the prior written
approval by the other party of the contents and the manner of presentation and
publication thereof, which approval shall not be unreasonably withheld. Once a
particular item of information has been disclosed as provided in this subsection
(j), either party may make subsequent disclosure of such information without
further approval of the other party, except that any further press release shall
be mutually approved by the parties.
41
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective as
of the date first above written.
Address: P.O. Box 13979 QUINTILES TRANSNATIONAL CORP.
-----------------
Research Triangle Park, NC
- --------------------------
27709
- --------------------------
Attention: Mr. Reynders By: /s/ Ludo Reynders
---------------- --------------------------------
Name: Ludo Reynders
Title: CEO Quintiles CRO Division
Address: Variagenics, Inc. VARIAGENICS, INC.
-----------------
60 Hampshire Street
- --------------------------
Cambridge, MA 02139
- --------------------------
Attention: Fred D. Ledley By: /s/ Fred D. Ledley, M.D.
---------------- --------------------------------
Name: Fred D. Ledley, M.D.
Title: President
42
<PAGE>
Exhibit A: Price Schedule for Alliance Programs
1. Variance Discovery and Database
(a) Provided to Sponsor:
i. Summary Report on variances within selected genes involved in the
pharmacokinetics and pharmacodynamics of a specified pharmaceutical
product under development, based on screening of a standard sample
population. For each variance, Variagenics will determine the location of
the variance, the base change, the predicted effect on the amino acid
sequence and an estimate of population and sub-population frequencies.
ii. Database which integrates data on variances discovered in specified genes
and publicly available information on variances in these genes, their
chemical, biological and clinical significance (if known) and selected
literature references.
iii. Right of first negotiation, for a period of ninety (90) days from delivery
of the Summary Report and Database(1), to obtain a license, on
commercially reasonable terms to be negotiated in good faith, to use
variances discovered by Variagenics and included in report.
(b) Minimum prices:
Variance Discovery and Database capabilities will be priced based on the size of
the pathway to be analyzed for genetic variances.
-------------------------------
Pathway Size(2) Minimum Bid
(# genes(3)) Price ($000)
-------------------------------
[ ](4) [ ]
-------------------------------
[ ] [ ]
-------------------------------
[ ] [ ](5)
-------------------------------
Samples will be screened from [ ] unrelated individuals(6) drawn from an
ethnically diverse standard panel established at Variagenics, which will give a
[ ]% sensitivity to detect alleles occurring at a frequency of [ ]% in the
population represented by the panel.(7)
(c) Additional items priced on request:
i. Candidate gene selection studies, such as differential gene expression or
gene linkage.
ii. Construction of custom panels, including tissue-specific samples(8) and
population panels for characterization of allele frequencies in specific
ethnic or disease groups.
iii. Gene cloning and sequencing or analysis of genomic sequences.
iv. Rights to use variance information in product research, development or
marketing.
- ----------
(1) The Summary Report and Database will be delivered within 3-6 months of
project initiation, to be agreed in advance.
(2) Prices for pathways of intermediate size will be calculated by
interpolation. For example, the price for a [ ].
(3) Prices reflect an [ ].
(4) Unless otherwise agreed by Variagenics, a limit of one pilot program
representing [ ] genes may be performed for a customer to demonstrate
Variance Discovery and Database capabilities.
(5) Minimum bids for pathways of greater than [ ] genes will be calculated by
extrapolation. For example, the price of a [ ]. Additional reductions in
[ ] may be negotiated with the prior
approval of Variagenics.
1
<PAGE>
(6) Panels of either [ ] or [ ] individuals may be screened upon request,
giving a [ ]% sensitivity to detect alleles occurring at a frequency of
[ ]% respectively, which will add [ ]%, respectively to
the minimum bid price for the pathway. For example, [ ].
(7) Minimum bids for pathways with different numbers of individuals screened for
different genes can be calculated [ ]. For example, [ ].
(8) Although not observed to date, some genes may not be expressed at levels
sufficient to be amplified from standard lymphocyte cDNA panels, requiring the
construction of tissue-specific panels.
Exhibit A: Price Schedule for Alliance Programs
2. Pharmacogenomic Services
(a) Provided to Sponsor:
Combinations of services will be provided to fit the project specifications
agreed upon with Sponsors, including, but not limited to:
i. Clinical Pharmacogenomic Services:
(A) Quantitative, molecular, population, evolutionary, epidemiological
genetics.
(B) Medical and clinical genetics.
(C) Pharmacogenetic statistics, including power estimation, association
and cladistic analyses and proprietary statistical algorithms.
(D) Development of pharmacogenomic hypotheses and research plan to test
hypotheses.
(E) Protocol and report writing, data management and biostatistics.
(F) Health outcomes, competitive dynamics and commercial modeling.
(G) Investigator meeting support and investigator site training.
ii. Non-clinical Pharmacogenomic Services:
(A) Candidate gene selection studies, such as differential gene
expression or other biochemical analyses.
(B) Experimental studies to confirm structural or functional effects of
genetic variance.
(C) Pharmacology and medicinal chemistry.
(D) Molecular modeling and simulation.
(E) Development of functional and binding affinity assays for screening
drug compounds.
(b) Minimum prices:
Pharmacogenomic Services will be priced on a Full Time Equivalent basis as
follows:
-----------------------------------------------------
Minimum Bid Price
Pharmacogenomic Services ($000 per FTE per Year(9))
-----------------------------------------------------
Clinical [ ]
-----------------------------------------------------
Non-clinical [ ]
-----------------------------------------------------
In addition, project-related travel and expenses will be reimbursed by the
Sponsor at cost.
(c) Additional items priced on request:
i. Rights to use variance information in product research, development or
marketing.
ii. Milestones and royalties for successful completion of projects
incorporating variance use rights.
- ----------
(9) For calculation of project prices on an hourly basis, these minimum bid
prices per FTE per year can be converted to hourly rates based on 2080 hours per
FTE per year, such that minimum bid prices for Clinical and Non-clinical PTEs
will be [ ] per hour, respectively.
2
<PAGE>
Exhibit A: Price Schedule for Alliance Programs
3. Variance Detection
(a) Provided to Sponsor:
Clinical trial laboratory testing for known genetic variances as part of a
Sponsor clinical trial:
i. Genomic samples will be prepared from whole blood or established cell
lines and tested for variances in selected genes as specified in the
Sponsor's clinical trial protocol.
ii. Any necessary custom genetic assays will be developed or accessed.
iii. When necessary, tests will be performed in a manner that is suitable for
submission to international regulatory bodies.
iv. Results may be reported on a concurrent basis and a clean laboratory data
file will be provided for integration into the primary clinical data
package for analysis.
(b) Minimum prices (10):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Clinical Trial Laboratory
Testing Services Minimum Bid Price Comments
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assay Development $[ ] per gene [ ]
and Validation
- ---------------------------------------------------------------------------------------
Genetic Tests and $[ ] per test [ ]
Results Reporting
- ---------------------------------------------------------------------------------------
Sample Collection, $[ ] per patient Patient kits, sample handling and
Preparation and Handling tracking, DNA extraction.
- ---------------------------------------------------------------------------------------
</TABLE>
Study management services related to variance detection will be priced as
described under pharmacogenomic services. In addition, project-related travel
and expenses will be reimbursed by the Sponsor at cost.
(c) Additional items priced on request:
i. Discovery of novel genetic variances.
ii. Development of assays and testing for cDNA haplotypes of selected genes.
iii. Sequencing of genes for all genetic variations, including new, unknown
variances.
iv. Assays for number of gene copies, including gene deletions, and gene
expression.
v. Special sample preparation and handling requirements, such as RNA
stabilization or lymphocyte immortalization.
vi. Specialized collection, preparation and handling of patient tissue samples
other than whole blood or established cell lines.
vii. Extended sample storage or DNA banking.
viii. Statistical analyses of associations between genotypes and phenotypes.
- ----------
(10) These prices apply only to Variance Detection performed by Variagenics. As
agreed above, Variagenics may engage contractors, including Quintiles
Laboratories, Inc., to perform variance detection. In this event, prices paid to
such contractors, as negotiated by Variagenics, [ ], unless otherwise agreed.
3
<PAGE>
Exhibit A: Price Schedule for Alliance Programs
4. Variance Use Rights
(a) Provided to Sponsor(11):
i. Non-exclusive licenses to use Variances in specified genes for studies
related to a specified pharmaceutical product in an Alliance Program for a
period of one year, with an option to renew the licenses annually.
Continued renewal of a license to use Variances in a gene will prevent the
grant of rights to a third party that will limit or terminate rights under
the license.
ii. Option to purchase, on commercially reasonable terms to be negotiated in
good faith, exclusive or co-exclusive rights within the specified
pharmaceutical product's therapeutic class, as available, to use Variances
in a gene.
(b) Minimum prices:
Non-exclusive rights to use Variances will be provided for [ ].
----------------------------------------------
Non-Exclusive Minimum Bid Price
Use Rights ($000 per Year)(12)
----------------------------------------------
Program Fee per Drug [ ]
----------------------------------------------
Use Fee per Gene [ ]
----------------------------------------------
In addition, Variagenics will negotiate in good faith with the Sponsor
reasonable lump sum payments to be paid contingent upon successfully achieving
milestones related to the use of Variances at different stages of the
pharmaceutical product development and approval process.
Upon submission of information related to Variances used to a regulatory body in
an application (including supplementary materials) for approval of a
pharmaceutical product, or a labeling claim related to the use of that
pharmaceutical product, the Sponsor and Variagenics agree to negotiate in good
faith for Variagenics to provide to the Sponsor, on commercially reasonable
terms and as available, non-exclusive rights to market the pharmaceutical
product based on information related to the Variances used.
(c) Additional items priced on request:
i. Advance purchase of non-exclusive rights to market a pharmaceutical
product based on information related to Variances used, with or without
royalties payable on product sales.
ii. Exclusive, co-exclusive or permanent use rights.
iii. Rights to use variances outside Alliance Programs.
iv. Rights to market diagnostic or disease management products or services
based on Variances.
v. Rights to use technologies other than genetic variances.
- ----------
(11) A standard license agreement with detailed terms will be prepared,
maintained and approved by Variagenics.
(12) Licenses may be discontinued with ninety (90) days advance notice. Upon
discontinuation, fees will be pro-rated to the time of termination and any
prepaid amounts will be refunded to the Sponsor.
4
<PAGE>
Exhibit A: Price Schedule for Alliance Programs
5. Price Quotations
Unless otherwise requested by a Sponsor, prices will be quoted on a fully
bundled basis and will not be specifically itemized. Prices for Variance Use
Rights may be quoted separately. At the request of a Sponsor, prices may be
itemized by major category (Variance Discovery and Database, Pharmacogenomics
Services, Variance Detection) without prior approval by Variagenics. Any further
itemization of prices within major categories requires prior approval by
Variagenics. All prices will be payable to Variagenics in United States Dollars
(US$) and Quintiles will be responsible for conversion to US$ of any payments
made in other currencies.
6. Discounts from Bid Prices
As necessary to respond to market conditions, including competitive bids, and
only if the Sponsor specifically requests a price reduction, discounts up to
[ ]% off these minimum bid prices may be offered and accepted by Quintiles
without prior approval by Variagenics. Discounts up to an additional [ ]% of
these bid prices may be offered and accepted by Quintiles, at Quintiles'
expense, without prior approval by Variagenics. In such cases, the price
payable to Variagenics (and the price used to calculate Qualifying Program
Revenues) will represent [ ]% of the minimum bid price, and Quintiles will
be responsible for paying to Variagenics the amount of any additional
discounts provided to the Sponsor. Approval by Variagenics will be required
prior to offer or acceptance by Quintiles of any discounts greater than [ ]%
off the minimum bid prices.
7. Payment Timing for Unilateral Alliance Programs
For Unilateral Alliance Programs, which do not qualify for an advance of
revenues by Quintiles to Variagenics, the following minimum payment timing terms
will apply:
- --------------------------------------------------------------------------------
Minimum Upfront Payment Minimum Final Payment
Product Component Bid (Accept) Bid (Accept)
- --------------------------------------------------------------------------------
Variance Discovery [ ]% ([ ]%) [ ]% ([ ]%)
and Database
- --------------------------------------------------------------------------------
Pharmacogenomic Services [ ]% ([ ]%) [ ]% ([ ]%)
- --------------------------------------------------------------------------------
Variance Detection [ ]% ([ ]%) [ ]% ([ ]%)
- --------------------------------------------------------------------------------
Variance Use Rights(13) [ ]% ([ ]%) [ ]% ([ ]%)
- --------------------------------------------------------------------------------
Payments are expressed as a percent of the total contract value. The remaining
amounts will be paid in equal amounts to be evenly spread between initiation and
completion of services performed by Variagenics.
- ----------
(13) Payment terms for annual fees only, excluding any downstream payments such
as milestones or royalties.
5
<PAGE>
Exhibit 10.14
CO-MARKETING OF SERVICES AGREEMENT
This Co-Marketing of Services Agreement (the "Agreement") is made and dated as
of July 27th 1999, between VARIAGENICS, INC., a Delaware corporation
(hereinafter referred to as "VGEN"), and NOVA MOLECULAR INC., a Canadian
corporation (hereinafter referred to as "NMI")
WHEREAS VGEN requires expertise in clinical trial genetic testing services
in connection with its business and the marketing thereof;
WHEREAS NMI owns certain proprietary rights and, as well, possesses
certain expertise required to conduct clinical genetic testing services; and
WHEREAS the parties wish to establish a basis for co-marketing such
services.
NOW THEREFORE, in consideration of these presents and the mutual covenants
and undertakings as set forth herein, the parties have agreed as follows:
ARTICLE 1 - DEFINITIONS
1.1 "Clinical Laboratory Services" shall mean clinical trial genetic testing
services for entities testing a pharmaceutical product for the purpose of
obtaining either regulatory approval to conduct human clinical trials or
regulatory approval of the sale of such product, and shall not include
either basic research and development in drug discovery, or diagnostic
laboratory services.
1.2 "NMI Technology" shall mean NMI's proprietary rights relating to its ApoE
marker as described in NMI's U.S. Patent.
1.3 "NMI U.S. Patent" shall mean the U.S. Patent entitled "Apolipoprotein E
Polymorphism and Treatment of Alzheimer's Disease" as granted pursuant to
U.S. Patent Application Serial No. 08/727,637.
1.4 "Marketing Partner" shall mean a marketing partner of VGEN with whom VGEN
has entered into a written agreement, and who is listed on Schedule 2.3.4
hereof.
ARTICLE 2- CO-MARKETING AGREEMENT
2.1 NMI and VGEN have established an initial pricing schedule for specified
minimum volume commitments of specific and defined Clinical Laboratory
Services as may be performed by NMI for and on behalf of VGEN, such
schedule is attached hereto as Schedule 2.1.
2.2 VGEN has established agreements and alliances with certain Marketing
Partners who may from time to time require Clinical Laboratory Services to
be performed by NMI.
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
2.3 NMI has agreed to provide Clinical Laboratory Services for and on behalf
of VGEN and its Marketing Partners subject to the following provisions:
2.3.1 the initial pricing schedule referred to in Section 2.1 shall remain
in force and effect until changed by NMI at its sole option upon
ninety (90) days written notice to VGEN, provided that no such
change by NMI shall affect any written and accepted commitment of
VGEN as communicated to NMI, with a Marketing Partner or other
customer of VGEN, prior to notice by NMI of such price change. In
all events the prices charged to VGEN and/or its Marketing Partners
shall represent the best price offered by NMI to its own customers
or to other marketers or users of Clinical Laboratory Services for
like quantities and description of services;
2.3.2 the only Clinical Laboratory Services required to be performed by
NMI shall be those consistent with the NMI U.S. Patent;
2.3.3 NMI Clinical Laboratory Services may be performed directly by NMI or
at its option, by any subcontractor designated by NMI at NMI's
option, provided the subcontractor meets VGEN's reasonable quality
control standards and performs the ApoE assay using GamidaGen Kits
or an alternative methodology, in accordance with CLIA 88 and/or CAP
validation standards.
2.3.4 VGEN has established a list of designated Marketing Partners of VGEN
as will have the right to directly request Clinical Laboratory
Services to be performed for them by NMI and as will entitle VGEN to
be paid the commission set forth in section 2.3.6 hereof. Such list
has been attached hereto as Schedule 2.3.4;
From time to time, VGEN may request the addition to Schedule 2.3.4
of other Marketing Partners of VGEN which shall be added thereto
provided NMI has not, previous to such request of VGEN, dealt or
received a request to deal, directly with such party without any
intervention of VGEN.
In addition, NMI will pay commissions as set forth in Section 2.3.6
hereof in respect of Clinical Laboratory Services specifically
undertaken to be performed by NMI for customers of VGEN as a result
of specific orders generated by VGEN, even where such customers were
previously direct customers of NMI;
2.3.5 NMI shall be free at its discretion to accept or reject any proposal
for Clinical Laboratory Services received from VGEN or any Marketing
Partner on any reasonable ground including, without limitation,
price (other than as specified below), volume, conditions, credit,
or otherwise. NMI shall not reject any proposal on the basis of
pricing that meets the price schedule referred to in Section 2.1. In
the case of such rejection, NMI agrees that it will not bypass
either VGEN or any Marketing Partner of VGEN to provide the proposed
Clinical Laboratory Services directly to the client without paying
to VGEN the commissions outlined in Section 2.3.6;
2
<PAGE>
2.3.6 The full price of Clinical Laboratory Services as established
pursuant to Sections 2.1 and 2.3.1, or otherwise accepted by NMI at
its sole discretion shall be payable to NMI. Against receipt of such
payment, NMI shall remit within fifteen (15) days of such receipt to
VGEN [ ] of the amount so received as a commission, for sales
of Clinical Laboratory Services generated by VGEN or to its
Marketing Partners. In calculating such commission, there shall be
deducted from the amount received by NMI, all charges and payments
for transportation, and all applicable taxes, including GST and PST.
Commissions will be due to VGEN on all payments resulting from
proposals generated during the Term and as a result of this
Agreement including payments which are made after the effective
termination date on said projects which are awarded after the
effective termination date or payments on said projects which are
not yet completed as of the effective termination date;
2.3.7 VGEN shall have no right nor authority to bind NMI to provide any
Clinical Laboratory Services to any party whatever. All requests for
Clinical Laboratory Services shall be made by written proposal of
VGEN or a Marketing Partner in a form prescribed by NMI as shown on
Schedule 2.3.7, and shall be consistent as to pricing with Schedule
2.1 as modified from time to time. In order to be valid and binding
upon NMI, such proposal shall require the written acceptance of NMI
which shall be returned to VGEN within five (5) business days of
receipt of such Clinical Laboratory Services;
2.3.8 This Agreement is applicable for VGEN and its Marketing Partners
worldwide. Once a client proposal ("Original Proposal") has been
accepted by NMI according to Section 2.3.5, or has been rejected and
subsequently bypassed by NMI as outlined in Section 2.3.5 without
payment of VGEN's commissions as therein contemplated, then VGEN and
its Marketing Partners will have the right to commissions on any
subsequent accepted proposal ("Subsequent Proposal") from that
specific client in respect of the specific compound(s) which was
involved in the Original Proposal for as long as this Agreement is
in effect, provided, however, that the interval of time between the
acceptance date of the Original Proposal and acceptance date of the
Subsequent Proposal is no more than twelve (12) months.
ARTICLE 3- CONFIDENTIALITY
3.1 In connection with the providing of Clinical Laboratory Services or
otherwise in connection with this Agreement, each party (the "Recipient")
may receive, either intentionally or unintentionally, certain oral and
written proprietary and confidential information of the other party (the
"Disclosing Party") which is not part of the public domain ("Proprietary
Information"). Proprietary Information includes, but is not limited to,
intellectual property, know-how, trade secrets, computer software, pricing
information, physician lists, investigation/nurse coordinator network
lists, mailing lists, subject and patient lists, employee lists, fee
schedules, client and customer lists, programmatical information and
structure, utilization review procedures, proprietary sequence
information, variance discovery and variance detection techniques,
3
<PAGE>
pharmacogenomics, pharmacogenetics, predictive medicine, algorithms,
applications and procedures, formats and structure and related information
and documents concerning the planning structure and operations of the
Disclosing Party or relating to its business affairs.
3.2 Each party (for itself, its affiliates and its and their respective
directors, officers, employees, agents, subcontractors, affiliates and
representatives) agrees that all Proprietary Information shall be
disclosed to the Recipients directors, officers, employees, agents,
subcontractors, affiliates and representatives only on a need-to-know
basis for the purposes of carrying out the purposes of this Agreement.
Each party further agrees to keep all Proprietary Information in the
strictest confidence, to use the Proprietary Information only in
furtherance of the purposes of this Agreement, not to duplicate, transmit,
reverse engineer, decompile, or disassemble any Proprietary Information,
and not to, directly or indirectly, divulge, disclose, reveal, report, or
transfer such Proprietary Information to any third party without, in each
instance, obtaining specific, prior written authorization of the
Disclosing Party. Each party further agrees that all health records of
patients or subjects of the investigators participating in any provincial
Clinical Laboratory Services shall be treated as confidential so as to
comply with all state and federal laws and regulations and industry
standards regarding the confidentiality of patent health records and
research records.
3.3 Notwithstanding the foregoing, the obligations set forth above shall not
prevent either party from disclosing information:
3.3.1 which is or becomes generally available to the public other than as
a result of a disclosure by or at the direction of, the Recipient or
its affiliates or their respective directors, officers, employees,
agents, advisors, and other representatives;
3.3.2 was or becomes available to the Recipient on a non-confidential
basis from a source other than the Disclosing Party or its
representatives, provided that such source is not bound by a
confidentiality agreement with the Disclosing Party in respect
thereof (unless the Recipient did not know or have reason to know of
the existence of such a confidentiality agreement);
3.3.3 was within the Recipients possession prior to its being furnished to
the Recipient by or on behalf of the Disclosing Party, provided that
the source of such information was not bound by a confidentiality
agreement with the Disclosing Party in respect thereof (unless the
Recipient did not know or have reason to know of the existence of
such a confidentiality agreement); or
3.3.4 which the Recipient can demonstrate was developed independently of
any disclosure by the Disclosing Party by persons having no access
to any disclosure of the Disclosing Party.
3.4 Notwithstanding any provisions herein to the contrary, in the event that
any recipient of Proprietary Information becomes obligated by mandatory
applicable law, regulatory rule
4
<PAGE>
or judicial or administrative order to disclose such Proprietary
Information, or any portion thereof, the Recipient shall promptly notify
the Disclosing Party thereof, so that the Disclosing Party may seek an
appropriate protective order or other remedy with respect to resisting or
narrowing the scope of such requirement. In the absence of such a
protective order or other remedy, the Recipient may disclose such
Proprietary Information without liability hereunder, provided that the
Recipient furnishes only such portion of the Proprietary Information as is
legally required to be disclosed.
ARTICLE 4- PROPRIETARY RIGHTS
4.1 Ownership of all intellectual property, technology, NMI Technology, NMI
U.S. Patent, data and information used, determined and/or derived by or
from the provision by NMI of Clinical Laboratory Services shall be and
remain the sole and absolute property of NMI.
4.2 No license is intended nor granted by NMI to VGEN nor to any Marketing
Partner with respect to NMI Technology, NMI U.S. Patent, NMI logo nor NMI
name.
4.3 VGEN shall have the right during the term of this Agreement, to describe
itself as a representative of NMI for purposes of offering Clinical
Laboratory Services only and shall have the right to utilize the NMI name
and logo for this purpose. VGEN may utilize the NMI name and logo for this
purpose for the specific instances and modalities specified in Schedule
4.3, any additional uses by VGEN of such name and logo to require the
express written consent of NMI. In all events of such use by VGEN, VGEN
shall indicate and acknowledge in a manner satisfactory to legal counsel
of NMI that all rights in and to NMI's name and logo are proprietary
intellectual property, trade names and trademarks of NMI.
ARTICLE 5- INDEMNIFICATION; LIMITATION OF LIABILITY
5.1 NMI shall defend, indemnify and hold harmless VGEN from and against any
claim brought by any party against VGEN arising from NMI's provision of
Clinical Laboratory Services, and based upon the infringement or
violation, or alleged infringement or violation resulting from the use by
NMI of NMI Technology, of any patents, or of any copyright, trademark,
trade secret or other intellectual property right.
5.2 To avail itself of its rights pursuant to Section 5.1, VGEN shall:
5.2.1 give NMI prompt notice of any such claim or law suit including a
copy thereof served upon VGEN;
5.2.2 fully cooperate with NMI and its legal representations in the
investigation and defence of any matter the subject of
indemnification;
5.2.3 permit NMI to defend and settle the claim at the expense of NMI and
at its discretion.
5
<PAGE>
5.3 In no event shall any liability of NMI to VGEN hereunder include any
special, incidental or consequential damages, including without
limitation, loss of opportunity, loss of revenue or profit, loss of the
use of any data or information supplied in connection with this Agreement,
even if NMI shall have been advised of the possibility of such damages;
and in no event shall the aggregate of all costs, damages and liability of
NMI hereunder exceed the aggregate net amount received by NMI from all
Clinical Laboratory Services rendered by NMI hereunder, less all amounts
paid to VGEN pursuant to Section 2.3.6 hereof.
ARTICLE 6- TERM
6.1 This Agreement shall continue for a term of three (3) years and shall
continue annually thereafter unless terminated by written notice of either
party to the other at least ninety (90) days prior to any such renewal.
6.2 This Agreement shall survive any change of control of NMI and be
applicable to NMI, its successors, and any affiliates thereof.
6.3 In the event of default hereunder, written notice shall be provided to the
defaulting party and if such default is not remedied within thirty (30)
days of such notice, this Agreement shall terminate ipso facto under
reserve of and without prejudice to the non-defaulting party's rights,
remedies and recourses in the circumstances.
Events of defaults shall include:
6.3.1 the filing of a voluntary petition or the commencement of a
voluntary case seeking liquidation, reorganization, dissolution,
arrangement, readjustment of debts or any other relief under
bankruptcy or similar legislation now or hereafter in effect;
6.3.2 consent to the appointment of, or taking possession by a custodian,
trustee, receiver or similar official for all or a substantial part
of the property of the defaulting party;
6.3.3 the failure to generally pay debts as they become due or the
admission in writing of the inability to pay debts generally as they
become due;
6.3.4 the making of a general assignment for the benefit of creditors;
6.3.5 the authorization or approval by the defaulting party of any of the
actions described above;
6.3.6 any involuntary petition or case filed or commenced against a party
seeking any of the foregoing remedies that is not dismissed, bonded
or discharged within sixty (60) days of the date of filing;
6.3.7 the dissolution, liquidation or winding-up of any party.
6
<PAGE>
ARTICLE 7 - ARBITRATION
7.1 Any controversy, dispute or claim arising out of or in connection with
this Agreement or the breach, termination or validity hereof shall be
settled by final and binding arbitration in Montreal conducted pursuant to
the Code of Civil Procedure of the Province of Quebec.
ARTICLE 8- GOVERNING LAW
8.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Quebec.
ARTICLE 9- AUDIT
9.1 Both VGEN and NMI shall have the right to audit the pertinent records of
the other party in connection with such party's express obligations to the
other hereunder.
ARTICLE 10- LANGUAGE
10.1 The parties hereto acknowledge that they have required this Agreement to
be drawn up in the English language. Les parties reconnaissent avoir
demande que le present contrat soit redige dans la langue anglaise.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as
of the date first above written.
VARIAGENICS, INC.
Per: /s/ Taylor J. Crouch
-------------------------------
Per: /s/ Richard P. Shea
-------------------------------
NOVA MOLECULAR INC.
Per: /s/ Laurent Nadeau
-------------------------------
Per: /s/ Daniel S. Miller
-------------------------------
7
<PAGE>
SCHEDULE 2.1
Pricing Guidelines for ApoE Genotyping
- --------------------------------------------------------------------------------
Cost / patient
Number of Patients Total Cost to end users
------------------ ---------- ------------
- --------------------------------------------------------------------------------
Minimum of [ ] patients US$ [ ] $[ ]
- --------------------------------------------------------------------------------
For quantities in excess of [ ] patients, total cost will be negotiated in
good faith between NMI and VGEN, subject always to the following guidelines:
1. cost/patient to end users shall never be less than $[ ];
2. in the event cost/patient to end users is accepted by NMI at less than
$[ ] based on an anticipated minimum quantity, not less than
[ ]% of such minimum quantity must be guaranteed in order to maintain
such agreed price;
3. payment terms shall be 1/3 payable on signing of contract; 1/3 upon
delivery of 1/2 of the commitment; and 1/3 on delivery of last test result
as set forth on Schedule 2.3.7.;
4. in the event that a price is accepted by NMI at less than $[ ]
cost/patient to end users, NMI's name and logo may not be used by VGEN in
connection with such order notwithstanding Section 4.3.
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
SCHEDULE 2.3.4
MARKETING PARTNERS OF VGEN
Quintiles Transnational, Inc.
Covance, Inc. (subject to the conclusion and submission to NMI
of a written agreement)
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
SCHEDULE 2.3.7
REQUEST FOR CLINICAL LABORATORY SERVICES
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
SCHEDULE 2.3.7
REQUEST FOR CLINICAL LABORATORY SERVICES
- --------------------------------------------------------------------------------
Name of sponsor
- --------------------------------------------------------------------------------
Name of the CRO or the Central Lab and
contact person
- --------------------------------------------------------------------------------
Protocol number
- --------------------------------------------------------------------------------
Number of patients
- --------------------------------------------------------------------------------
Expected date for the reception of the
first samples
- --------------------------------------------------------------------------------
Expected ending date for the reception
of the last samples
- --------------------------------------------------------------------------------
Total revenue of the contract $
- --------------------------------------------------------------------------------
Minimum contractual obligation
(66 2/3% of the total contract revenue) $
- --------------------------------------------------------------------------------
Payment terms:
- - 1/3 upon signing of contract
- - 1/3 earliest of, 6 months from
date of contract or receipt of
50% of samples by NMI $
- - 1/3 upon delivery of the results
to Variagenics or client $
- --------------------------------------------------------------------------------
2
<PAGE>
SCHEDULE 4.3
Use of Name and Logo of NMI
Brochures, Standard PowerPoint presentations, client mailings, exhibits,
Website, computer demonstrations.
Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Company's application requesting
confidential treatment under Rule 406 of the Securities Act.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement on Form
S-1 to register $100,000,000 of common stock of Variagenics, Inc. (the
"Registration Statement") of our report dated March 28, 2000 relating to the
financial statements of Variagenics, Inc. as of December 31, 1998 and 1999, for
each of the three years in the period ended December 31, 1999 and for the period
from inception (December 7, 1992) through December 31, 1999, which appears in
such Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
March 29, 2000
Boston, Massachusetts
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